How the heck do people get started investing in NYC?

[Anne N.]

Hello all! I am a native New Yorker and I am just now in a position where I can seriously start saving for a down payment on a home. I currently have only $10,000 set aside which--in this city--is a paltry sum.

I used to work for an extremely well known NY real estate scion (last name starts with W and ends with two Fs) and he would always talk about how he got his start buying homes in Washington Heights and the Bronx. If I recall correctly, his first purchase was a 32-unit apartment building.

Now my question is this: how in the heck does anyone start investing in real estate by buying a 32-unit building in New York today? Or even just a two family! It simply seems impossible unless you are already extremely wealthy. Or am I just looking in the wrong places? I would imagine I'd need 500k down for a multi unit apartment building and that will take me forever to save. In the '70s those areas were plagued with economic and social blight and while I in no way want the era of the fiscal crisis to come back in this city, I can't help but feel bad that in this town, real estate is prohibitively expensive, especially when it comes to multifamilies. On top of that, NYC is the land of the co-op, and they are hard to invest in so we're stuck with ridiculous expensive SFHs and multi units, or co-ops you can't rent out due to maintenance fees being high and co-op boards being strict.

So how does someone start today in NYC? Is it better to look into other cities like Baltimore, Chicago, Philly, St. Louis and Indianapolis?

[Llewelyn A.]

If you think you might want to live in NYC (or major Metropolitan City such as SF) for the long term, but not as an owner, then you risk getting Priced out of your NYC Rental unless you are lucky to get a Rent-Stabilized Apartment.

Rents will generally climb much higher than your Fixed Rate Mortgage payments over the years.

In the year 2000, for example, I owned a 2 Unit Rental building near Prospect Park, where the rents were around $600 per month. Today, those same apartments now rents for $1,800 per month with no other renovations other than repairs for normal wear and tear.

There has been a few of my REI colleagues that Invested in other areas which were paying them some cashflow. They never bought in NYC. Unfortunately, the increase in their cashflow from the investments outside of NYC versus the increase in their NYC Rental Apartment didn't match.

One of those same friends moved out of NYC because he couldn't afford to live here anymore. As one of the Presidential candidates said about NYC rents.... "The Rent is too Damn High!"

Living in NYC, even in cheap neighborhoods will always be expensive and will continue to climb.

To Graphically illustrate what happened to the Rentals of my building, here is a Chart which shows what the rental increases would have been, taking into consideration that the Apts rented for $600 in 2000 and wound up at $1,800 in the year 2016.

I extended the years so that we can see what the future Rent could be like if the same Rental Increases continue at the same pace. You many not imagine that if you are paying $1,800 per month now that your rent will increase to $5,784 by 2033. HOWEVER, that was probably the exact thought of my tenants in 2000 when their rents was just $600 per month.

Obviously, if the rents increase so much in the last 16 years, the value of the building increased hugely as well.

This is JUST observations based on facts from one of my multiple properties. The other properties have similar experiences and they are in different neighborhoods in Brooklyn.

I will say that past experience does not indicate future experience. But if you intend on living in a good neighborhood in a Major Metropolitan City...... you risk being priced out of both buying and Renting if you don't actually own your property before the inevitable Value and Rental Increases become overburdening.

Let's say that in the year 2000... you were thinking that the particular rental I eventually boughtwas expensive with Mortgage payments being a bit above what the rent would be, say, $750 per month versus $600 per month renting during that time. 

Using hindsight today, if you actually purchased the unit versus just renting it, you would absolutely had done incredibly well as you are saving over $1k per month from the current rent of you unit you own.

If you owned and you wanted to increase your cashflow now that it's 2016,  you can move out of your place to a low rental City and rent the unit you owned since the year 2000 for $1k per month cashflow!!

Now, let's look at it in the future.

Today, you can rent the apt for $1,800 per month. That apt, if bought, will have a 30 year fixed rate Mortgage Payment of say, $2k per month.

However, in the next 16 years, the rent will obviously move up. If it moves up to $3k per month, and that's going to be a conservative rental increase, was it worth it to the homeowner to have bought the Apt to lock in their fixed rate mortgage payment now at $2k when their rents is at $3k in 2033 if they didn't own?

Some will say it wasn't worth it. OK... what about $4k in the year 2033? What about potentially $5k per month?

You cannot treat good neighborhoods in NYC the same as non-Metropolitan cities. They two are like Apples and Oranges.

But again, IF you really want to live in a Major Metro City for the long term....... Buying your home should be part of your consideration. The risk of being outpriced is very high.

Investor Llew