Investing in New York City Real Estate: What You Need to Consider

Most people think making money from Manhattan real estate investment is a sure thing. When a client wants to have a discussion around real estate as an investment, for either a personal residence or rental property, they usually already have an expectation that investing a set amount of money will result in a considerable return.

One could argue that’s a fair assumption, especially considering the activity we’ve seen in New York City of late. The market is booming at unprecedented levels, and due to Manhattan's far reaching influences, prices are rising in the other boroughs as well.

It is important to keep in mind the NYC market is extraordinarily complex. There are many moving parts grinding at different speeds, including variables such as: location, neighborhood, the building, the apartment's operational and maintenance costs, and local taxation. Understanding these variables is key to obtaining a healthy return on investment (ROI).

Professional real estate investors have the time and resources to better grasp the market. They have easy access to capital and, more importantly, the luxury of being patient. They can afford to wait ten or more years for properties to fully bloom to ensure the highest possible ROI. Most individual investors, however, don’t have the same bandwidth to process all these factors. Despite how savvy an individual investor may be and how successfully s/he managed his/her property in the U.S. or abroad, one is just not equally equipped to navigate such a vast and sophisticated market.

That said, receiving an ROI close to or comparable to professional real estate investors' is not impossible. In fact, I help my clients do so with these simple words of advice:

Manage your investing expectations & think outside the box.

First and foremost I always review with my clients their investor goals and objectives. It is an important and often overlooked first step.Everyone wants to buy into the finest neighborhoods. Keep in mind, the prices in these exclusive enclaves are well-established and extremely competitive. An investor looking to maximize ROI must be willing to consider up-and-coming neighborhoods in the outer boroughs. Hence, my second piece of advice: "Think outside the box".

Whenever I mention this to investors, whether it’s someone looking for a $400,000 studio, or a $4,000,000 multi-family, I often get pushback. Sometimes, it’s the result of the client being unsure of a neighborhood’s viability or safety; other times, it’s because the client wants to one day live there and does not know the area well enough to consider it a potential future residence.

Historically, transitioning neighborhoods have shown to be a good place to invest. Young professionals flock to these neighborhoods seeking out trendy new restaurants (strategically positioned because of affordable rent), and a vibrant nightlife. The trick is to spot these transitioning neighborhoods before they end up on professional investors’ radars. It’s often too late to buy in to these areas while it’s still relatively affordable.

As a broker, it’s my duty to help my clients know and target these neighborhoods. As a native New Yorker and experienced broker, I research and visit these neighborhoods on personal scouting missions. I find hanging in local restaurants and bars very informative.

An investor must also consider the daily costs associated with living in a particular neighborhood. What are the building’s operational and maintenance costs? What are the property taxes?

Brooklyn, as one example, has some of lowest property taxes in the area. Let’s also not forget that some buildings and brownstones carry heavy operating costs, such as heating, gas, and water. Maintenance on those systems can be quite expensive. The combination of favorable conditions in taxation and low operating costs can absolutely add long-term value to your property.

Finally, don’t assume that new construction automatically means a better ROI. Why? New construction has a lot of competition because of the few floor plan variations and unique amenities.

The ideal investment scenario is to buy into a neighborhood before the city discovers it's value. Once the neighborhood becomes popular and property value rises, eager buyers are ready to pay a substantial mark-up on your initial price. This happens more than you might imagine.