When it comes to real estate investment, the analysis of the real estate market in the city you are targeting is essential. BaltimoRealEstate publishes a series of comparisons between Baltimore and other cities that may seem interesting to investors.

In our article, Why we chose to invest in Baltimore, we explained why investing in Baltimore real estate was highly profitable. In this article, we explain why New York City is NOT the city you should target for an investment.

A major centre for finance, fashion, cinema, entertainment and shopping, New York is one of the most important cities in the world and attracts a large number of investors. Buying an apartment in New York, and more specifically in Manhattan can be a good investment, but only if you will live there as a resident owner. However, for a real estate investment, particularly in the short term with renovations before resale, New York City is no longer an attractive market for investors.

The 2007 subprime crisis had a serious impact on the New York City real estate market, dropping average real estate prices by about 35%. Apartment prices in Manhattan fell sharply in the second quarter of 2009: the number of sales fell by more than 50%, and prices in some categories fell by 25% compared to the same quarter in 2008. Sales prices also decreased compared to the first quarter of 2009.

The post-crisis period was therefore the ideal time for investors wishing to invest in low-cost real estate. In 2019, the real estate market reached new record prices (see Zillow diagram below). The average selling price in New York (including Staten Island, Queens, Bronx and Brooklyn) is now US$1,350,000. Property taxes in New York, although low (0.9%), can therefore quickly become significant.

Renovating a New York apartment (to resell it at an higher price) can be very complicated, if it is part of a condominium or co-op (which is the case for the vast majority of apartments in New York). These condominiums and cooperatives have a change contract or a decorative amendment, which is essentially a rule book on how you should do the renovation work. You must also make a request by completing an amendment agreement.

Apartments that are in a co-op (about 75% of apartments in Manhattan) are the cheapest but also the most complicated to manage. First, the approval process to buy the apartment is long and complicated; financial disclosures and references are often mandatory. In addition, the buyer does not actually own the property because he is actually buying shares in the cooperative building in exchange for a lease. The building is treated as a single massive property, which means that residents must share property taxes and pay for the maintenance of the entire building (an average of $1600/month of maintenance costs per month for a small 2-bedroom apartment). This can quickly become expensive.

Finally, when selling the apartment (well..the shares), it is necessary to obtain the approval of the sale and of the buyers to be able to sell the shares: it takes approx. 6 weeks for the buyer to submit his request and have an interview with the jury. The Board may reject potential purchasers as part of the application process without giving any reason. It can therefore be very expensive when it comes to selling the apartment

Therefore, the very high price of apartments in New York as well as the difficult process to buy, renovate and resell most of apartments in the city make the city very unattractive for real estate investors.

Sources:

- https://www.nytimes.com/2009/07/02/nyregion/02real.html

- https://medium.com/@Hauseit/is-it-a-good-investment-to-buy-an-apartment-in-nyc-2610266f170a

- https://www.zillow.com/new-york-ny/

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