Time to Buy an Investment Property in NYC?

With the upheaval caused by the Covid pandemic, economic downturn, supply disruptions, and inflation, you may wonder whether now is a good time to buy an NYC investment property. Despite what you might think, there are excellent reasons for getting into the market now rather than later. Low-interest rates (with an expected rise right around the corner), a high vaccination rate, and pent-up demand are currently spurring an enormous boost in sales figures that show no sign of slowing down.

Investors would do well to get in on the action now while they still can; we explain it below.

Why are People Buying Now?

2021, sales volume in Manhattan climbed to its highest rate in 32 years. It has been quite the turnaround from how things looked back in the darkest days of the pandemic shutdown (March to June 2020) when many sales numbers plummeted, and many New Yorkers began leaving Manhattan for the suburbs. Once the market reopened in July 2020, sales numbers slowly climbed and stabilized around June 2021. Since then, sales volume has grown with no signs of a slowdown. Three factors have driven mainly this rush of closings.

1. Low Mortgage Rates

Interest rates have been at historic lows, giving buyers more buying power. Yet there is wide acknowledgment that this won’t be the case for much longer. The Federal Reserve recently raised interest rates for the first time since 2018, with a quarter-percentage-point increase. Further rate hikes are expected, with the fund’s rate between 1.75% and 2% by 2022. This means should expect 4%+ on the 30-year mortgage rate to be the new normal and can do well to lock in a rate and buy now rather than later. The clock is ticking.

2. Pent-Up Demand

The pandemic threw a massive wrench in many investors’ plans to buy in 2020. Unsure of how long the situation would last, many chose to shelve their buying plans and take a wait-and-see approach. At this time, those who did buy got pretty good deals thanks to a decline in prices, but hindsight is always 20-20. We’re seeing a rush of buyers waiting on the sidelines for the right moment to strike. This has gathered momentum of its own, especially with the return of foreign buyers, which is driving up domestic purchases further.

3. Optimism Due to Economic Recovery and a High Vaccination Rate

With many offices, stores, and restaurants reopening, there is a newfound optimism that things are slowly returning to normal. This is buoyed by more than 70% of New Yorkers vaccinated, with that rate continuing to climb. Also, many who left the city during the pandemic have already returned, creating a red-hot rental market. With rental demand staying high and inventory remaining low, purchasing an investment property has never been better.

Considerations to Make Before Buying

While purchasing an NYC investment property to rent is looking like a good idea right now, savvy investors should still take all the necessary precautions and considerations before jumping in.

1. Have Extra Cash on Hand

Despite how hot the current rental market in NYC is, investors should still ensure they have plenty of cash on hand after the purchase. You could need this for renovations and upgrades before marketing to a new tenant, cover any vacancy period while you advertise for tenants, and pay off your property taxes and common charges when due. How much extra cash you should have in reserve will depend on the state of the property, local demand, and your expected cash flow. All of which should be extensively researched before buying.

2. Insurance Coverage

Investors will need to have sufficient insurance coverage in place. For instance, an umbrella insurance policy is highly recommended to cover a potential lawsuit if a tenant gets hurt on your property and decides to sue. Also, research the appropriate legal ownership structure to purchase the property through, such as an LLC.

3. Property Management

How do you intend to handle the management of the property? A hands-on approach to property management can take up your free time and result in trial and error, mainly if you’ve never managed a rental property before. If this sounds like a lot of work, you can always hire a property manager to take care of the day-to-day running. NYC property management companies charge a management fee of 5% of the monthly gross rent. It will cut into your bottom line, but it’s one that many investors consider worth paying.

4. Know the Risks

Real estate investing is not without risks; every investor must know what those risks are. A few of the most crucial ones to consider are:

• Expensive repairs come to light after the purchase.
• A rise in property taxes.
• Lower rental rates during market slowdowns
• Lower cash flow than expected
• Bad tenants can result in high repair costs or even eviction costs.

While you should always keep the risks of buying an investment property, don’t let them paralyze your decision-making. So long as you have enough financial flexibility, you should be able to weather any mishaps and prosper from future appreciation and rental yields.

Final Thoughts

The NYC real estate market is robust and competitive, and investors should find an experienced broker who knows the local market and macro trends. Arrange for a consultation, and they can talk you through everything you need to know about the current market conditions, buying opportunities, and the future. Ask them for rental rates for like-kind housing within the building or close vicinity.

When you’re ready to pull the trigger, they can guide you through the entire process of finding, assessing, and purchasing the right property based on your needs and budget.