Rental Property Yield

NYC Rental Property Yield Calculator

Calculate the gross and net rental yield on an investment property in New York City. Enter the property price, monthly rent, common charges or maintenance expenses, property taxes, and vacancy rate below to determine your cash flow and estimated return on investment.

ELIKA New York: Real Estate Calculators

Explore

Buying an Apartment to Rent Out in NYC

Each year, billions of dollars pour into New York City residential real estate. However, not all come from New Yorkers purchasing their primary residence. Instead, a significant portion comes from purchasing investment units and planning to rent them out. This is good business sense in a city where most people are renters.

For instance, two-thirds of the housing stock in Manhattan are rentals, while 60% are co-ops. So becoming an NYC real estate investor will call for a hefty investment to get started. If you do it right, you can secure a very nice income and save a bundle in tax benefits. Here’s how you can do it.

Decide on where to buy

Real estate is all about the location, so choose yours carefully. If you want the least risk possible, it’s better to stick with tried-and-true neighborhoods such as Tribeca, East/West Village, Midtown East, and the Upper East Side. There’s always a demand for these neighborhoods, so you will have to worry less about finding tenants, depending on the property itself. But that high demand also translates into limited and more expensive inventory, so you’ll need to be ready to wait and pay up once you find the right property.

If Manhattan real estate is out of your price range, look for properties in emerging neighborhoods in Brooklyn, Queens, and the Bronx. You may face less competition from other investors and property taxes that may potentially return higher yields. Wondering how to identify emerging neighborhoods? Look for the following:

• A decline in the DOM (days on the market) of properties in the area
• Significant investment; in infrastructures, such as transit options, schools, and public spaces.
• Are there lots of new construction?; be careful that it is not rental buildings that could pressure your rental yield.

Decide on what to buy.Decide on what to buy.

The type of property you invest in will decide whether you’ve purchased a golden goose or a lemon. For a start, avoid co-ops because they aren’t appropriate for this scenario. They may be, on average, 30% less expensive than condos, but most co-ops have strict house rules that don’t allow subletting until you’ve lived in the unit for at least two years. And even if you find one that lets it right off the bat, they can always change the rules at any point.

What is the best property type?

Condos present the best choice due to their liberal policies, and you can begin renting them out from day one. Still, they are more expensive, so you must be ready for more money when you buy them. Buying multiple studio apartments can also be wise if you think you’d rather spread your investment around than put all your eggs in one basket. They’re cheaper to pick up and generate higher yields than larger apartments. However, the flip side is that they have short life cycles than larger units and less emotional value. Despite the potential for short-term gains, a 2 Bedroom apartment will likely outperform capital appreciation over the longer term.

Evaluating the competition

Also, when looking at properties, pay attention to the competition. Avoid areas with a high rental inventory and have buildings with many extra amenities or concessions, such as an additional free month or two included with the lease. Most of these buildings offering grants tend to be in new constructions that are focused, offer more bells and whistles, and have deeper pockets to provide incentives, which highlights the reason to find unique properties with desirable characteristics so that your property stands out, such as a townhouse apartment on a lower floor. Lastly, don’t overlook auxiliary services around the property. A subway station, nail salon, grocery store, and other nearby services can be a big draw for potential tenants.

Calculate your returns

Like any investment, you don’t want to buy without calculating what kind of returns you can expect. Getting a rough estimate of your returns is relatively simple. First, figure out how much you can rent out the property. You can do this by looking at the past and currently available comparable rental properties in the building and neighborhood. Remember that the last list price for a rental online may not reflect the actual signed lease; it remains private.

What is the cap rate?

Next, determine your cost basis. It is known as the cap rate (capitalization rate). Make sure to include not just your initial investment of sales price and closing costs but also upkeep, such as common charges, maintenance, and property taxes.

To calculate the cap rate, start calculating your Net Operating Income (NOI) and subtracting your Operating Expenses.

It includes everything you spend to run the building but excludes significant capital expenditures or assessments to increase the property’s value or lifespan.

Once you have your NOI, you divide the property’s price onto it.

What is the rental yield?

Average yields are difficult to estimate as many variables are in play, such as the neighborhood and whether you’re financing. In New York, it’s more of an appreciation game rather than a yield game. However, a global market can remain competitive even in a down economy, looking at long-term benefits like appreciation. A Manhattan condo has a 2-4% rental yield after deducting common charges and real estate taxes.

As you move through negotiations and towards a binding contract of sale, you’ll better handle these estimates, so keep a close eye on them.

Find tenants and play landlord.

Now that you have the property, it’s time to play the landlord. You have to be sure you can handle the responsibilities of this as you’ll need a solution for almost every problem that may arise. Potential tenants will need to be vetted, maintenance and repairs may be necessary from time to time, and you might have to deal with the cost of a bad tenant.

If you’ve bought multiple properties, it would be wise to purchase umbrella insurance to cover all of them. If management is too much for you, consider hiring a property manager.

Ask an Expert

Are you searching for an investment property? An Elika investment advisor can help guide you. Request a curated shortlist of investment properties that match your needs. And our buyer’s agent services? No cost to you. Buy with confidence.