New York’s housing market is huge. It’s so large that it can be downright overwhelming for new investors entering the market. At least, that’s what I felt when I started investing in the 90s. I survived by focusing all of my investments on a particular subset of the market. Now, some might say that this isn’t a particularly good investment strategy. After all, I put all of my eggs in one basket. But, because I chose my basket carefully and made sure it was the best investment sector, I’m doing pretty good.
The Best Niches for Investing in New York Real Estate
Today, when I mentor new investors, I offer the same advice I gave to myself: focus on one niche to get started. Of course, there’s pros and cons to all the different niches, but let me share what I think is the best niche for real estate investing in New York today.
The Luxury Market
The luxury market hasn’t had the best time of it lately. Last year, it limped behind mainstream housing across the country–and New York was no different. Nationwide, the average sales price of luxury property grew 5.14% compared to the 6. 9% growth experienced by the affordable housing market, according to recent research.
In New York, it’s worse; prices are actually falling. In the third quarter of last year, the median sales price of new development, led by luxury housing, dropped 23%.It’s a simple case of supply and demand. There are more apartments on the market now than at any other point since 2007.
Don’t expect an uptick any time soon, either. The first reports from this year show the story isn’t changing. The first week of January was the worst start to a new year since 2012 with only 12 properties worth $4 million or more going into contract. What’s more, the overhaul of the federal tax system could spell further disaster for Manhattan’s luxury market because of the impact on homeowners’ ability to deduct state and local property taxes. Unless you’re pursuing a buy-to-rent strategy on luxury property in New York, I’d find a different niche.
The Multi-family Market
New York’s multi-family market is the biggest in the country. More apartments were due to be opened in New York in 2017 than in any other metropolitan area in the country. In total, 26,739 were due to be opened, nearly 2000 more than second-place Dallas-Fort Worth. Apartment construction wasn’t just limited to Manhattan, either. Brooklyn and Queens were also going to add 10,000 apartments between them. You would think that means there’s plenty of opportunity for investment. But, you’d be wrong.
Investors and developers may find it hard to finance their projects as warnings of a multi-family mortgage bubble continue, which has been building for several years. In December 2015, federal banking regulators issued a statement that banks who increased multi-family lending posed a risk to financial stability. Since then, Fitch rating agency has issued a warning about the sector and Mark Zandi, chief economist at Moody’s Analytics labeled multi-family lending as one of two near-term risks to financial institutions.
As concessions grow and concerns over the stability of financing increases, real estate’s most cautious investment doesn’t look so cautious. Investors with an eye on the long-term will want to keep searching.
Even the more affordable property market–primarily made up of single-family homes–seems to having a moment of hesitation. After prices increased steadily in every borough except the Bronx over the last 10 years, the market had its worst quarter in six years in Q4 of 2017. While prices are still higher than they have been since the recession, there is some hesitation over the impact of tax reform.
But one subset of this niche is still proving to be a sound investment–distressed homes. Despite what you may see from walking around New York, foreclosed homes are at the highest level since 2009. The number of foreclosures increased 58% year-on-year in 2017. If we look a bit closer, we see that foreclosures have actually doubled since 2015. If you can find distressed homeowners before they are served with final notices, you may be able to pick up a New York property for a hefty discount.
Getting Ahead of the Crowd
Even when you know which niche you want to pursue, finding properties–even in a market as big as New York’s–can be tricky. When I was starting out, I always felt like I was one step behind the more successful investors. But, then I discovered what I’d been missing. It wasn’t that these investors had beaten me to investment opportunities, it’s that the best properties never came on the market in the first place. As an independently owned and operated HomeVestors® franchisee, I can leverage the nationally-recognized and proven “We Buy Ugly Houses®” marketing campaign. As a result, distressed homeowners knew to come to me to sell their property fast. And that has made all the difference in growing my real estate investing business.
If you’re struggling to find single-family investment homes, give HomeVestors a call and discover the best way to find leads.
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