When asked what sort of fruit the NYC market will bear in the long and short term, I point my clients to the price appreciation data collected and analyzed by the Furman Center. Overall home prices citywide increased an average of 250% from 1974 through 2006. The 70s saw a 12% average decrease in prices, followed by a 152% average increase in the 80s. The next five years saw a 29% decrease, followed by a 124% increase through 2006. The study was completed in 2006 and since then, homes across NYC have appreciated an average of 18%. According to the latest Compass Market Report, the median asking price of condos in Manhattan has increased by 76% in the last 9 years, while coops have increased in value by 22% over the same period. In short, the return gained by investing in NYC real estate is hard to compare.
As someone who has invested in 5 properties throughout the NYC area over the last decade, I encourage my clients and friends to invest in the area if and when they can. I advise them to hold onto their properties for at least 7 – 10 years for the greatest return, and I aim to match them with properties that will achieve a 4% capitalization rate. Cap rates, as they are known in the industry, are determined by dividing the net income by the property’s purchase price. Net annual income is calculated after all the carrying costs are deducted from the income (e.g. insurance, Homeowner’s Association Fees, common charges, taxes). Cash buyers will obviously have more flexibility, but as a general rule, buyers who are financing will want to put down at least 20% in New York. Based on the amount that my clients are able to invest for purchases and renovations, I introduce them to properties that work within their budget.
I’ve worked with several investors whom I introduced into submarkets early and whom are now not only making greater than a 4% cap rate, but their properties have nearly doubled in value. Two of my current clients are in contract on a property that has already increased 7% and should be up to 10% by the time they close. Market knowledge is also critical to avoid inflated markets where prices are way ahead of where they actually should be. For the hottest neighborhoods that are already too highly priced, but in which my clients are interested, I advise that they hold onto the property for 10 – 15 years in order to see the types of returns in which they’re interested.
Investment also requires other resources that make it possible for buyers to ensure their properties are well managed with or without them being present. For both local and international clients, whether investing in an apartment or multifamily complex, I have financing, legal, and property management resources whom I trust and have used to successfully find investors from Brooklyn to Shanghai properties in neighborhoods ranging from Bushwick to the Upper West Side. Please let me know if I can help you with your investment interests as well.