Buying New Condo in Manhattan, Tips for the Foreigner
Posted by Wei Min Tan on June 23, 2022
Buying new condos in Manhattan is a strategy that many of our foreign clients pursue. The objectives are either for rental return or for use as vacation home. By the time a foreign investor client reaches out to me, he would have researched extensively online and have a strong understanding of the Manhattan market.
In addition, the client would have read a lot of my articles on the subject of investing in Manhattan condos. Still, there are many questions. Understandably, buying a condo in a different country is a major undertaking. Here are some tips for foreign investors.
Contact: tan@castle-avenue.com
Deal example: Foreign client’s prewar investment condo. Premium price and premium rent. We received multiple rental applications the first day we listed it for rent. Prewar condos are rare and desirable because of the character, high ceilings and thicker walls.
New Condo Info Overload For the Foreign Buyer
The main challenge I see foreign investors having is too much information. New condos are all presented with beautiful photos and renderings. Everything looks good. Navigating all this information with only upsides presented is very dangerous. Nobody is telling the foreign buyer about the downsides.
The brokers marketing the different new launch projects represent the sellers, hence they have the seller’s best interest in mind. Buyer’s brokers do not market properties online. Until a buyer retains a buyer’s broker, the buyer is alone without professional help on his side.
Read more: A Buyer’s Broker for Manhattan Condominiums
Buying Freehold vs Leasehold
Clients from the United Kingdom, Singapore, Malaysia and Hong Kong are used to the concept of freehold vs leasehold. This is one of the first questions asked – are properties freehold or leasehold? In Manhattan, almost all properties are freehold. The exception is Battery Park where the land is leased. And a few buildings scattered here and there. Apart from these rare instances, everything else is freehold. This is good news to foreign clients from the leasehold vs freehold jurisdictions.
Deal example: A high quality kitchen, including appliance type etc., is important when evaluating whether a new condo makes sense. Pictured below is kitchen at a client’s investment condo at 959 First Avenue. Reserved from developer, waited 2 years for completion, rented at premium rents from the beginning.
Rental Return
When buying a new condo in Manhattan, the rental return is not high, between 2 to 2.5 percent. A rental return approaching 3 percent is considered high for Manhattan. This is normal for a top international city like Manhattan where prices are high.
Investors get into Manhattan for the stable appreciation. Second tier U.S. cities will have higher rental returns but the downside is lower appreciation and more volatility during market downturns. Manhattan prices have shown tremendous resiliency during the past recessions.
Buying a new condo for rental return entails knowing what the market wants. For example, what locations have strong one bedroom demand vs two bedroom demand. What is the target rental clientele etc. The rental potential needs to match the higher price of the new condo.
Read more: Buying Manhattan property to rent out for diversification
Central Business District (CBD) and location drivers
Manhattan is the CBD of New York City. Within Manhattan, identifying hot locations is very important. The actual Wall Street is not where all the banks are anymore. That was 100 years ago. Now the banks have outgrown Wall Street. For example, Goldman Sachs (green building in photo below) is now in Battery Park. In other words, don’t buy something with a Wall Street address thinking that the property will be surrounded by investment bankers going to work daily.
Deal example: View of Goldman Sachs from client’s new condo. Reserved at pre-construction stage, 2 years before completion.
What We Do
We focus on global investors buying Manhattan condos for portfolio diversification and long term return-on-investment.
1) Identify the right buy based on objectives
2) Manage the buy process
3) Rent out the property
4) Manage tenants
5) Market the property at the eventual sale
Article updated June 23, 2022
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