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 despite rumors of a downturn. 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 predictions for some areas of the country, like Chicago’s real estate forecast, still look 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 remain quite low, so competition amongst renters for your property is high. And, the average monthly rent for a one-bedroom apartment in New York rose again. Even with the recent dip in sales prices that some parts of the city, like Manhattan, have experienced, the overall value of your investment has probably increased. Median sales price for co-ops and condos has lept 25.3% in the last decade alone. The country as a whole hasn’t yet broken double digits.
This is all well and good, of course, but many new investors will wonder how they can even get a foot on the New York City property ladder. Manhattan apartment prices still average a pricey $2.06 million and some Brooklyn neighborhoods have actually seen prices hit record heights.
This is despite a modest overall increase in median home sales prices across the city of only 4% in the last 12 months. That means there are still areas of NYC that are within reach of your pocketbook—and that have to ability to provide good returns.
Though the mortgage rates we’ve been used to for the last several years are increasing, they’re still low enough to make purchasing a New York City property a good investment as well as a relatively affordable one. If house prices continue to rise for the foreseeable future, as is expected for several up and coming neighborhoods, this can provide a nice equity cushion. But, keep in mind that rates are slated to go up five more times this year. So, the sooner you buy the better your potential returns will be.
Locating a property within your budget may be tough, however, even during what some are calling a shift towards a ‘buyer’s market.’ But, if you can find an undervalued property to buy, renovate, and sell or hold in an area that favors strong rental rates and continued market growth, the potential to deliver exceptional returns is there.
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:
A global slowdown in the luxury property market is creating opportunities for investors to pick up properties for millions under their original asking prices.
Manhattan still has thousands of unsold condos that have either been built, are under construction, or planned—adding to the glut of luxury inventory. 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 again last year. 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 when you look at price per square foot. For example, the average price per square foot in Manhattan is $1,773. This is astronomical even when compared to San Francisco, which stands at $1,185 and is generally considered more expensive than New York.
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 haven’t been stable. The median rent for a Manhattan apartment saw only a slight boost from last year. The rental market is softening across the city, too. New York’s effective rental rate only grew by 0.5% last year, ranking it in the bottom 25% nationally. 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 24% across the city in Q2 of 2018 compared to the year prior, which had already seen a significant drop of its own. Some areas have stayed strong, however, such as the Bronx, which saw a 21% 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 41% of rental agreements in the past 12 months. In Brooklyn, about 50% of agreements had concessions and 58% of Queens renters received concessions in their contracts. If you own a multi-family building, prepare to give more than you have in the past.
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, but 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 each of the five boroughs since the housing crash, but at varying speeds and not without a few hiccups. For most areas, according to Realtor.com, that trend seems to be continuing. Median home sales prices currently stand at: Brooklyn ($855,000), Queens ($592,000), Bronx ($485,000), and Staten Island ($545,000). Manhattan, where median home sales prices finally dropped below one million dollars last year, is the exception. This may make some boroughs a better investment value proposition than others.
The availability of affordable and mid-priced properties increased again last year, representing a larger share of the market. This is good news for investors who find that buying residential property in the $5 million range to be a bit of a stretch.
Home foreclosures in the city, which peaked in 2017, are on the decline by 17% year-on-year. One notable exception—the Bronx—has seen an increase in the number of homes sent to auction, which may indicate it’s one of the best places to look for an investment deal.
Rents are rising again, albeit slowly, after falling for five straight months last year. Median asking rents in Queens and Brooklyn rose by 0.2% and 4.4% respectively, due in part to a drop in inventory of roughly 20% for each borough. Since these increases are not huge, it can still work to employ a buy-and-sell approach here. With inventory on the decline, however, it’ll be more critical than ever to implement a strategy that finds off-market properties to invest in.
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 overall 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 and the potential promise of a significant return on investment. And, the shorter investment life cycle provides more certainty as you are less likely to experience overwhelming market volatility. Distressed properties may be sold at a fraction of their value and is an option open to virtually all investors—as long as you have the leads to find fixer-uppers.
Finding Leads on NYC Investment Opportunities in 2019
Distressed properties look like the best real estate market opportunity for all New York City investors in 2019—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 trawl through dozens of online resources and the homeowner didn’t experience the stress of foreclosure. It’s a win-win. Naturally, not all of these opportunities will be suitable. But the ValueChek® software program allowed 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 2019. 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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