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What You Need to Consider When Investing in Manhattan Real Estate

Have you been considering investing in real estate? Headlines and news stories may have some home owners concerned about their property purchase, or investors second guessing a decision to invest in Manhattan real estate. Like any investing, it is important to take a disciplined approach to investing in real estate guided by the advice of an expert. Analysis of over a decade of Manhattan housing data exhibited the strength of the borough to remain a sound investment compared to many of the global markets out there.

So, is all of Manhattan the same? Considering the following things when approaching Manhattan Real Estate from an investment standpoint.

Manhattan is a Resilient Market

Manhattan is somewhat a world of its own when it comes to the market and its driving factors in comparison to the larger macroeconomic landscape. The Manhattan market moves at its own pace during economic downturns as a result. We, of course, observed a large anomaly to this during the Global Financial Crisis of 2008. The crisis took down the entire global economy and impacted Manhattan housing. However, recovery in Manhattan was much quicker than that of other global centers.

During this crisis time, Entry-level luxury bounced back most rapidly. UBS Wealth Management publishes a Global Real Estate Bubble Index annually, and New York City was rated “fair value,” especially in comparison to hot markets such as San Francisco, Hong Kong, and Toronto.

Entry-Level Luxury

We have talked about entry-level price points as being key in the current market throughout many issues of Victoria’s View. In the case of Manhattan, some could argue that entry-level pricing could stretch as far as $5-6M. These are the properties that have shown exceptional price resilience over recent years in a market that some argue is slow.

Sub $3M has been especially busy the last few years. Open houses are getting a lot of foot traffic at this price point, and some properties are even experiencing bidding wars, especially those priced in the $1M range.

Why has entry level luxury faired so well? Demand is strongest at this price point in Manhattan. At this price, demand is fueled by working urbanites that are looking for their first-time home purchase, or are, perhaps, upgrading from a 1 bedroom to a 2 or 3 bedroom as they start a family.

Compared to ultra-luxury, or properties priced $10M+, entry-level luxury in Manhattan has remained more stable, largely a result of this demand from working professionals who need a place to live that we just discussed. Entry-level luxury likely has a higher buyer based composed of individuals seeking their primary residences rather than a second or third home which is often the case with buyers at ultra-luxury price points.

Volatility Factors

When you invest in stocks, you assess funds/companies/ETFs that match your identified risk profile. Risk may be assessed on things such as sector – Utilities may be considered more risk averse and less prone to price swings than a sector such as Biotech.

So, when thinking about real estate, what factors should you use to assess risk and volatility when considering your investment? Bedroom count plays a big part of real estate price movement. As a result, bedroom count can be a contributing factor to price volatility of real estate assets. One and Two-bedroom apartments are more common while 4+ bedroom apartments and large townhomes are more unique and rare, thus there is an inherent pricing question when it comes to large apartments as there is simply less historical data and comparables to which to defer.

While more bedrooms may mean more risk, more risk is often associated with the possibility of more reward. Prices of large apartments have risen dramatically since the 1980s and 1990s, however, in similar fashion, they were largely impacted during the great recession with pricing on large properties still under pressure.

   via     Price swings in YoY rents by bedroom count. Notice the swings in 3 bedroom rents compared to Studios and 1 Bedrooms

via Price swings in YoY rents by bedroom count. Notice the swings in 3 bedroom rents compared to Studios and 1 Bedrooms

Pricing on one-bedroom properties have recovered from recession lows, largely fueled by the consistent demand in this space.

Intrinsic Value

Just as a company or stock has intrinsic value, so, too, does real estate. When considering investing in real estate, partner with your broker so you can identify properties that have more intrinsic value than others.

Contributing Factors

  • Natural Light

  • Neighborhood Stature – are there good schools nearby? Is the area established, up-and-coming, or on a decline?

  • Quality Construction and Materials – your broker knows new development and construction better than you. Lean on them to advise which buildings are constructed from the best materials and workmanship

If your investment is for the purchase of generating income, we have you covered! Check out our article on What to Expect When Investing in Real Estate. If you are purchasing real estate as investment with the goal of renting out, discuss what rents look like in the builder with your broker, and how that estimated figure would stack up against anticipated mortgage and carrying costs. There are ways to extract additional value out of your investment:

Ways to Extract Additional Value out of Your Investment:

There are additional ways to squeeze a bit more rent out of your unit and also have an increased likelihood to win over a prospective tenant as they are shopping around. While some of them are an expense upfront, they are some of the most common requests we see from prospective renters. Thus, you will most likely recoup the cost of these investments into your property.

  • Consider building out the closets to maximize storage with systems such as California Closets

  • Install Electric Shades/Window Treatments

  • Ensure the washer/dryer are good machines. It may be worth it to upgrade the machines from the base units that came with the apartment

Hiring a broker will be crucial to maximize the rent received. They are able to position your apartment on the market to appeal to the right audience and spend the time to understand the intricacies of the board package and fees.

  • Price correctly! Rely on your broker’s expertise to price correctly so you can rent sooner rather than later.

  • Get the condo leasing application to review the fees. That way, your broker can speak to prospective tenants about all fees associated with the unit. Additionally, this is important to understand in case you need to offer concessions to remain competitive

  • Good photos matter!

  • Get a floorplan of the unit to place online with the listing