$15M cash - WWYD in Manhattan?

[Richard Y.]

Hypothetical: With $15M cash, what types of properties in Manhattan would you invest in if your criteria were primarily (1) enough cash flow to live on, and (2) low maintenance (not maintenance payments, but actual work needed to be done to maintain the said cash flow)?  Assume there will be no financing or leverage of any kind.

My initial thoughts would be to buy a few upscale 2BR condos in new or relatively new buildings, preferably with tax abatements or other incentives.  Any potential downsides to this strategy?

[Brian G.]

This is all personal opinion, but I would not go this route. While the luxury market is, usually, a little more adept at weathering potential storms, I think there has, and will continue to be, a glut of luxury residential development out there. More and more comes online each day and there is plenty still due to come online over the next year or so and, from what I can tell, the market is starting to soften noticeably. 

I have friends and family in the industry that I like to talk to about the business, just to pick their brains. I'm nowhere near capable or comfortable messing with the current NYC market personally, but I'm intrigued by it. The one marketing luxury condos has noticed a softening in the market. A stronger American dollar has hurt foreign investment (says most new luxury buyers are Americans, over the Chinese/Russian/Brazilian majority from a couple years ago), developments that used to pre-sell are not doing so as rapidly, and you have a lot coming on line Downtown, LIC, Downtown BK, and in Midtown. New product will make your slightly-less-new product look a little less desirable. You might be able to swing these in cash, and so could many other luxury buyers, but there's a chance rising interest rates put a dent in things. 

And same goes for rentals. Friends in that industry have noticed a softening in luxury rentals due to saturation and concessions are being given. You have a lot of new product coming on line in this market, as well. Couple that with a saturation of and cracking down on AirBnB, which has dominated a lot of the rental market by driving vacancy down, and the ability to rent your condos might be tough, too.

Your big caveat is no financing required, which will obviously keep your monthly expenses for the units down to common charges, taxes, utilities, and minor repairs. But, in the end, you're hoping for price appreciation, which, in my personal opinion worth exactly what you paid for it (nothing), is a long shot with the storm clouds I see brewing.

Then again, I know little about the rarified air in 2 bedroom condo market, so I could be totally wrong. Either way, best of luck! Having that much capital to deploy is never a bad thing. Haha.