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Why we don't invest in New York, even though we're based here
People frequently ask me why I don't invest in deals in New York, even though we're based here. The reason is simple: it's too hard to make money for your investors in New York. That's a huge reason why we invest in the Southeast, along with more owner-friendly laws, a growing population, etc.
But this Real Deal article I just came across says it all: Data shows that New York County (i.e., Manhattan) is the least profitable county for owners in the entire United States.
http://therealdeal.com/blog/2014/04/01/least-profitable-county-for-rental-landlords-new-york-data-shows/
hope those last post made sense in the car using voice to text
@David DuCille You make some great points, David. Your relationship with Siri is better than mine :) I have an affinity for Brooklyn, but my commercial investments usually stay in Manhattan. There seems to be a lot of recent activity in the living areas around the new Brooklyn Nets' arena; are you familiar with that area? What seems to be moving there worth investing? Spanish Harlem seems riskier for a virtual investor than I like; what things am I missing?
Spanish Harlem is going to be a helluva lot cheaper to invest in than the area around atlantic avenue in brooklyn (awesome area to invest in, I'm very familiar with it. I used to ride my bike all over the city so I know most areas pretty well.) If your establisthed enough that you are doing commercial deals in manhattan, Spanish Harlem may be too small potatoes for you but I think it has the potential to be a bit like what williamsburg and greenpoint were 20-30 years ago. Everyone is getting priced out of manhattan but everyone still wants to be there. Spanish harlem is logical because as I previously mentioned you have the 6 train that can get you all the way downtown. also there is a lot of development happening there already. They built the East River plaza a few years back and it had a few growing pains because the economy tanked in 08 but now it's doing great. Peoiple come from all over the upper east and west sides because there is Target and Costco there. IT's bringing a lot of foot traffic to the area and more and more residential buildings are being redeveloped. Its so much more affordable. I had a nicely updated apt on 114th btw 1st and pleasant avenues 4 doors down from Rao's. Apt was a 2 bd 800 sq ft with private backyard and rent was 2400 a month. The same apt would have been 4k if i was 30 blocks south.
If your reading this and your not from NYC or have never been there, yes, you read those numbers right!
Do you all mean wholesaling or investing in NY is tough to do? I am new and ready to start taking action in wholesaling.
For all those enthusiastic about NYC and it's boroughs, are any of you doing ground up developments? I'm an agent now and think there is a lot of opps for doing this. I'm finding the herd mentality among some investors and it seems they are playing behind the pack. I am really looking for investors capable of executing before some big shot developer or magazine says this is the area in Bklyn, etc to be next. I believe deals are everywhere. This is a good discussion.
P.S. Fact you do make higher returns out of NYC if it fits someone's objective it works but it ain't NY baby!
To anyone reading this thread that knows the NewYork / Brooklyn or even, perhaps, Queens market: What do you think of investing in EAST NEW YORK, BROOKLYN? (De Blasio's target)
OR: .... Are there any other very 'soon to emerge' great Brooklyn or other NewYork neighborhoods you think are great to invest in? Would be very interested to hear your opinions but please explain, in as much detail as possible, why you think so.
...And in the interest of transparency: Please disclose whether you already own property in these areas to avoid the impression that you are simply "talking your book."
Thanks!
Hi Jonathan,
I would have to respectfully disagree. New York real estate is a different animal from most of the country, so it has it's own unique challenges and intense competition, but I hear success stories all the time from friends in the business making big profits on multiple deals in the 5 boroughs. I just learn what I can to emulate it.
The southeast is very intriguing to me. If I were to ever invest out of state, it would be there.
Best of luck!
As a fellow New Yorker I left to Philly to do my MBA and now that I'm done, I'm investing in Philly. Great opportunities and I'm considering possibly investing in Brooklyn, Bronx, or Queens if the numbers and neighborhood are good.
I live in Queens, I am in a very hott area for commercial development at the moment. If you have big bucks at a fight-ready legal team, it'd be a great place to target multi-unit, but nearly unaffordable for most on the forum.
Personally, I think New York is a great place for two things: Raising money & making money (through your occupation, not necessarily passive income). If you've owned for a long time, it may be a different story.
The incredibly and increasingly high bar to entry makes it very difficult for any individual investor or medium sized syndication to purchase here. At my very best (working the deal fulltime and talking to investors) I could raise $1,000,000. Some of you may dismiss this as small-time, but for the bulk of the forum and passive income investors, this would be a great accomplishment.
What diversity of assets will $1M give you? In an arrived neighborhood: maybe a single condo. In an up-and-coming neighborhood: a building, maybe two if you're targeting the Bronx/East New York. With this purchase, you become the proud owner of a large tax bill in a city with (close to) the lowest landlord-friendliness in the country.
We should stop and ask ourselves if a city with bad schools, high-cost of living, un-supportive business policy, and a recent influx of (easily removable) foreign money is an all-time, sure bet. I can imagine certain borough markets in flux when the flock of childless, debt-ridden youth move onto child #0+ and dreams of rural hipsterdom.
Thanks for the thoughtful response!
I live in a completely different world here in Chattanooga, TN
Nothing is a sure bet. But NYC remaining a desirable place to live for young people is pretty damn close (natural or man-made disasters notwithstanding). Yes, people move away when they get older/have kids but there are flocks of college grads from all over the country and world replacing them. And it will remain that way as long as it remains the financial and cultural capital of the most powerful country in the world. Just like San Francisco (which has all those problems - and more!) will always attract people if it remains a tech center with great weather.
Young, childless, professional people want to live here. Don't underestimate how powerful that is. When I've traveled around the world, everyone knows New York. Everyone wants to visit and many want to live here. They don't know where Indianapolis is. Jay-Z's not writing songs about Kansas City.
I also choose to invest in places other than where I live. It has to be tough to make much cash flow in many parts of New York? Maybe upstate it's doable?
Of course you bring up an immensely good point. After all, I live in New York, I do not have kids. As soon as we have kids, I am outta here, not a question. Regardless, I would consider moving back in the future. It is a magnetic place, and the community is hard to beat.
I guess I think of it as akin to buying a Class A share of Berkshire Hathaway. It's definitely a good bet, but it's a lot down for a single share of stock. With scale comes choice. The most recent podcast with Jeff Greenberg is another great interview that expounds on the benefit of commercial properties. Also the scale that comes with the management and financing of them. In NYC, you have to add another 0 or 2 to your funding round to do those kind of deals. If you can do that, you are truly an awesome exception.
I don't think there is such thing as a fixed point in space when talking about investing. Motor City was known and revered worldwide just like Silicon Valley, today. Bad policy and regional stubbornness can ruin even a great & vibrant economy. The comparison to NYC is not perfect, but a 15% downward shift in the NYC market is a whole lot of money, no matter how you slice it.
I like Tennessee. You can close in 30 days, you can evict someone in two weeks. A little sunshine, a little BBQ, sign me up.
I think the Berkshire Hathaway comp is a good one. And you're right, Detroit is a cautionary tale. But that also didn't happen overnight. I just can't see that happening anytime soon here.
My main concerns about the market here is the high barrier to entry and how sustainable the appreciation will be. Not concerned about the desirability of living here changing.
I think you and I are arriving at much of the same point from different angles. If I continue to live in New York (despite it's litany of issues), I obviously see something great about it.
I am also sure many of the California residents on the forum see much of the same.
Originally posted by @Ed Kahle:
I was born and raised in the Hudson Valley just north of NYC. Twenty seven years as a business owner, builder/developer. I relocated to Charlotte NC this year for tat same exact reason. No freedom, too high overhead, poor economy in NYS. I held public office there. Gave up a run for NYS Assembly this year just to get out of a sunk ship! NYS has the the highest mass exodus of population in USA history over the last decade from a single state! It will continue and more than likely pick up speed!
@Ed Kahle
The areas that you are mentioning are D class areas. Majority people that live in those area are section 8. For those of us that want to invest in good neighborhoods for instance Forest Hills, Rego Park, Elmhurst, Flushing, Dyker Hights, Marian Park, Park Slop, they are all expensive area. The houses in those areas Half a million and more. I had purchased my first real estate in Rego Park in 2006, two bedroom coop it cost it me 307K. If you have the guts to invest in those areas kudos to you.
Jonathan:
Let me know if you would like to discuss investing in Texas.
Kathy
NYC today is WILDLY overpriced.
Now it has some positive traits that people not from here can't understand.
Rent stabilization can be cumbersome and annoying but there are ways to game the system via MCIs, tenant buyouts and individual apartment improvements. They call it "stabilization" but in much of the outer boroughs the free market rents aren't far off from stabilized rents.
In addition, if you look at the 2008 financial crisis, multifamily properties in NYC fell 16% (using cap rate data) I believe. But rent stabilized properties still had a 4% rent increase so they held up better and lost only around 10% during the worst financial crisis since the Great Depression.
Another huge benefit to NYC is the HORRIBLE HORRIBLE zoning and planning boards. It's so difficult to build anything, zoning is so restrictive, rent stabilization laws are cumbersome and there are huge amounts of height restrictions in areas. This helps to keep supply growth at nearly 0 and buildings are ALWAYS between 95-100% occupied.
It's also the most financeable asset class in the world, local banks here were making loans constantly through 2007-2011 without a hitch and the local banks here are extremely healthy. All require 25% down payments, they usually use 25 year amortizations and they know rents, especially stabilized rents, will rarely fall even during a crisis.
NYC (Westchester as well) is something that should NOT be purchased today. I have a deal I am hoping to go under contract on (30 units, 7%+ cap rate, 100% occupied and rent stabilized with 50% below market rents) but aside from 1-off opportunities, you need to wait until crises occur and buy NYC then. You could have purchased Manhattan multifamily in 2009-2010 at 6% cap rates and today they sell at 2% cap rates and rents have gone up 50-100% in many areas. I know you could have bought Phoenix at a 12% cap rate, but let's be honest, NYC is where the biggest guys play and that's not an accident.
TO those of you in NYC and finding deals- My manager and I have a fund that is looking for high end NYC purchases, feel free to contact me to set up time to discuss anything you can bring to us.
For those of you coming south east- Let me talk to you about the Tampa area, best place to be right now.
Hi Devon - Are you wanting to purchase high-end NY properties & assets that we currently already own in our portfolio, or are you proposing that we identify for you attractive prospective NYC targets for a referral fee/commission or some other form of remuneration?
I would be bringing a buyer to the deal, and paid as a consultant/referral fee due to only being licensed in Florida. Preferably it would be a property that you own and are liquidating, or are representing the seller I'm not comfortable on transactions with too many middle men and don't like suggesting them to my clients.
If it can be done on referral fee with just the principal reps on the phone when needed we're also happy to work that way.
I have heard different opinions about New York, but I would like to own at least one property in New York. I found a 200+ unit deal last week. If anyone is interested in looking at it with me that would be great!
Lance, where is this 200 unit you're looking at in NYC?
I haven't seen many assets of that size really come "on-market" as in the NYC area, you're looking at a minimum price of $30mm+ for a building like that and most brokers with those kind of assignments only need to make 2-3 phone calls to institutional buyers in order to close a deal.
@Damon Bodine yep - I'd gotten mine off market. Sellers saved a boatload on agents' fees and I got a great deal as well. Mortgage was a bear due to initial owner occupancy. Now that owner occupancy has gone up considerably, that building as well as the surrounding area has appreciated nicely as well.