Best type of investment property in New York
Posted by Wei Min Tan on September 29, 2017
Our clients, who are successful business owners or corporate executives from around the world, invest in Manhattan, New York property for diversification and long term stable asset growth. To this end, Manhattan, New York property, given its stable appreciation trend over time, meets the objective very well.
As we often explain to buyer clients, Manhattan property will not appreciate 50 percent a year like in certain emerging countries. This is because Manhattan, New York is not a speculative market. About 70 percent of buyers in Manhattan are locals, buying property to live in. This makes market prices stable. A market becomes volatile when majority of buyers are investors and even more volatile if these investors are from one or two countries.
Residential condos have 2 drivers of appreciation
We feel that for budget between $700,000 to $5 million, the best type of investment property in Manhattan, New York is a residential condominium. From an appreciation perspective, the price of a residential condominium is driven by (i) primary residence buyers who are buying to live in, and (ii) investors.
Primary residence buyers buy for emotional reasons because they pay based on attraction to the property’s appeal such as view, style and finishings. There is less consideration for financials such as rental return, yield etc.
Investors buy mainly for financial reasons and make decisions based on appreciation potential and rental return.
A residential condominium’s appreciation potential benefits from both groups. In contrast, a mixed use or multifamily building only benefits from the latter, investor, group. With a building, the price appreciation is driven by the extend to which rental income can increase. This is because prices for investment buildings are based on a cap rate, which is essentially the rental yield. Based on amount of rent collected and the net operating income, the price is derived by applying the prevailing market cap rate.
Minimal involvement from owner
Residential condominium buildings are often full service, which means there is a building manager, handymen, staff etc. The owner of a condominium apartment owns the air space within the walls of that apartment. There is no need to worry about a leaky roof, exterior repairs and plumbing issues, which are the responsibility of the building.
When there is an issue within the apartment, eg when the toilet is not working properly, the tenant could just call the building staff who would often fix the issue easily.
High credit quality of tenants
Tenants who qualify to rent a residential condominium in Manhattan are usually high income, high credit score individuals. For example, one of our requirements is 40X monthly rent as income. This means to rent an entry-level studio for $2,500 a month, the tenant needs to make at least $100,000 a year.
We also check the tenant’s credit history and financial liquidity before accepting a tenant. All these serve to provide the condominium owner with peace of mind when renting out the apartment.
Examples of investment condominium apartments
88 Greenwich Street #2605: This is a high floor one bedroom condominium on the 26th floor with amazing water views. Asking price $1.125 million, rental income $3,695 per month, common charges $832, property taxes $783, rental yield 2.2 percent. 88 Greenwich is a luxury building one block south of the World Trade Center which will further drive appreciation.
Morgan Lofts 11 E 36 St #705: A great value split two-bedroom in a prewar building with 12.5 ft ceilings. Asking price $1.525 million, rental potential $5,800 per month, common charges $1,191, property taxes $1,080, rental yield 2.7 percent.
Is there a right size
Studio, one bedroom and two bedroom apartments represent the bulk of inventory in Manhattan. Three bedroom and above are considered big and more difficult to rent out.
Within the studio to two bedroom size range, it depends on the buyer’s budget. In selecting the right property, the location, building and apartment unit within the building are all equally important factors. This is also where local expertise comes into play.
It would be a terrible mistake to determine a location without care for which building and which apartment line. This is because each building has its supply and demand dynamics. Also, the wrong apartment line, with a bad layout and minimal view, despite being in a good building, would not be good either.
Good luck with your apartment search! As final advice, do engage a broker to represent your interest as the buyer. John Jacob Astor, America’s richest man during his time, said during his final days, “If I can do it all over again, knowing what I know now, I would buy every foot of property on this island of Manhattan.”