Is now the time to make a real estate investment? In short, yes!

We spend a lot of time looking at apartments. In fact, we’ve been contemplating buying another apartment as a rental property. After all, the city is coming back and there are plenty of new condos to consider.

If you have the capital to put towards this type of investment, now is a great time to consider diving in!

Here’s the catch – do you know what to consider before making this asset-allocation leap? Here’s some tips on what you need to consider before investing in real estate.

4 things to consider when investing in New York City real estate

As life in New York City rapidly normalizes, we are hearing a common question: “Is this a good time to invest in the City?” The answer is “yes!” and here’s a quick guide on how to do it!

1. Cap Rate

Buying an investment property is similar to investing in a bond. You are looking for stable, long term cash flows. The ratio of your income from this investment to the cost of the asset is referred to as your capitalization rate (or cap rate).  The calculation for a condo is as follows:

Cap Rate = Net Operating Income / Price of asset

Where Net Operating Income (NOI) is defined as: Rent – Common Charges – Real Estate Taxes

In other words:

Cap Rate = (Rent – CC – RETaxes)/Price of Apartment

All things being equal, the higher the cap rate, the better for the investor!

2. Finding the property

Unfortunately, finding the ideal property is not easy! Let’s say you do an analysis on one building, and you determine that the cap rate will be approximately 3%. How do you determine that is a good number? The answer is that one data point tells you relatively little. Doing another analysis on another building will tell you which of the two has a higher expected cap rate, but you still only have two data points and there are thousands of more potential investments to choose from.

You will need to rely on the experience of your real estate agent to guide you to a proper investment.

3. Total return or pure cap rate?

You also need to determine if you are interested in only the cap rate or your total return. Cap rate does not take into account the capital gain you make when you sell the property.  Your total return will be dependent on the price appreciation you enjoy as well as the income you generated during the holding period.

In general, more established neighborhoods will have more stable cash flows but lower capital appreciation.  You need to speak to your real estate agent about what profile of investment best meets your needs.

4. Other considerations

Unfortunately, that’s not all!  For example:

  • Tax abatement
  • Vacancy allowances
  • Rental laws
  • Depreciation

If you have questions about investing, or know someone who does, please reach out!

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