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We are in a pretty interesting moment in time for NYC real estate: buyers have been afraid of buying because of rising mortgage rates and economic instability. Instead, they have been parking themselves in the rental market. This has caused rents to soar to over $5,000 on average for the first time ever.
If you’re planning to buy an investment unit to rent out, both of these factors work in your favor: the slowing sales market means you can negotiate your purchase price, and buyer hesitancy means they’re more likely to pay premium prices to rent – a more flexible option. In this blog post, I want to teach you how to pick a neighborhood to buy an investment unit in.
Buy Where Renters Want to Be
This seems obvious, but you should choose to invest in a neighborhood where renters want to live. In Manhattan, the Lower East Side and East Village are the most popular with young renters these days. The lower East Side took a hard hit during COVID and is struggling to come back, with homeless problems and retail failing to return to the neighborhood. But that doesn’t deter young renters who see the neighborhood as authentic and gritty – that’s exactly its appeal! And units that cost around $5,000 dollars on the Lower East Side would cost them north of 7 K in SoHo for example. The same goes for the East Village where good prices can be found, and both neighborhoods are central and have multiple subway and bus lines, making it easy to get to anywhere else in the city.
Buy Where Inventory Is Limited and Unique
It’s a simple equation of supply and demand: buy where there are less units for sale! People who live in or move to New York City usually know exactly which neighborhood they want to live in, since the city is so renowned, and the neighborhoods are so specific in the vibe they offer. If you buy somewhere with less inventory but high demand – you are providing a unique product of value. Tribeca, the East and West Village are some of the most sought out neighborhoods to live in and they have about a tenth of the available listings as, say, the Upper East Side. Even if price negotiation in these areas is stiffer, your return on investment will be high thanks to the appeal of these neighborhoods and the demand to live in them.
Buy in a High-End New Development
Another good tactic for investors is to buy in a new development that has lots of amenities. Renters are drawn to these new developments, which have perks like gyms, pools, lounges, and rooftops, as well as high-end finishes in-unit, like washer/dryer, terraces, and impressive kitchens. It’s a way for them to live in a more glamorous apartment, one that normally they would not be able to afford to buy, while they wait out an unstable market. The best place to look for these kinds of new developments is on the Upper West Side and downtown Brooklyn, and in the adjacent Greenpoint, Dumbo, Williamsburg, and Fort Green. All have lots of new developments popping up in recent years.
Buy Where There Are Discounts
You can maximize your return on investment buy buying in neighborhoods and building that offer a discount. You’ll typically find more affordable apartments in neighborhoods like Yorkville, Hell’s Kitchen and Midtown East, where despite the lower sales prices, values have been holding steady and even increasing year over year. Uptown, the Q train has brought an influx of new renters, and in midtown new developments offer negotiability while still keeping your ability to charge higher rents: Remember my earlier point? with the market in a general slowdown you can negotiate your purchase price by as high as 10%, and with the rental market so red-hot, you can charge top price rent.
One Last Tip...
When you’re investing, it’s all about the future: what you can project and what you can forecast. Look beyond the building at what’s around: is there a new park, school, or ferry route coming to the neighborhood soon? Could these be factors that would entice renters to move there soon? If you want to get there first, you need to start thinking like your potential renter.
Source: Brick Underground