The Ultimate Guide To Buying Rental Property In Manhattan

Anthony Guerriero, 4/2/19 5:43 PM

Successfully buying rental property in any area begins with a proven strategy, and when you buy rental property in NYC it’s crucial to know how to adjust some basic tactics to compete in one of the most popular cities. Here is a simple analogy; to win a race a useful tip is "Run as fast as you can" and a good tactic is "Go on the 'B' of Bang." They both need to be modified depending on the race. Running as fast as you can in a 100 meters sprint is not the same as running as fast as you can in a 3000 meters middle-distance race, and being the first off the line in a longer race is not that important.

a young man in his luxury apartment looking out over the New York Skyline

So, how a successful runner applies tips and tactics depends on the race. The same is true in real estate investing. Successful investors in New York City modify their decisions and actions to suit their strategy and they base it on four things: goals, location, type, and advice.

Take Advantage of The Four-Part Strategy

  • Goals are paramount. Goals are the anvil on which all tips and tactics are tested.
  • Goals help to determine property Location.
  • Goals also help to determine property Type.
  • All successful first-time investors rely on Advice from seasoned professionals.

Real estate investors have some main goals that help to determine the location of the first rental property will be and property type. Getting advice from a real estate agent for these specific goals is an effective use of any investor's time. You can learn how to make a quick profit and generate high yields. Many investors may also want to buy properties for their own occasional use while rent is paid by tenants who rent during the other months. This can be a good method to gain passive business or use a rental property as a tax haven.

Property in Manhattan

New York has five boroughs, Manhattan and Brooklyn are two of them. Successful and experienced real estate agents know a great deal about the local markets so they can advise on which areas and neighborhoods within a major city an investor should focus on. In New York City, there are major new developments overlooking Central Park on Billionaires' Row and others closer to the Financial District. There are also well-established locations elsewhere, with very attractive investment properties like an Upper West Side apartment for rent. 

A well-established real estate agent will have their "ear to the ground," and will know of properties that are currently available for purchase, and ones not on the market, but owned by someone who needs to liquidate. Those owners will offer the property at a price that generates a profit for them, but which is also low enough to result in a quick sale - and a bigger profit later for the new owner after they have rented it out.

An investor who wants to generate good rental income may choose to focus on a location with a high percentage of young professionals who choose to rent rather than buy their home. These locations mean responsible, hassle-free tenants who will pay a higher rent to live close to their place of business as well as enjoying high-quality amenities. One location that comes to mind is the East Village, with creative tenants who want to take advantage of the galleries, bars, and restaurants in the area. Such properties in such a location will also result in low vacancy rates for the investor-owner, so will generate a higher net cash flow. 

New York City has a high stock of rental properties, a strong labor market, little spare land for new properties to be built, and a continually high supply of tenants. We’ve also found that in 2021 it’s advantageous to buy a large apartment from a developer. New developments are experiencing some of the highest discounts and concessions that we have ever seen.

Consider the Value of the Property Type

Location impacts property type, and there’s considerable variation in the Manhattan market. An investor who wants their own pied-à-terre paid for by short-term tenants may decide that a two-bedroom condo unit in a particular development with great amenities, and on a high floor (good views are both pleasant and generate premium rents) will be ideal.

An investor who wants to generate long-term rental income may also decide on Manhattan condos. The decision they must make is which type of unit will attract the kind of tenant they want. Should the investor choose, say, two studio apartments in Manhattan, or a one-bedroom or a two-bedroom unit? Their real estate agent will know which type will generate the right level of net income and will increase most in value.

It may be that a young professional family will pay a premium rent for a two-bedroom unit, but the market has more single professionals looking for a one-bedroom unit. The market for studio apartments in Manhattan may also be strong but buying two units will incur more property management costs, and may incur higher utility costs and property taxes.

A brownstone in a well-established New York neighborhood may be a better choice for generating higher rental income. Some brownstones may be separated into two apartments, thus generating higher yields, and some may not, depending on the local government rules. A well-established neighborhood may also have protected rents for existing tenants, thus reducing the investor's cash flow and future market value.

Other multiple family properties - duplexes, triplexes, and fourplexes - provide good opportunities for rental income. Multiple property units in a well-established, but less expensive location may be ideal for the investor who wants their child to live in one unit and manage the others so they learn about running their own business before they inherit and run the family firm.

Best NYC Neighborhoods to Buy a Condo in 2019

One element of property type that investors must be clear about is the Manhattan condo or coop. Both are legal terms and not descriptions of architecture or building style. A coop will have very strict rules about rentals, and may even not permit it until the owner has held the unit for a couple of years. This would not be a good rental property decision and New York condo prices may be in your favor.

Understand Property Taxes in NYC

Every state has different real estate laws. Each state and each city also have different tax regulations, so knowing how to align goals with laws and taxes is essential for long-term success. Taxes in New York include property taxes, abatements, mansion tax, and transfer taxes.

Real estate taxes in NYC are calculated based on the assessed value assigned by local governments, and the property tax rate per month for Manhattan real estate is roughly 0.75%. Financing a property purchase will also include a mortgage recording tax. Foreign buyers also have their own set of tax rules when they buy rental property in NYC, including the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

2021 also brings some unique tax considerations and savings. Many developers are covering a portion of buyer’s closing costs, such as 2% of Transfer Taxes. NYC investors can also take advantage of buildings built from 2005 to 2008, since they include the 421a tax abatement that offers significant tax reductions.

Take Advice From a Professional

Good business advice is the only instrument of production not subject to the Law of Diminishing Returns. Successful first-time real estate investors seek out and rely on good advice. When the professional real estate agent knows the investor's goals, the detailed work can begin. 

Before investors make a purchase decision they want to have a comparative market analysis done on the location and type of properties that will deliver on their goals. This enables detailed searches to find the most ideal property on which to make an offer. They also want a detailed property analysis done so they know the details of regular income, cost, and yield, as well as how to make most of the tax laws when they come to sell.

The agent's local, detailed, and up-to-the-minute knowledge about neighborhoods, developers, current owners, property types, and specific locations results in a best-advice scenario. Some locations will see increased investment in infrastructure, transport, or commercial development. All of these can mean a location will see higher residential New York City house prices in the future. Few overseas or out-of-state investors will have this data to hand, a good agent will. Their agent's knowledge and advice will help make sure that the right decisions get made.

In addition, the successful investor uses the right real estate attorney to draw up the contract to buy, and the contracts to lease for their tenants. Their tax accountant will ensure that the investor takes maximum advantage of local, state, and national tax laws to minimize their costs, lower their tax burden, and generate the highest yield. Their accountant will also know how to follow the 1031 Exchange legislation so the investor can defer all appropriate taxes when they sell the current property and invest in their next, and even more profitable piece of real estate.

Real Estate Case Studies of Homebuyers,  Sellers & Property Investors

Develop Your Strategy to Buy Rental Property in NYC

With so many different types of properties in NYC, it’s good to know that the right real estate agent can steer you in the right direction. Finding the right property takes careful planning and considerations, and a first-time investor should develop a clear strategy in order to profit successfully and build a real estate empire. When you buy rental property in NYC you’ll now be prepared on what type of property to buy, what goals to set, the right location, and how an agent can help.

When you’re ready to take your strategy to the next level, contact us for advice on how to buy real estate in NYC.

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