The Best Real Estate Investment Opportunities in NYC in 2018

There’s something special about New York City. For some it’s the buildings, others love the rush of people. But I’ve always loved the sense of opportunity that’s in the air. Anything seems possible. Take the housing market, for example—prices continue to soar here. I guess the saying is true: New York real estate is always a good investment.

Even still, I’ve learned the hard way that some New York real estate investment opportunities are better than others. That’s why I’ve researched the top three real estate investment sectors—luxury, multi-family, and single-family—to determine the state of each market as we head into the new year. Here’s the lowdown.

Is NYC Real Estate Still a Good Investment Opportunity?

While some areas of the country, like Chicago’s real estate forecast, still looks somewhat dampened by the 2008 housing crisis, New York continues to lead the pack in virtually every metric. Bullish investors will find this incredibly encouraging. But bearish investors may find it a little disconcerting. Whatever your appetite for risk, however, investment opportunities continue to abound in the Big Apple.

If you already have a rental property under your belt, you should face no problem finding suitable tenants. Vacancy rates in the city stand currently at just 1.72% so competition amongst renters for your property is high. And the average monthly rent for a one-bedroom apartment in New York is a whopping $3,680. If trends continue, it won’t be long before the value of your investment increases. Median sales price for co-ops and condos has leaped 27.9% in the last decade alone. Compare that to a rise of just 4.3% for the country as a whole.

This is all well and good, but many new investors will wonder how they can even get a foot on the New York City property ladder. Manhattan apartment prices average $2.19 million, while even Brooklyn has seen prices hit record heights. This is despite Fitch Ratings reporting that the New York metropolitan area is undervalued by 10.4%.

Still, there is help for would-be local investors. Historically low mortgage rates make purchasing a New York City property an even better investment, as well as a more affordable one. If house prices continue to rise for the foreseeable future, as it appears they will, this will provide a nice equity cushion. You may even be able to pull out of your buy-and-hold venture after a year or two and still see a solid return.

Finding a property within your budget may be tough, but if you can find an undervalued property to renovate, and sell or hold, strong rental rates and continued market growth hold the potential to deliver exceptional returns.

How Are the Different Housing Market Sectors Faring?

Luxury properties show signs of opportunities for a certain type of investment strategy as we move towards the new year. Swelling inventories and decreasing demand are seeing sales prices fall, so you may be able to buy at a lower-than-typical price right now. But these investments aren’t for everyone.

What the numbers say:

Luxury properties show signs of opportunities for a certain type of investment strategy as we move towards the new year. Swelling inventories and decreasing demand are seeing sales prices fall, so you may be able to buy at a lower-than-typical price right now. But these investments aren’t for everyone.

In the third quarter of this year, the median sale price of new developments in Manhattan dropped by 23% to $2.8 million. That’s a pretty significant signal!

Manhattan has over 12,300 unsold condos that have either been built, are under construction, or planned, according to consultancy firm Miller Samuel. More than likely, it’s going to take some time and more price dampening to get these offloaded in the market. Perhaps this market sector has peaked.

Average listing discounts rose to 5.5% from 2.9%. So, if you try to sell in this market, you are not likely to get anywhere near full asking price. However, a buy-and-hold strategy might make more sense.

New York—and Manhattan in particular–still dwarfs every other city in the country when it comes to sales prices. The average asking price per square foot in Manhattan is $1,773. That’s astronomical even when compared to San Francisco, which stands at $1,185.

My verdict:

A surplus of unsold luxury condos may be great news if you have millions in the bank, but most of us don’t. Certainly, no one in my network has been able to shell out the kind of money needed to invest in one of Manhattan’s (or indeed Brooklyn’s) luxury condos. While the opportunity to acquire a luxury condo for one third off sounds incredibly tempting, it’s simply not a realistic opportunity for most of us.

Multi-family apartments in Manhattan, even if they are only three stories, can be as prohibitively expensive as buying a luxury apartment. But that doesn’t mean that you can’t find value in the other boroughs. Nor does it necessarily mean that it is a bad investment, either.

What the numbers say:

Rates in Manhattan remain high but are falling. The median rent for a Manhattan apartment is $3575 a month, yet rental rates have fallen 2%. The rental market is softening across the city, too. Apartment rents across New York City have remained flat or even dipped in 2017. Still, that doesn’t mean you can’t get a good cap rate in the city if you choose your investment wisely.

Multi-family sales activity fell 60% across the city in Q2 of 2017 compared to last year. Some areas have stayed strong, however, such as The Bronx, which saw a 16% increase. With fewer buyers out there, a buy-and-hold strategy seems prudent if you invest in this sector.

Rental concessions are growing across the city. Manhattanites gained concessions for 29% of rental agreements in the past 12 months. In Brooklyn, 15% of agreements had concessions, But 45% Northwest Queens renters bargained for concessions in their contracts. If you own a multi-family building, prepare to give more than you have in the past.

My verdict:

Although I worry that multi-family investments may not be as dependable as they were several years ago, even if you can find a suitable building in, say, the Bronx, the growing trend of low rental rates and concessions should strike fear into the heart of any landlord. Having to shell out for additional amenities in a bid to attract renters is one thing, but seeing a low (or even negative) return on your investment is another. If rental rates continue to stagnate, returns could become even more impacted. This is a concern, especially given the high cost of entry that comes with buying a multi-family unit here.

That being said, there are a couple of investment tricks to make this kind of investment more affordable. I know more than one investor, for instance, who has moved his family into the top floor of his multi-family property. They treat the building as their primary residence. Not only does this mean that they can sell their existing family home in order to raise funds for the purchase, they also qualify for lower mortgage rates since the home isn’t purely an investment. But this level of commitment might not be suitable for every investor.

Single-family homes in New York make for an interesting proposition. While the market is cooling, we see pockets of opportunity appearing. It’s knowing how to find them that becomes the problem.

What the numbers say:

Property prices have risen in all but one—the Bronx—of the five boroughs over the last 10 years. The trend seems to be continuing as average sales prices across the boroughs stand at: Manhattan ($2,139,153), Brooklyn ($947,553), Queens ($573,455), Bronx ($393,323) and Staten Island ($489,570). This may make some boroughs a better investment value proposition than others.

The availability of affordable and mid-priced properties has increased. They represented 62% of the market in the latest 2017 quarter compared to 48% just two years ago.

Home foreclosures in Q3 of 2017 were up 79% year-on-year. Record numbers of foreclosures were seen in the Bronx and Staten Island, which may represent the best places to look for an investment deal.

Rents are starting to fall. Median asking rent for a one-bedroom dropped by 4.3% year-on-year, two-bedroom median rent fell by 10.7%. While this is not outrageous, it may make more sense to employ a buy-and-sell strategy here.

My verdict:

Signs suggest that the New York housing market is cooling somewhat, but more reasonably priced properties are on the market, too. With average rents falling, investors should be concerned about maintaining their buy-and-hold strategy. But, you may be able to rely on the trend of rising house prices to gain long-term equity.

In my eyes, buying, rehabbing, and selling distressed properties is a more interesting (and perhaps safer) option. If foreclosure rates continue on their upward trend, distressed properties can offer tremendous value to investors. If New York City’s real estate market really is undervalued, there is a promise of a significant return on investment. And, the shorter investment lifecycle provides more certainty as you are less likely to experience overwhelming market volatility. Distressed properties may be sold at a fraction of their value so this is an option open to virtually all investors—as long as they have the right leads.

Finding Leads on NYC Investment Opportunities in 2018

Distressed properties look like the best real estate market opportunity for all New York City investors in 2018. But only if you can find one. Becoming an independently owned and operated HomeVestors® franchisee was a game changer for me in this respect. By leveraging the best marketing tools and multimillion dollar “We Buy Ugly Houses®” brand, I suddenly had distressed property owners coming directly to me. Because I bought directly from the seller, I didn’t have to crawl through dozens of online resources and the homeowner didn’t experience the stress of foreclosure. It’s a win-win. Naturally, not all these opportunities will be suitable. But the  HomeVestors proprietary ValueChek® software program helped me to quickly determine whether a property had potential and make an offer on the spot. I’m all set up to take advantage of the distressed property market in 2018. Are you?

If you see the investment opportunities coming but need more support to close those leads, get in touch with HomeVestors® today.

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