Investing In NYC Rental Property: Here’s What You Need To Know
The NYC real estate market is booming – prices and rents currently remain at record highs (Manhattan’s median rent recently reached $4,000 for the first time). As long as it makes sense for your financial situation and you’re ready to take on the responsibilities of being a landlord, investing in a rental property can be a lucrative decision. That said, making the right investment requires careful consideration. By being sure to do your research and weigh up your options, you can make the right decision for you.
Choosing your property
The type of property you invest in largely depends on your budget – and if you plan on paying in cash or applying for a mortgage. As you weigh up your options, draw up a realistic cash flow plan based on an estimate of how much you’ll be able to charge in rent. Your calculated monthly income must be enough to cover all your estimated expenses, including your mortgage, insurance, and emergency expenses.
Your individual goals will also influence your decision. Do you want a property you’ll live in for part of the year, and rent out for the remainder? Or, will your chosen property merely be an investment that generates a steady stream of passive income? In this case, multi-family real estate investing can be a smart move. Multi-family properties are rentable units, such as, apartment buildings, duplexes, triplexes, or condos. Although a multi-unit property is an expensive initial investment, it’s easier to finance than a single-family rental as the lender considers it a less risky investment.
Settling on the right location
The best location in NYC depends on your investment goals. If you want to invest in a lucrative area in high-demand, you’ll naturally need to pay a higher price point. So, for example, if you have your sights set on an exclusive property, check out listings in the West Village or Tribeca. Or, if you want to target young renters, look at areas like Bed-Stuy, the East Village, and the Lower East Side. Williamsburg, Fort Greene, downtown Brooklyn, Dumbo, and Clinton Hill are also all good choices if you’re looking for new developments with cutting-edge amenities.
Alternatively, if you’re open to potentially investing in a less established, yet promising spot, you’ll have to do a bit of research. In this case, you’ll be looking at taking a lower rent initially, however, you may find your ROI soars if the neighborhood takes off. So, when looking at a potential area, check whether there’s been recent investment in infrastructure (such as, improvements to transit links or new schools). Similarly, has there been an influx of construction in the area? If developers are getting stuck in, you know the area is up and coming.
Generating a profit
Investors typically aim to generate a 10% return on investment. Depending on the type of property you invest in, you can expect your operating expenses to account for 35%-80% of your total income. The 50% rule is popular among real estate investors when estimating expenses: if your rent’s $2,000 a month, your total expenses will be $1,000. And, you can also check whether your chosen insurance provider will let you combine landlord insurance with your homeowners insurance to minimize your expenses. Additionally, you can expect to pay annual maintenance costs totalling 1% of your property value. As for your other expenses, homeowners insurance, property taxes, and homeowners association fees can also be expected – along with other regular fees, including maintenance, landscaping, and pest control.
Rental property investment in NYC can be a financially-rewarding venture. By carefully choosing the right property in a promising location, as well as ensuring you’ll be able to generate a profit, you can make your investment a success.
