For me, investing in the New York City property market is a bit like raising a child. The market always seems to be growing quicker than you realize, you need to invest hundreds of thousands of dollars in it before you see any kind of return, and it demands constant attention. As the father of three, I like to think that understanding this analogy gives me an upper hand in the industry.
But while it’s true that I’ve been a pretty successful New York City investor, my success has nothing to do with my abilities as a parent. I’ve been able to gain and retain an advantage by keeping my finger on the pulse of the market at all times. If I know what’s happening in the market right now, I have a shot at predicting what will happen in the future. Based on what I’m seeing at the moment, here are three principles I’ll be using when buying investment property in NYC this year.
The 3 Most Important Things to Remember When Buying Investment Property in NYC This Year
Right now, most of NYC is in a buyer’s market, which means it’s a great time to buy a rental property but flipping investment homes for a profit may be trickier. Luckily the NYC rental market is red-hot since many of the New Yorkers who left the city during the pandemic are returning because their offices and schools are re-opening. This means landlords are raising rents and offering fewer incentives compared to last year.
However, you’ll still need to account for recent reforms in New York’s rent laws, as well as the state’s temporary eviction ban which was recently extended. That means investing in a rental property isn’t necessarily a safer bet than flipping houses. My recommendations for buying investment property in NYC while avoiding these pitfalls are:
- Avoid buying investment property in Manhattan.
- Familiarize yourself with the best up-and-coming NYC boroughs.
- Focus on the neighborhoods that offer the best possible ROI.
Once you know which neighborhoods have the greatest investment potential, you can start looking for distressed and fixer-upper properties to turn a fast profit.
Investing in NYC Property? Forget About Manhattan if You Want to Grow
This year, I’ll be thoroughly looking at all the other NYC boroughs before I even think about turning my attention to buying investment property in Manhattan. While it may be fine for luxury developers backed by multi-million dollar companies, it’s certainly out of the reach of every independent investor I know.
Manhattan resale property prices are bouncing back to normal after dropping to record lows during the pandemic. Manhattan is still in a buyer’s market, with a larger supply of homes than the current demand. But, before you start buying properties in this luxe borough, you have to remember that a buyers’ market isn’t necessarily a good thing for independent investors like yourself.
In a buyers’ market, luxury developers can afford to invest in high-end properties at a relatively low price and hold the properties as rentals until the sellers’ market picks back up. Because they have a diverse investment portfolio and savings to fall back on, they usually make just enough money to stay afloat while they wait for the sellers’ market to come around again.
However, you don’t have this luxury. For first-time investors, buying property in Manhattan could be a costly and time-consuming mistake. Even if you can get a distressed property into fine rental shape within a few months without going over budget, the low rental income that comes from this property will probably never be enough to live on. You likely won’t even make enough to take out a mortgage to expand your inventory. In short, you’ll be stuck with a property that you can’t resell for quite a long time—perhaps even years—and that won’t make you a lot of money in the interim.
If you’re new to the investment game, this year should be about growing your real estate investing business. Focus on turning your investments from a sideshow to the main event. To do this, you need to look beyond Manhattan.
The Best Investment Bet: Look for Fixer-Uppers in Outlying Boroughs
As confidence in the housing market grows, the number of buyers increases. So too, then, does your competition. To avoid competing with deeper investor pockets while still achieving solid potential returns, I recommend looking towards Queens, the Bronx, Staten Island, or some areas of Brooklyn for a property that has yet to peak in price. Nearby, New Jersey’s distressed properties offer more affordable investment opportunities
While you can still find some investment opportunities in the best emerging Brooklyn neighborhoods, the borough is becoming increasingly expensive to live in. Many first-time investors are being pushed out of the market as more experienced investors snap up the best properties. This is why independent investors are looking to Queens neighborhoods like Woodside, Jackson Heights, Sunnyside, Long Island City, and Astoria.
Northwestern Queens neighborhoods have especially great potential because buyers are eyeing properties that are close to Manhattan. More people are realizing that it’s cheaper to commute between Queens and Manhattan than it is to buy property in New York’s most notoriously expensive zip code. That said, property prices in northwestern Queens are already beginning to increase due to this housing demand, so now is the time to invest. Get in before the prices skyrocket and rent the property out until the market changes. Then, when it’s time to sell, you can still be fairly confident of getting a decent return.
You don’t need any extra competition. More competition leads to higher prices. That’s why I’d turn my attention to properties the bigger players aren’t interested in—such as “ugly” homes and fixer-uppers for sale. Whether you buy from a foreclosure auction, search online, or approach distressed owners directly, securing a distressed home and renovating it will help you to add value to the property for resale.
The Best NYC Neighborhoods for Buying Fixer-Uppers
Buying low and selling high or creating passive income in the interim will always be the name of the real estate investing game here in NYC… and everywhere. While established neighborhoods such as SoHo and Tribeca have limited downside volatility, you’ll need deep pockets to buy, and you may have to hold the property longer than expected to optimize ROI. That’s why you shouldn’t discount the opportunities in surrounding up-and-coming New York neighborhoods that may offer more value.
Here are a few neighborhoods that are currently on my radar for buying NYC investment property:
Long Island City
Sometimes you have to follow the folks in the know. With the number of new construction projects cropping up in Long Island City, it’s apparent that developers feel this Queens neighborhood merits attention and investment. This neighborhood is close to Manhattan and has the same spectacular skyline views. Moreover, based on forecasts of cash flows from rents, net of taxes, maintenance, and insurance, Long Island City has great potential to enhance your ROI.
The Williamsburg neighborhood in north Brooklyn saw a market dip a couple of years ago due to a proposed L train shutdown. However, after that project was canceled, the demand for housing in Williamsburg increased dramatically. In fact, the real estate market in Williamsburg was much more stable during the pandemic than elsewhere in NYC, partially because fewer people left Brooklyn to escape the city than in the more crowded boroughs. Plus, Williamsburg boasts a buzzing arts district and plenty of distressed residential properties to choose from, making this a neighborhood to watch this year.
This Brooklyn neighborhood has also fared well during the pandemic. In particular, the supply and demand for multi-family properties have steadily increased over the last few years. Many of these properties need to be rehabilitated, so you can find some incredible deals on properties that other investors refuse to touch. What’s great about investing in multi-family properties is that if you choose to rent out the property until the sellers’ market improves, you can often make a decent ROI. Accepting rent from two or three families at a time helps you offset the cost of the property and the rehab work you put into it. Then, when the NYC sellers’ market is on the upswing, you can resell the property outright if you no longer wish to maintain the rental.
There are millions of people in the city that never sleeps. You can be sure that a number of them have their collective ears to the ground in search of somewhere to rest their head at night. To corner this market, however, you need to be able to source the leads in NYC on great houses to buy, renovate and sell or hold as your real estate investing business grows.
Invest in Yourself This Year
In the same way that many parents read parenting books to help them successfully raise a child, the best investors spend time and money investing in themselves. If you can improve the tools and knowledge that you have at your disposal, you’ll gain an edge over your competitors. By far the best investment I ever made in my real estate business was becoming an independently owned and operated HomeVestors® franchisee. Joining the HomeVestors® franchise network gave me access to the nationally-known “We Buy Ugly Houses®” brand for marketing. Thanks to this, distressed owners can come and find me.
If you are ready to take advantage of the “We Buy Ugly Houses” national marketing campaign for buying investment property in NYC, give HomeVestors® a call today.
Each franchise office is independently owned and operated.