Why Invest in New York?

Investing in New York City is a unique proposition — entry price points are high and cap rates (a measure of annual yield) on rental properties are low.  But, as compared with other parts of the country, and the world, investors continue to park cash in NYC assets.  Here are the main reasons why:

• Safety
• Appreciation
• Ease of ownership

 
The number one reason to invest in NYC is for safety — the main fundamental of real estate is LOCATION, LOCATION, LOCATION, and all of NYC arguably meets that criteria.  In comparison to other US cities, NYC is less volatile during downturns and over time has proven to hold it’s value.  When other, more speculative, markets dropped 50% during the 2008 financial crisis, NYC dropped an average of 15-20%.  The Upper West Side was also the first neighborhood in the US to bounce back and home values quickly raced far above their pre-crisis values.  Couple this with the fact that the world sees US currency as the safest currency in the world, it’s easy to see how attractive NYC is for those looking for a safe haven to protect their capital.

A lesser-known fact about NYC is that it’s sale inventory is still made up of 70%+ cooperative.  That means the vast majority of product in the city is bought by purchasers who pass strict financial requirements to qualify for ownership.  When there is a market downturn, these owners are more resilient and are less susceptible to foreclosures and distressed selling, which acts as a buffer against downward economic pressure.

The second (and related) reason to invest in NYC is appreciation.  Not only is it safer than other markets, the same reasons that make it safer also drive its growth.  When looking at the fundamentals of supply and demand, the demand in NYC continues to grow over time.  That doesn’t mean it won’t ebb and flow with certain demographics, but overall there are so many factors that drive an increase in demand, and therefore, growth.  Without getting into the fine details of economic theory, we know at least the following exist that significantly strengthen demand:

• Schools, colleges, and institutions  –> contribute to the local labor fore available to employers seeking to hire the best talent
• High-paying jobs and career growth opportunities –> no matter where you are in the country, chances are you have applied for a dream job in NYC.
• Culture creation center of the world –> there is a reason movies, tv shows, etc., are based in NYC — because people want to see what’s happening here.  People flock to NYC for its fashion, culinary cuisine, art ecosystem, and the list goes on.
• Technology sector prowess — in 2019 NYC overcame Silicon Valley in volume of funds backed by VCs.  Tech hubs have sprouted throughout NYC including “Silicon Alley” in Flatiron, Brooklyn Tech Hub (Dumbo, Downtown BK, and Navy Yard), Industry City in Sunset Park, and the dozens of WeWork offices stationed for small businesses and startups throughout Manhattan.
• Financial sector dominance — Wall St and the banks attract the best talent seeking to build lucrative careers in finance
• Tourism — NYC landmarks, cuisine, museums, parks, etc., We are at the cutting edge of culture and people want to experience it in person.

 
Those reasons are just the tip of the iceberg when it comes to drivers of demand in NYC.  When most markets have only 1 or 2 of the above factors going for them, it’s no wonder NYC property values have greater resiliency and growth potential.

The third reason is often an after-thought, but is nonetheless important to investors — it’s easier to be a landlord in NYC.  In other markets, investments can consist of single-family or multi-family homes where you have to maintain the entire building and yard.  To do so, you’d often have to hire a property manager (and pay them 10%) that coordinates maintenance on a regular basis and can be called upon by a tenant in an emergency.  The property manager may or may not be experienced to handle every sort of issue that arises from maintaining a building (e.g., flooding basement, roof leak, or clogged pipes).  In NYC, you’re often buying a condo and paying common charges (essentially, operating costs) towards a building that has full-time professional staff dedicated to the maintenance of your building.  Your monthly dues are paying for the maintenance, but it takes half of the headaches away in not having to deal with any building-related issues.  You can sleep at night knowing that the building’s condo board (made up of other homeowners in the building) is responsible for allocating your monthly common charges towards maintenance of the building.  In addition, you have agents on the ground that will market and handle the paperwork necessary to find and screen tenants — often at no cost to you as a landlord (depending on the rental market).  And finally, NYC, because of demand, has one of the lowest vacancy rates in the country, hovering between 1-3% in recent years.  The biggest loss as a landlord is when your property is vacant and a tenant turns over so having a 1.31% vacancy rate (Jan 2020) means you are dealing with a lot less hassle and expense than other markets.