Should you invest in several single family houses or a Manhattan apartment
Posted by Wei Min Tan on July 1, 2021
Should you invest in several $300,000 single family houses in a booming U.S. city such as Austin, Raleigh, Atlanta? Or buy a $1.5 million one bedroom Manhattan condo apartment?
Contact: tan@castle-avenue.com
Read about Wei Min’s style in Best Manhattan property agents and Role of a buyer’s broker.
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Supply and Demand
Since Manhattan is a landlocked island with condos making up only 10 percent of inventory (the other 70 percent are rental buildings where you cannot buy an individual unit, 20 percent are Cooperatives), supply is limited. Manhattan’s demand comes from locals and global investors who want to diversify assets and who want a hedge in their portfolio.
With a single family house in a booming midsize U.S. city, supply is unlimited as developers keep building farther and farther from the city’s core. Demand comes from locals and less from international investors who tend to prefer a “big name” city if they are to come halfway around the world to invest.
Deal example: Investor client’s prewar West Village condo with high ceilings, amazing open views and prewar charm. These wow factors got the apartment rented in one week! Weimin’s article, Three things to consider before investing in Manhattan.
Price stability
In a top tier city like Manhattan and London, prices are high. Since supply is limited, prices are more stable. Even in downturns, prices won’t decline by much. With Covid, Manhattan condo prices dropped by only 10 percent. During the financial crisis in 2009, Manhattan prices was down 15 percent while rest of the U.S. was down 35 percent.
Rental Return
Single family houses in the U.S. provide net rental return (aka yield or cap rate) of about 5 to 7 percent. In Manhattan, since prices are high, rental yield is only about 2 percent. Single family houses win in this aspect.
Weimin’s article, Best real estate investment options in Manhattan, New York
Diversification
Having several single family houses provides better diversification than one Manhattan apartment.
Appreciation
Appreciation for Manhattan should be better because of global demand and limited supply. There is only one Manhattan and one London. While there are countless midsize U.S. cities.
Deal example: Foreign investor client’s corner apartment with dual exposures to the south (New York Harbor view) and East. Buy decision driven by proximity to World Trade Center and abundance of subway lines. We rented out this apartment very quickly because of the views and high end finishes.
Operating Expenses
With a Manhattan condo, there are monthly common charges which partly explain why the rental yield is low. The common charges of a Manhattan condo is higher than the property management fees and repair expenses associated with owning single family houses.
Deal example: Owning a single family house means being responsible for the entire structure including the roof, mechanicals and exterior.
Ultimately, owning single family houses provide better rental yield. But a Manhattan condo is a better long term hedge for diversification purposes given the global demand.
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
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