Best Places to Invest in Real Estate in New York for 2018
“But investing in New York real estate is always a good idea.”
I hear this time and time again from new investors, and then I try to talk them out of a particularly risky investment opportunity. As an investor, this myth is dangerous. Yes, your New York investment property may increase in value indefinitely, less something catastrophic happens, but there’s a big difference between buying a single retirement property and running a real estate investment business.
When it comes to investing as a business, every new investment always comes with an opportunity cost. You could have invested that money elsewhere into a different property that may have brought better returns or offered scalability for the future. That means, for investors at least, there is such a thing as a bad New York property investment. Knowing the best places to invest in real estate in New York and what to look for can be the difference between success and failure in 2018.
New York Real Estate Investments: The Most Expensive Undervalued Market in the Country?
It may seem crazy to call one of the world’s most expensive housing markets undervalued, but that’s exactly what Fitch did in the middle of this year. In fact, the rating agency suggested that the New York City market was undervalued by as much as 10.4%. Does that mean we should expect to see a surge in property prices and rents in the year ahead? Not necessarily. According to the facts and figures I’m seeing, here are my predictions for 2018:
Even more apartments to flood the market.
In 2017 we saw thousands of new apartment units enter the market, offering market-rate accommodations to a population where demand was high. Indeed, over 15,000 units opened in Manhattan and Brooklyn, up from just shy of 9,000 the year before. But even more units will open in 2018; a Ten-X report suggests that over 40,000 new apartments will have hit the market by the end of 2018, causing vacancy rates to rise to 11%.
Landlord concessions will continue to rise.
In many parts of the city, landlords already have to offer more concessions than ever before to close rental agreements. A report by Citi Habitats noted that more than 30% of their brokered transactions in August offered a free month’s rent and/or no broker fee. That’s up 11% year-on-year. With even more new apartments set to open in the year ahead, we can expect the number of landlord concessions to rise too.
Rents may continue to stall.
The year 2017 offered welcome relief for renters used to rents only going one way—up. Much of the year saw a cooling of average rents across Manhattan and Brooklyn. In fact, in all but one of Rent Cafe’s monthly Apartment Market Reports for 2017, Manhattan rents experienced negative year-on-year growth. With more apartments scheduled to be open, it could be more of the same for rents in New York City.
While these statistics might be a cause for concern for many investors-turned-landlords, they shouldn’t be. Most of the new construction and rent concessions are happening at the very high end of the market. We’re talking about luxury properties, in particular. Opportunities still abound for residential investors looking to acquire and rent out affordable family housing in much of New York. For me, the following neighborhoods and boroughs are high up on my investment priority list as we go into 2018.
Betting Big in Brooklyn
Brooklyn has long been the trendy cousin to Manhattan, drawing in students, Millennials, and hipsters who either can’t afford to or don’t want to rent in Manhattan. Naturally, as the biggest borough by population and the second biggest by land mass, there are a lot of neighborhoods to choose from when it comes to investing here. In many ways, there has never been a better time since the housing crash to start investing in the Borough of Trees. Ever-so-trendy Williamsburg, which often commands rents as high as Manhattan, is threatened with decline.
The 18-month L-train shutdown is likely to force new arrivals to the city to consider newer, up-and-coming Brooklyn neighborhoods. Several areas, in particular, catch my eye. Sheepshead Bay has the perfect mix of people, restaurants and housing units to make it an investment hotspot. On top of being one of the most ethnically diverse areas of Brooklyn, the neighborhood is made up almost entirely of single-family residences, duplexes, and triplexes. These are the perfect properties for investors of any experience to get their teeth into. With a tipping point of 3.4 years, if you get in now, you should see some real growth.
Bay Ridge is another area that has the right kind of properties for investors to get started with. Rather than luxury condos, Bay Ridge has a great mix of Colonials, Tudors and apartment buildings that appeal to both Millennials and families. In fact, the entire neighborhood feels more like a small town than part of a big city. With a 2.7-year tipping point, it seems like the perfect time to dive in.
Quickly Finding Returns in Queens
Surprisingly for some, Queens has one of the most competitive housing markets in NYC. In August of this year, it even outperformed both Manhattan and Brooklyn markets according to StreetEasy. Because of the limited affordable housing options in many of New York’s other boroughs, many families and Millennials are turning to Queens. In many ways, it’s the perfect compromise. Queens is close enough to Manhattan to still feel connected to the city but offers residents a chance to raise families in a less urban environment. Great schools, fantastic transport links, and an ethnically diverse community make living in Queens even more palatable.
Growing popularity is causing prices and competition to spike. This is good news for investors who are positioned to capitalize on affordable properties in a previously underappreciated borough. Despite recent rises in price and the speed at which listings disappear from the market (often several days faster than Manhattan), investment properties can still be found for well under $500,000.
There’s no shortage of suitable neighborhoods in Queens, either. Whitestone was ranked the city’s third most affordable neighborhood in a RentHop study. But Queens actually boasts five of the top ten most affordable neighborhoods in the study, with Bayside Hills, Fresh Meadows, Douglas Manor and Middle Village taking fifth, sixth, seventh and eighth spots respectively. For fans of fixer-uppers, Queens has no shortage of distressed properties. It was hit hardest of all the New York boroughs by the 2008 financial crash and still has nearly 5000 homes in foreclosure.
Hitting it up in Harlem
Harlem is experiencing its own property renaissance. It is the least expensive Manhattan submarket but has some of the highest growth rates in the city. Because of its value, Harlem is a hotspot for renting. In fact, renters outnumber homeowners by four to one. Unlike much of Manhattan, Harlem has also seen a year-on-year growth in average rentals of just over 4%. I’d expect this growth to continue into 2018.
Even if you aren’t looking to rent out your investment property, Harlem has a lot to offer. Growth rates of 15% make it very favorable for investors looking to rejuvenate a distressed property and sell it one or two years down the line. You should see significant home price appreciation on top of the value you add from your renovations.
Don’t think residents won’t want to move to Harlem, either. With the lure of an eagerly anticipated Whole Foods, as well as a retail makeover, Harlem’s enjoying a resurgence in popularity particularly amongst Millennials. Specifically, East Harlem is becoming a big draw for New Yorkers. With rents averaging 15%-20% less than other nearby neighborhoods, a selection of great restaurants and an easy downtown commute thanks to the 4, 5, and 6 trains, buyers and renters are flocking in numbers. I’d start my search for a Harlem investment property before branching out to the rest of the neighborhood.
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