Wednesday, February 24, 2010

New York Property Tips

This article on New York Investment Property Tips focuses on buying an apartment in Manhattan, New York. 

Tip 1:  Condo vs coop

Apartments in New York are divided into condominiums (condos) and co-operatives (co-ops).  When you buy a condo, you are buying real estate and enjoy the benefits that typically come with real estate ownership.  For example, freedom to renovate and freedom to rent out.   New York Property Tips

Co-ops are buildings, distinct in New York, whereby the apartment buyer buys shares in the building. As such, co-op owners usually need approval from the building to perform renovations.  More importantly, co-ops usually restrict ability to rent out. For example, most co-ops only allow renting 2 years out of every 5 years. For the investment property owner, this restriction means restriction of income potential.

For investment property purposes, a condo is recommended because of higher appreciation potential, flexibility in renting out and lower supply.  Of course, condos are more expensive, about 30 percent more than co-ops per square foot. 

Tip 2: Leverage

New York property tips
A key difference between buying a stock vs buying property directly is leverage. Leverage magnifies your return and the buyer needs to arrange financing that meets his needs on rate and terms. Hence, shopping for the right lender is Tip #2.

If a property appreciates by 10% but the property is purchased with 80% debt and 20% equity, the return on that 10% is magnified to about 50% before transaction costs (10% appreciation/20% equity).  While the 10% is based on the total price of the property, the equity the investor actually puts into the property is just a fraction of the total property value. By comparison, if a REIT appreciates 10%, the return is just 10% as the REIT investor typically does not use leverage.

Tip 3: Yield vs Appreciation
New York property tips
Manhattan, New York property is not a yield but rather an appreciation game. An investor buys in New York for the long term appreciation potential. Rents relative to price will be much lower than what you get at a small city. Upside is that Manhattan is a brand and everyone wants to live here. People even share apartments to make rent in Manhattan. The vacancy rate is less than 2 percent, relative to the US's 10 percent average. Inflation would mean rents and property values will increase.  Point is that New York property will not have a high yield. You need to put a substantial amount down just to break even on rent - Tip 3.

Tip 4: Location
New York property tips
Yes, it’s still about location in New York. Get a good location and of course, it will be more expensive. Location drives price and appreciation potential.

Tip 5: Make Offers
New York property tips
Listing brochures will say the seller “needs to sell,” “is motivated” etc etc…..The way to get a property deal is to make offers because this sets the negotiation in motion. Until then, it’s all talk coming from all directions. Don’t be afraid of rejections and be prepared to walk away. Your broker should be an expert at this. Ah yes, don’t fall in love with just one property.

New York Property Tips
Related links:
Our website - New York investment properties
New York property price appreciation history
New York Property average price
New York Times Real Estate

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