What’s not to like about New York? From Broadway Shows to overpriced coffee, there is a constant hum and energy vibrating throughout the city. With a population of 8.5 million in NYC, residents are looking at 520 square feet per person. That’s a size of a studio. And yes, that’s small. But this blog post isn’t about comfort. This article is about cold hard cash and whether investing in NYC is a good idea. The median home price for a residential property in New York is $345,000. But when we narrow our scope to just Manhattan and specifically look at a 1 bedroom apartment, we are looking at a median price of $750,000. So the question becomes, can we invest into an apartment profitably ? The short answer is probably not.
Suppose we decide to rent out a $750,000 apartment. For argument’s sake, let’s assume that you purchased the apartment using cash – there is no mortgage on the property. The average asking rental price in Manhattan is $3,750 per month. Aside from the income you’ll be receiving from this property, don’t forget about maintenance. There are many ways to estimate maintenance cost, but for this example I’ll use the “5x rule”. Maintenance costs will average 1.5 times the rental income for the year. Using this calculation method for our example, we would be looking at a yearly maintenance cost of $5,625. What about inflation? I’m no economist but below is a spreadsheet I made to take into account inflation and upkeep so we can get a better picture of what your $750,000 investment will look like in terms of net rental income in a period of 15 years:
So after 15 years of dealing with tenants, your total net income will be $662,025. We still haven’t recouped our original investment. Keep in mind that I am not taking into account maintenance fees for the building, which can be enormous in Manhattan co-op and condo buildings. I am also not taking into account income tax due to the federal and state government for this income. If we were to take monthly HOA fees and income taxes into consideration, expect your profit to decrease substantially.
As demonstrated, making money on your invest will take a long time. You’ll be seeing more headaches than cash flow in this market. What then is NYC real estate good for? Appreciation. New York happens to be a great city where real estate is an appreciation machine. This is a place where you buy and hold. If you happen to be a real estate mogul, then this article isn’t for you. But if you are like the rest of us New Yorkers, don’t fall into the trap of rental income in New York. You need to be looking at this with long-term aspirations. Neighborhoods are always growing in home value in New York.
If you truly want to make your money work for you in the city, find a neighborhood that’s on the come up. It goes without saying that Brooklyn is the obvious choice, but if you want to get a better idea of what neighborhoods you should be targeting, shoot us an email with your information or use our contact form to let us know your goals and preferences. Our team will be happy to help and come up with market analysis and comparables within various neighborhoods that will accommodate you best. Send an email to our founder, Kamilla@paperstreetrealestate.com to see how we can help.