New York City is one of the most expensive real estate markets in the world, and it regularly tops lists of the most expensive markets in the United States. It is known for its powerful tenants' union and difficult eviction process. What then makes NYC real estate investment attractive? Why do so many invest in NYC real estate market?
The truth is that NYC real estate investment is not one thing. There are radical differences between over-priced and over-built luxury areas and the relatively affordable neighborhoods where people compete for apartments and homes. And there are neighborhoods where people want to live and pay a premium to do so. That’s why all real estate is, ultimately, local.
NYC real estate is most likely to be a profitable investment when rented out over a long holding period. If you are looking to make a profit, you don’t want to buy the most expensive property on the NYC real estate market and expect to make a good profit on rents. Perhaps you are looking for a slightly different hold-over, an investment property in NYC that you might move into or sell at retirement in the future.
If you looking to buy a home, you should also consider a thing called a tipping point. Nationally, the median tipping point is around two years but in New York, it’s 5.8 years. The higher a home is priced, the longer you’ll need to stay in it to make the investment pay off relative to renting. Keeping aside the impact of the pandemic, strong job growth is another factor for investing in NYC real estate.
New York City has been the driving force behind employment gains in New York State. Job growth in the City has outpaced the State (and the nation) every year since the end of the recession. New York City has become less dependent on the securities industry for economic growth.
Other industries such as tourism, tech, health care, and business services are driving job growth and reducing the unemployment rate to record lows. In February, before the pandemic forced the shutdown of the economy, the employment rate in New York City was 3.4%, a historic low, and the state labor department counted a record 4.698 million jobs.
Is NYC Real Estate A Good Investment?
Regardless of the recent crisis, real estate is still a good, long-term investment. If you look back 10 years, real estate is still valued much higher than it was. And if you have tenants paying your mortgage, it makes the investment that much more profitable. As with any real estate investment, the more you know about the location, the better off you’ll be. NYC real estate investment has a track record of being one of the best in the nation.
That is why it is no surprise that despite being an expensive real estate market, a lot of people want to buy investment properties in NYC. There are abundant opportunities & neighborhoods to choose from when investing in New York City. The best neighborhoods for NYC real estate investment are not just relatively affordable.
They’re considered desirable to New York City's residents and see appreciation in property values as a result. They allow you to charge market rents regardless of the property’s value, and you aren’t taking a risk with the money you’re investing. Before you begin, it is important to have a well-thought-out plan in place.
What Makes NYC Real Estate Investment Attractive To Investors? |
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New York is a fairly walkable city in Queens County with a population of approximately 8,174,290 people. NYC has been one of the hottest real estate markets in the nation for many years. Despite the cooling off, New York City regularly ranks among the most expensive real estate markets in the world. However, that’s due to demand that simply hasn’t let up.
It’s a relatively good time to buy a property in New York as housing inventory is on the rise and competition is less. Currently, the NYC housing market is relatively more friendly to buyers than sellers. With the phased opening of the economy, buyers have been quicker to return to the housing market. It seems they want to cash in on the opportunity to purchase their favorite properties despite high interest rates.
The Impact of International Buyers in New York
Despite all the talk about the one percenter dominating this and that, the truth is that the international elite is bolstering the price of luxury real estate in New York City. They see NYC real estate investment as part of a multi-pronged approach. The property is almost certain to appreciate, so it is an investment. Owning a piece of the NYC housing market gives them a place to stay if they have to flee their home country. The money invested in the NYC housing market is typically not reported to their government, and it is almost guaranteed not to lose value. Ironically, foreign owners like these are much more willing to take a modest loss when they sell when they are no longer interested in the property.
New York City's Expanding Luxury Development
New York’s rent control laws don’t apply to luxury units, and developers have chosen to build these instead of the affordable housing the city needs. However, this development isn’t limited to the densest parts of New York City. For example, Staten Island’s North Shore is seeing new luxury condo construction. Interest in the area is driven by both the improved transit via the new ferry service and luxury buyers seeking relative bargains. This is aside from the oversupply of luxury penthouse units in the NYC housing market.
NYC Rental Market is Strong
The factors that led to the incredibly high rental rates in the NYC real estate market haven’t changed. One is the sheer number of people crammed into such a small space. Another matter to consider is all the zoning regulations that limit housing supply, though New York City has had the sense to give tax breaks to those who turn warehouses and commercial properties into rental units.
This means that non-residential properties can be a viable NYC real estate investment, assuming you can get permission to turn them into lofts, condos, or apartments. Strict eviction laws that make it difficult to remove tenants who are a nuisance, time-consuming to remove if late on rent, and nearly impossible to get rid of it in a rent-controlled unit all force property owners to charge much higher rent in the NYC housing market. It is the classic case of cost-shifting causing others to pay a fortune.
The median rent in New York City now exceeds three thousand dollars a month. One-bedroom apartments and studios rent for roughly three thousand dollars a month, while two-bedroom apartments rent for about 3,800 dollars a month. This is why the NYC real estate market is one of the most expensive in the world.
Current Rental Trends Due to Economic Affects of the Pandemic:
The pandemic reversed a decade of unrestrained rent growth in New York. High unemployment leads to higher vacancy rates, as the New Yorkers could no longer afford to live in the city. It also led to lower demand for the rental inventory piling onto the market as leases expired throughout the summer.
Due to the exodus of Manhattan renters to Brooklyn and the suburbs, there has been a rise in vacancies and falling rents. As demand continues to decrease, rent prices are likely to fall more than they did during the Great Recession. On the other hand, soaring vacancies and rental discounts have attracted a range of renters to neighborhoods that previously would have been unaffordable.
The first signs the city is making a comeback have appeared, with Manhattan and Brooklyn lease signings seeing the highest surge in the past 13 years. The current rental trends (as shown above) that new leases are increasing but since many of the rental market metrics remain very weak, further price declines would likely occur in the coming months.
The Zumper New York City Metro Area Report analyzed active listings across 15 metro cities to show the most and least expensive cities and cities with the fastest growing rents. The New York one bedroom median rent was $2,114 last month. New York City was the most expensive market with one-bedrooms priced at $3,420 whereas Newark was the most affordable city with rent at $1,350.
Here are the places where it makes sense to invest in rental properties in the New York City Metro Area. These are the places where the demand for rentals is growing strong in 2022.
The Fastest Growing Cities For Rents in New York City Metro Area (Y/Y%)
- New York City had the fastest growing rent, up 37.9% since this time last year.
- Poughkeepsie saw rent climb 37.7%, making it rank as second.
- Hoboken was third with rent jumping 37%.
The Fastest Growing Cities For Rents in New York City Metro Area (M/M%)
- East Orange had the largest monthly rental growth rate, up 5.3%.
- Stamford rent grew 5.2% last month, making it the second fastest growing.
- Hackensack & West New York were tied for third with rents both climbing 5.1%.
The Known Opportunities for Bargain Hunters
The NYC real estate market may seem dominated by five and ten thousand dollars a month apartments in Tribeca, but there are much cheaper neighborhoods. If you’re considering buying NYC real estate investment properties, start looking in neighborhoods like East Brooklyn, High Bridge, and Saint Albans. The average rent for apartments in Saintalbans is roughly 1200 dollars a month, while rents are less than 1500 a month in High Bridge. Since property values are based on multiples of the rental income, this means that you can snap up a small apartment building in the cheapest NYC real estate market for the cost of one luxury condo.
The Overall Cooling of the NYC Housing Market
The NYC housing market can be described as cool, though some will call it a buyer’s market. Things slowed down significantly in 2016 and 2018 as several groups of international buyers found it harder to buy properties or had less need to do so. On top of this is the trend of properties selling below their asking price unless they’re the cheapest unit in the neighborhood. Sales volume has increased somewhat, but there is a wider selection now than several years ago. More importantly, prices are a tenth to a quarter below their 2015 highs.
This is a good time to buy an NYC real estate investment property because the market will continue to warm up as long as the economy remains stable. NeighborhoodScout's data show that during the latest twelve months, New York's appreciation rate, at 5.25%, has been at or slightly above the national average. In the latest quarter, New York's real estate appreciation rate has been 1.04%, which annualizes to a rate of 4.22%.
The Softening New York Luxury Market
The increasing supply of luxury real estate relative to demand is leading to more being done to sell units at their list price. For example, luxury apartment buildings are offering more and more amenities to justify their high monthly rents. Another sign that the market is softening is the growing time on the market for such properties. A few notable properties have sold only after being subdivided into more “affordable” luxury units.
This means that investors with the money could buy a larger unit as a form of NYC real estate investment, subdivide it, and then sell it for a profit. If you have the cash and can close on the property, you could buy these premium properties for up to half of the listing price, too. The alternative is buying slow-moving one and two-bedroom apartments knowing they’ll eventually be worth more.
We mentioned the softening of the NYC housing market already, especially at the higher end. We brought up the increased amenities being used to fill luxury properties that aren’t being held as an NYC real estate investment. However, many properties may sit on the market for years. This is enabled by a large number of properties not lived in year-round and those who simply don’t want to reduce the price tag of their property to a point lower than what they paid for it. As listings pile up and the ongoing carrying costs like high property taxes rack up, expect to see a wave of sellers who will mark down their New York City real estate to move it because they can’t afford to wait to sell it.
The Legislation on the Table Will Increase NYC Rental Rates
There are around a million rent-stabilized apartments in New York City. There are several bills in the Democrat-controlled state senate and a massive tenant’s rights push that will likely lead to tighter restrictions on landlords. For example, it would be harder to get apartments removed from the rent-stabilization policy and limit the ability of landlords to raise rents after existing tenants move out.
While this hurts landlords who own rent-controlled properties, stricter rent control rules result in a reduction in housing supply and rents going up five percent more than they would have otherwise. Conversely, landlords who don’t want to deal with the hassle anymore may be willing to sell properties at a discount simply to get out from under the oppressive regulations.
Disclaimer: Covid-19 may have impacted the NYC real estate market in a way that is not 100% accurately reflected here. When referencing the data published on this page for investment-related decisions, please keep in mind that the data provided here is not solely responsible for depicting the market's current reality.
Where To Invest In New York City Real Estate?
For real estate investors, buyer's markets are the perfect time to buy an investment property since there are fewer buyers to compete with and prices are lower. New York City is composed of five boroughs. Each borough is coextensive with a respective county of New York State. Here are some of the buyers-friendly neighborhoods in NYC where investing in real estate makes sense. These neighborhoods have been selected from different boroughs.
1. Real Estate Investment in The Upper East Side, Manhattan, New York
The Upper East Side or UES is a desirable area where almost no one can afford to buy real estate. It is a neighborhood in the borough of Manhattan in New York City. One publication found that the Upper East Side had a tipping point of 30 years. The tipping point is a measure of how long you have to live there to be better off buying than renting. Yet the area is home to a surprising number of relative bargains, and a good place for investing in NYC real estate.
The building boom of luxury apartments has led to a glut of inventory. This is why the average home price remains around 1.8 million dollars, the price it was five years ago. And people are trying to move properties to get out from under the mansion tax. If you think this area is going to rebound, this is a great time to buy.
But which neighborhoods are ripe for NYC real estate investment? Yorkville is experiencing a boom because the Second Avenue subway has just arrived. Yet it remains less expensive than “blue chip” Upper East Side neighborhoods. Expensive is relative when you want to invest in NYC real estate.
For example, the apartments west of Lexington Avenue go for 2,500 to 3,000 dollars a square foot, while those in Yorkville are closer to 1,500 dollars a square foot. The entire Upper East Side is, on average, safer than most of New York City. And because it is so expensive, you can find many amenities for families with children.
Latest Housing Trends in Upper East Side
Currently, Upper East Side is a buyer's market, which means that the supply of homes is greater than the demand for homes. Hence, buyers have a wide range of choices and an advantage over sellers in price negotiations. Sellers are typically dropping their asking prices to be more competitive.
According to Realtor.com, the median list price of homes in Upper East Side was $1.4M in December 2020, trending down -1.4% year-over-year. The median listing price per square foot was $1.3K. The median sale price was $1.1M. As we write this, there are 3019 active rental listings (houses and apartments) on Realtor.com with a median rent of $2,590.
On average, homes in Upper East Side sell after 175 days on the market. The trend for median days on market in Upper East Side has gone down since last month, and slightly up since last year.
2. Real Estate Investment in Inwood, Manhattan, New York
Inwood is more affordable than other Manhattan neighborhoods. For example, buying is a better choice for potential residents after five years. For comparison, the tipping point for all of Manhattan is twelve years. Another point in favor of this area is that it isn’t seeing a wave of new development that hurt home values in Murray Hill. All of this is because Inwood is located at the very tip of Manhattan.
Why would we suggest NYC real estate investment in a community that is literally on the edge of New Jersey? The area is low-rise. It is a mix of single-family homes and apartments up to eight stories high. They are proposing zoning changes to allow much taller buildings, but that hasn’t happened. This results in a shortage of affordable high-density apartments and steady appreciation. The home prices in Inwood have gone up 14 percent in the past five years.
And if you buy property now that could be redeveloped into high-density housing, you will see significant returns on that investment. If high-density development doesn’t come, the numbers still make sense for real estate investors looking to invest in New York City. The median home costs just over half a million dollars, while median rents are a little over two thousand dollars a month.
The area won’t lose its green space. Inwood Hill Park is known for its somewhat natural forest, and it is laced with walking trails. Yet you can easily commute to downtown, as long as you aren’t trying to get to the East Side. A side benefit of the Inwood area is the close-knit community and its generally family-friendly atmosphere.
Latest Housing Trends in Inwood
Currently, Inwood, NY is a buyer's market, which is typically good news for buyers. There are plenty of houses on the market, and interest rates are lower than usual. According to Realtor.com, the median list price of homes in Inwood was $465K in December 2020, trending up 3.3% year-over-year. The median listing price per square foot was $510. As we write this, there are 103 active rental listings (houses and apartments) on Realtor.com with a median rent of $1,750.
3. Real Estate Investment in Washington Heights, Manhattan, New York
Washington Heights is another Manhattan neighborhood that provides some great real estate investment opportunities. It is seeing steady appreciation because it is more affordable than the alternative. The average person can justify buying over renting if they will live there for more than five years. It is also a great opportunity for NYC real estate investment because you can find condos that cost less than a thousand dollars a square foot.
Another point in favor of Washington Heights is that there are tax abatement condominiums that offer excellent rental rates with a lower overall tax bill. On top of that, there are several expensive colleges in the area. That results in a larger than average renter population that is almost insensitive to rental rates. Because there are several such schools in the area, you don’t have to worry about a diversified real estate portfolio out of fear that the student market will collapse if the main campus closes.
The Washington Heights area is benefiting from slow, steady appreciation. The average two-bedroom home sells for 650,000 dollars; these properties sold for 550,000 dollars five years ago. That’s twenty percent appreciation over five years or four to five percent annual growth. It is also far better than the flat property prices for Manhattan as a whole.
Latest Housing Trends in Washington Heights
Current trends show that Washington Heights is a buyer's market, which means that the supply of homes is greater than the demand for homes. Most buyers in this neighborhood want to offer less than the asking price. You can grab the edge in this neighborhood and get your purchase offer accepted at the price you deserve.
According to Realtor.com, in December 2020, the median list price of homes in Washington Heights was $599K, trending up 9.1% year-over-year. The median listing price per square foot was $682. The median sale price was $894K. Heights sold for approximately the asking price on average in December 2020. As we write this, there are 696 active rental listings (houses and apartments) on Realtor.com with a median rent of $1,910.
On average, homes in Washington Heights sell after 272 days on the market. The trend for median days on market in Washington Heights has gone up since last month, and slightly up since last year.
4. Real estate Investment in Bay Ridge, Brooklyn, New York
Brooklyn is one of the more affordable areas in the New York City metro area. The average tipping point for Brooklyn is 4.17 years. And Bay Ridge is cheaper than average, though that will soon change. We’d recommend buying real estate in Bay Ridge before the inventory is snapped up by first time home buyers being advised to buy here.
Why invest in Bay Ridge? Bay Ridge has a suburban feel. That’s because the long commute to Manhattan prevented dense development. It is going to see a boom in valuation because it now has a direct ferry service to Wall Street. This is in sharp contrast to the temporary deals you might find in brownstone neighborhoods like Brooklyn Heights, Clinton Hill, and Fort Greene.
Property has become very cheap in these areas because of the uncertainty about the Brooklyn-Queens Expressway as well as the fact many don’t want to live there during construction. We don’t recommend buying apartments for as little as 100,000 dollars that may be hard to rent out and may not sell for much in the future. Brooklyn's Bay Ridge is much more stable.
The average two-bedroom apartment sells today for a little over half a million dollars, 100,000 dollars more than it would have five years ago. That’s roughly ten percent annual appreciation for five years. Bay Ridge received a C from Niche.com on its crime and safety, but that’s close to the NYC average. Its public schools get a B. It has better than average amenities for parents aside from the fact they can afford to live here. All these factors make it a good neighborhood for NYC real estate investment.
Latest Housing Trends in Bay Ridge
Current trends show that Bay Ridge is a buyer's market, which means that the supply of homes is greater than the demand for homes. According to Realtor.com, the median list price of homes in Bay Ridge was $598.5K in December 2020, trending down 7.8% year-over-year. The median listing price per square foot was $537. The median sale price was $539K — 3.74% below the asking price on average in December 2020.
As we write this, there are 182 active rental listings (houses and apartments) on Realtor.com with a median rent of $1,800. Houses tend to sell for less and sit on the market for a longer period of time before receiving an offer. On average, homes in Bay Ridge sell after 169 days on the market. The trend for median days on market in Bay Ridge has gone up since last month, and slightly up since last year.
5. Real estate Investment in Bedford-Stuyvesant, Brooklyn, New York
Bedford-Stuyvesant in Brooklyn has several advantages over other Brooklyn neighborhoods in New York City. The older housing stock tends to be cheaper to buy, and you can dramatically increase its value by renovating it. The area is starting to appreciate as high-end cafes and stores move into the area. And the area offers far lower property tax rates. This is on top of the areas in New York City where you can find cheaper real estate for investment.
For example, homes in Bedford-Stuyvesant have an average cost of 1.4 million dollars, while the same classic brownstone costs 2.5 million in Williamsburg and 3.5 million in Cobble Hill. This means there is plenty of room for appreciation. A side benefit of NYC real estate investment in Bedford-Stuyvesant is how many of the properties have already been subdivided, allowing you to pay the same price for a single-family home while enjoying multi-family rental income.
This area has several points in its favor for those considering NYC real estate investment. It is a slowly appreciating, stable market. For example, it has seen roughly 16 percent appreciation over the past five years. That’s two to three percent appreciation a year for the building itself. Yet you can rent out a single bedroom apartment for a little over two thousand dollars a month, while two-bedroom yields 2,500 a month in rents.
Latest Housing Trends in Bedford-Stuyvesant
The current trends show that Bedford-Stuyvesant is a buyer's market, which means that the supply of homes is greater than the demand for homes. According to Realtor.com, in December 2020, the median list price of homes in Bedford-Stuyvesant was $1.3M, trending up 4% year-over-year. The median listing price per square foot was $791. The median sale price was $1M. Homes in Bedford-Stuyvesant sold for approximately the asking price on average in December 2020.
As we write this, there are 713 active rental listings (houses and apartments) on Realtor.com with a median rent of $2,350. In a buyer's market, homes linger on the market longer. On average, homes in Bedford-Stuyvesant sell after 167 days on the market. The trend for median days on market in Bedford-Stuyvesant has gone up since last month, and slightly down since last year.
6. Real estate Investment in Long Island City, New York
Long Island City is arguably the best real estate investment opportunity in Queens, New York. The average home price is around 1,200 dollars a square foot. This means the average home costs more than a million dollars. However, the east side of the neighborhood costs much less. Eastern neighborhoods in Long Island City cost just over half a million dollars and less than eight hundred dollars per square foot.
The area is seeing appreciation as people move here as they’re priced out of Brooklyn. However, the area doesn’t have the same access to the Long Island Rail Road. This is why appreciation remains strong but is not skyrocketing. For example, the average home price in the area has risen from 640,000 dollars to just over 900,000 dollars over the past five years.
That’s nearly ten percent growth year over year for five years. But there is still room to go higher. Is Long Island City a good place for families? It is given a B by Niche.com on crime and safety, and that’s pretty good for New York City. Schools are a B, as well.
Latest Housing Trends in Long Island City
The good news for buyers is that Long Island City, NY is also a buyer's market. If you're looking to invest here, you'll have more choices and fewer buyers to compete with. Homes are sold for less, relative to their listing price. On Realtor.com, the median list price of homes in Long Island City, NY was $899K in December 2020, trending down -23.5% year-over-year. The median listing price per square foot was $1K. The median sale price was $920K — 2.54% below the asking price on average.
As we write this, there are 1,478 active rental listings (houses and apartments) on Realtor.com with a median rent of $2,225. In this neighborhood, homes linger on the market longer. On average, homes in Long Island City, NY sell after 165 days on the market. The trend for median days on market in Long Island City, NY has gone up since last month, and slightly up since last year.
Disclaimer: When referencing the median rents of the local neighborhoods, please keep in mind that the data provided was taken from different credible sources. While deemed reliable, it may not accurately depict the current reality of the local real estate market. The pandemic may have impacted rent rates in a way that is not yet reflected in this blog.
References:
- https://www.realtor.com/
- https://www.niche.com/places-to-live/n/long-island-city-new-york-city-ny
- https://www.renthop.com/average-rent-in/bedford-stuyvesant/nyc
- https://ny.curbed.com/2017/6/22/15851010/nyc-best-neighborhoods-to-buy-vs-rent
- https://www.nytimes.com/real-estate/guide/manhattan/upper%20east%20side
- https://mommypoppins.com/new-york-city/uptown/upper-east-side
- https://www.brickunderground.com/buy/where-to-buy-and-not-in-NYC
- https://www.brickunderground.com/live/neighborhood-secrets-inwood
- https://www.nytimes.com/real-estate/guide/manhattan/Inwood
- https://www.nytimes.com/real-estate/guide/manhattan/washington%20heights
- https://www.nytimes.com/real-estate/guide/brooklyn/bay%20ridge
- https://www.niche.com/places-to-live/n/bay-ridge-new-york-city-ny/
- https://www.nytimes.com/real-estate/guide/queens/long%20island%20city
- https://housemethod.com/blog/best-new-york-city-neighborhoods-for-real-estate-investment/
- https://ny.curbed.com/2019/2/18/18229286/luxury-nyc-condos-real-estate-report
- https://www.businessinsider.com/new-york-city-luxury-real-estate-not-selling-penthouse-gimmicks-2019-2
- https://www.brickunderground.com/blog/2015/01/rent_stabilization_misconceptions
- https://ny.curbed.com/2019/5/14/18617990/new-york-rent-control-tenants-rights-landlords
- https://www.cnbc.com/2019/04/01/manhattan-real-estate-sales-fall-for-sixth-straight-quarter.html
