Top 5 Mistakes To Avoid When Investing In New York Property
Posted by Wei Min Tan on September 4, 2017
Whenever I meet a new buyer client, especially a foreigner wanting to buy an apartment in Manhattan for rental income, the client often has certain pre-conceived ideas. This is understandable because it is impossible to understand a market from researching on Google from a few thousand miles away. The pre-conceived ideas are as follows. Not necessarily good or bad, but without proper advise, they could be costly mistakes.
Assuming popular tourist areas are best for investment
Foreign buyers usually assume Fifth Avenue, Central Park, Times Square, Wall Street are the “good” areas for investment. This because these are tourist destinations the media associates with New York. I totally understand and if I were planning on investing in a different city, say London, the only areas I would know are the tourist destinations. Naturally, I would also associate investment stability with these locations.
Truth is, New York is a local-focused market because 70 percent of buyers are locals buying to live in the property, as a primary residence. Hence it is important to know what drives the local market. For example, a foreign buyer wouldn’t know that many locals feel Times Square is too noisy and congested. Times Square may be perfect for a buyer wanting a vacation home in the midst of Broadway shows but it may not be the most easily rented out location to locals who want to avoid the crowd.
It’s perfectly fine investing in tourist destinations, but it has to be in context with the client’s overall investment objective. A foreign buyer is making a mistake if he wants to invest in Wall Street because he thinks the major banks are there. That may be the case 100 years ago. Currently, the only high finance institution on Wall Street is the New York Stock Exchange. All the major banks have moved out of Wall Street long ago because of need for more space.
Making decisions based on wow factor
Building amenities such as a swimming pool, fitness center, fancy residents’ lounge, have the power to wow buyers.
Let’s use the swimming pool as example. Some foreign buyers absolutely want a building with a swimming pool. I understand that because in countries like Singapore and Hong Kong, all top buildings have a pool and the pools are used by residents. In Manhattan, pools are seldom used. This is because swimming is not popular in Manhattan. Pools in buildings tend to be so short that one gets to the other end with 3 strokes. They are also narrow, 2 lanes usually, 3 lanes at the most.
Yes, having a pool is a plus, a nice to have. But it certainly should not be a deciding factor. In addition, most of the buildings with the best facilities are usually located further away. This is because the land was cheaper when the developer purchased and hence the developer could afford to build bigger buildings full of amenities.
We can just call an Uber
When I bring buyer clients to view properties that are further away from the subway, the seller’s agent often downplays the importance of proximity to the subway by saying they can just call an Uber.
Reality is that proximity to the subway is important because someone who is renting your $1m to $3m apartment will be taking the subway to work and back each day. Because travel by subway is predictable while traveling by car means getting stuck in traffic and not knowing when you’d get there. Traveling by subway is one of the equalizers in New York City, everyone takes the same mode of transportation during weekdays.
Traveling by car is a lot less predictable. For example, it’s sometimes faster to walk crosstown than to take a cab/Uber because crosstown traffic is terrible.
Where is the garage?
Related to New York being a subway city, know than 85 percent of Manhattan residents do not own a car. Hence having a garage in or next to the condo building is less important. This is because a car is seldom used. If we were to drive our car out for dinner, it would take 15 minutes to find a garage, $30 an hour to park in the garage and another 30 minutes to check in/out of the garage. May as well just call an Uber.
Manhattanites who own cars use them maybe once a month, when driving out of Manhattan (which is also something Manhattanites seldom do).
Not deciding based on facts and data
Being a finance person, I can appreciate facts and data being the great equalizer for decision making. Numbers don’t lie. For the foreign buyer, there is a lot of noise when venturing to New York to invest. Friends give their opinions, brokers give theirs and there is information overload on Google.
Just go back to facts and data. Look at how the building has been performing historically and rental potential. These give a good sense of any property as an investment.
I have several numbers-type clients who understand Manhattan so well simply by looking at the facts and data. They didn’t even have to come here and would make decisions based on my showing the property on skype.
Of course, easier said than done because facts and data is more boring than a wow swimming pool or huge fitness center. Please consult a qualified legal or tax professional for such advice.