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What to consider before buying an investment property?

Written by Posted On Tuesday, 18 July 2017 08:22

Investing in a property in New York isn’t reserved for real estate professionals any more. It is such a liquid and transparent market that it has become a vehicle to get a decent return and a safe place to deposit cash. Interest rates are still moderately low which makes it even more attractive to buy with borrowed money. When you are buying a property for investment purposes there is no room for emotions and sensitivities! It is all about numbers and formulas that will provide the highest yield possible.

There are several factors to take into account before preparing for this new adventure. You will first need to collect a decent amount of cash: cash for the down payment, cash for expected repairs cash as well as unforeseen expenses and finally cash for typical closing costs.

If you’re planning to buy with a mortgage (as most mortals do) you will unequivocally need a high credit score. This might be harder to understand for expats; the concept of a high credit score and the importance it has in American economics is very particular. To get a good mortgage rate you will need at least a high 600 credit score.

To make the most from a rental income, it’s important to find apartments with low common charges and buildings with no upcoming assessments. Take these numbers into consideration when doing your due diligence. They will make or break a deal.

It’s crucial to do an accurate estimate of expenses on your target property. Those include electricity, water, insurance, property taxes, repairs and maintenance. To do a precise valuation you need to also consider vacancy periods (the time between one tenant leaving and finding another one) as well as management expenses. You always need to have some cash available in case of unexpected expense. Add these values to your overall formula. 

Finding the right neighborhood is very important. I always recommend clients to buy where they know the market. In New York there are major differences in pricing, availabilities and inventory depending on the neighborhood. The considerations to be taken into account are not the same when buying a 3-bedroom family-friendly apartment in the Upper East Side or for a studio in Soho. The needs and demands of your tenants will be different and you should analyze your audience and target tenant before investing. Remember you are not buying your dream home; you are buying a property to receive a positive cash flow at the end of the year.

Most real estate brokers will advise investors to look at condos, which make up roughly a quarter of the market and are significantly more expensive, because they offer more flexible rules on renting out apartments. Most co-ops have specific regulations about forbidding or limiting sublets and others oblige you to live in the apartment before authorizing a rental option. The ideal product would be a flexible co-op, which offers you a cheaper price with condo rules. Of course, these are the hardest to find and there is no mortgage tax on a coop on top of everything! As we like to share our analytics with clients, here is a link to our simplified coop investment model to figure out if you should pull the trigger. Please share your comments with us as we are always happy to discuss real estate.

Before making any investment decision have a good real estate lawyer review the financials and legal docs of the building. A good real estate lawyer is an investment not an expense! A meticulous due diligence could save you thousands down the road.

Not everyone is financially ready to make an investment, and that is to be expected. Real estate investing is a long-term strategy, and it may take a few months to prepare for your first investment. Whenever you are ready to discuss options NestApple is here to help you! 

 

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