Can Anyone Explain What is Going on in the NYC Housing Market
Some recent stats
128 Homes Valued at $25M or more (one unit sold at $100M last month)
It seems like out of nowhere, people in NYC are all of a sudden paying completely nonsensical prices for housing. And this is only the beginning. There are 6 new towers under construction that will all be more expensive a luxurious that anything in NYC currently.
Why is the happening now? I know the wealth disparities have grown in recent years, but this all seems to have happened in the last 6 months.
Most of those really high end properties are trophy investment for international investors who are trying to protect their money. There are some very high end buildings that have almost no one actually living in them most of the time.
Agree with @Carl C.
I believe the ultra high-end properties operate on a different plane. A lot of times, it's just to get into the project/building, then they forget about it. Also international folks who feel US property is a safe place to "bank" their money. Also could be so that their kids have an address here so they can go to school here. These same people are probably buying in London, as well.
Here is an interesting from the Times - not as high end as the numbers @Max Galka is quoting, but a good read for those who might be interested in really niche building/selling.
actually the NYT just published a massive multi story article about this phenomena. It's also happening in my market in San Francisco.
The interesting question is how this phenomena effects more modest $1-3 mil properties in Manhattan and SF. I believe that it does push this end of the market up as well, as it basically curtails the building of less expensive units. Developers prefer to build/sell high end of course, and thus will offer proportionally less lower end units.
OTOH, if too many of these largely unoccupied "safety deposit boxes in the sky" exist, the next recession could exasperate price cuts, as these people don't have a large commitment to NYC or SF. If the sh!t hits the fan like in 08-09, theses folks will bail on these units in a heartbeat, hurting the market for locals...wealthy or merely upper middle class.
What do you guys think?
The article: http://www.nytimes.com/2015/02/08/nyregion/stream-...
Originally posted by @Amit M.:actually the NYT just published a massive multi story article about this phenomena. It's also happening in my market in San Francisco.
The article: http://www.nytimes.com/2015/02/08/nyregion/stream-...
Interesting article. A summary of the article is in Yahoo Finance:
It looks like the high-end condo is the new Swiss Bank Account. One thing that is attracting money is the US economy seems more stable than most of the world.
I've been advocating picking up these no cash flow gems when the numbers made sense a year ago BUT noooo, everybody ran to Indy & Memphis to get yer $100 a door! How's that plan looking now?
@Account Closed Yea. Maybe. But when you're buying real estate strictly on the hopes that it appreciates, you're basically just gambling. I'm sure there were some people 6 or 7 years ago saying that everything real estate will turn to gold and you should buy everything you can. How do you think those people did.
When you buy real estate that doesn't cash flow, you aren't investing, you're gambling - pure and simple.
So while it was a great call on your part, not many people out there want to gamble their money in anything. You can actually lose when you gamble despite what some casinos would have you believe...... :-)
I would never tell anyone to buy anything that didn't cash flow.
If you're only hoping then that could be considered gambling, but when you educate yourself to market economics such as supply & demand and analyze past performance then it is investing. Maybe just at a different level than you're used to.
Prices are certainly high, but buyers (myself and my clients included) view NYC, mainly Manhattan has a safer bet than the stock market. If you can afford the 20% down payment, you're better off buying than renting. Not that my apartment is in that 7,8,9 digit stratosphere, but my mortgage and maintenance is less than I used to pay in rent!
Glad to see the high prices as a guy who lives and owns in Manhattan. Hoping for same type of returns in Brooklyn. I just look at the rest of the world. Europe's economy is not great. Like Brandon Cohen said, people park their cash here because it is safe or at least a better option than a lot of places or vehicles.
I disagree. If you're buying and the only way you're going to make money is thru appreciation, then you're gambling. Because it doesn't matter how much research you do or how much supply and demand comes into play, the bottom line is that nobody can guarantee future results based on past performance. NOBODY.
And nobody can guarantee appreciation on homes in any area during any time period - at least not consistently. So while you may be able to pick it 3 out or 4 or 4 out of 5, the one time you miss and you end up with a bunch of homes that aren't cash flowing on the rent and you can't sell for 10 years because they didn't appreciate - is the one time you're going to lose your shirt.
Just go see all those people who doubled down during the housing boom but couldn't get out before the bust wiped them out.
They gambled and made tons of money - until the bottom fell out and then they lost it all.
Can't tell you how many "former" developers/builders I know of that lost their shirts because of that very thing. They were investing for appreciation because thats what was going on. And they just kept throwing their profits into the hand/table. Eventually, they lost it all when the music stopped.
Can't hold onto something that doesn't make money.
But an investment property that cash flows doesn't need to appreciate to avoid taking a beating. Its nice to know that it should go up 2 to 3%. But if its making 300 to 400 a month and principal paydown is 100 to 200 a month, you don't need to sell ever.
One other thing. Based on the article on why real estate is going up, it seems very speculative right now. It seems like a bunch of foreign investors have been using NY real estate as a way to park their money while the other foreign economies all struggle.
At some point, the music is going to stop with that for one reason or another. And whose to say when or why. But when it happens - and it will - the prices of those ultra expensive units are going to take a beating. I just wouldn't want to be the one that takes that kind of chance.
Its still interesting that you made that call. I do think some people are better at seeing whats coming than others and are able to use a little common sense and basic economics to figure stuff like that out. So while its pretty neat that you called it. I'd still say I would never tell anybody to invest in real estate that doesn't cash flow. Not unless they're in a position to lose a big chunk of that money.
And one thing I did learn from Richest Man in Babylon - Never Risk your Principal (or something like that)..... :-)
You guys sit here and debate, I'm going to dream about what my life would be like if I could afford to pay $100k a month rent.
Heather, I got a condo that is nice and not 100k a month!
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Originally posted by @Account Closed:
I've been advocating picking up these no cash flow gems when the numbers made sense a year ago BUT noooo, everybody ran to Indy & Memphis to get yer $100 a door! How's that plan looking now?
Which no-cash-flow gems are you talking about Bob? Surely not the ones form OP's article. If you mean the California and Hawaii properties that you keep telling people they need to buying, how do you suppose all those midwest investors buy them? Ever consider that there is a reason these properties are only purchased by a very small percentage of investors? Most can't afford the purchase price in the first place, would never qualify for financing due to DTI calculated on the property and many investors simply can't stomach the negative balance each month while waiting for appreciation.
I do agree with your point that this a strategy that takes a smart, focused, well-funded investor who understands precisely how they are going to profit from each deal and wants in and out as soon as possible, but that is not the same investor who bought or is even buying in the midwest. The midwest is being bought by a mixed bag of investor types, but most aren't looking for quick hit deals where timing appreciation is required.
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Originally posted by @Mike H.:
I disagree. If you're buying and the only way you're going to make money is thru appreciation, then you're gambling. Because it doesn't matter how much research you do or how much supply and demand comes into play, the bottom line is that nobody can guarantee future results based on past performance. NOBODY.
And nobody can guarantee appreciation on homes in any area during any time period - at least not consistently. So while you may be able to pick it 3 out or 4 or 4 out of 5, the one time you miss and you end up with a bunch of homes that aren't cash flowing on the rent and you can't sell for 10 years because they didn't appreciate - is the one time you're going to lose your shirt.
Just go see all those people who doubled down during the housing boom but couldn't get out before the bust wiped them out.
They gambled and made tons of money - until the bottom fell out and then they lost it all.
Can't tell you how many "former" developers/builders I know of that lost their shirts because of that very thing. They were investing for appreciation because thats what was going on. And they just kept throwing their profits into the hand/table. Eventually, they lost it all when the music stopped.
Can't hold onto something that doesn't make money.
But an investment property that cash flows doesn't need to appreciate to avoid taking a beating. Its nice to know that it should go up 2 to 3%. But if its making 300 to 400 a month and principal paydown is 100 to 200 a month, you don't need to sell ever.
If I paid cash for all of your examples, none of what you're saying applies. The common denominator to make your statement true needs to be that those purchases are all leveraged purchases. Real estate without appreciation is a stool missing one of it's legs.
leaving the $10 mil+ condos alone for a minute, there are also foreign buyers for the mere $1-2 mil units as well. Often by foreign or out of state upper middle class families, with family/friends/connections in the USA. Plenty of Chinese examples in SF. I think they will have a more significant effect than the few high profile 0.1%ers who buy über high end.
BUT, the über high enders are still a critical component. Why? Because they get all the press attention and hoopla, which filters downwards. Then the merely rich follow suit and invest in these markets too. THAT I think may have a more pronounced effect on future appreciation rates in Manhattan and SF.
So, while that NYT super article may seem damning of all these super rich folks buying under shell corps and hidden trusts, I actually want to thank the NYT for putting this front and center, basically promoting condos, and for helping to increase property values! It's like the crazy left wing SF politicians: they do everything to limit market rate housing, as they inadvertently help increase values on existing properties. When it comes to land use, I love ideological liberals- couldn't have made my millions without them!
I don't know what's going on but people have money and will shell 500K on a studio in Manhattan. I know a REA who does hi end sales and always posting about closing a deal. The point is. People want to live in Manhattan and will pay for it. I see a lot of buildings bought being converted to Co-Ops. Or investors will buy a dumpy home in Flatbush Brooklyn and build a 8 floor apartment rental. I am living next to a construction site where my windows are not blocked out. I can frolic in the construction site if I wanted to. It's that ridiculous in what they let them get away with. I had to complain to 311 multiple times before they did anything, best they could do is fine the hell out of them and issue a partial stop work order to not work within a specific amount of feet from the windows in my apt. But I digress. Not sure what the cash flow is and ROI on these things but to be honest they are just picking at scraps at the moment IMO. The vacancy rates will be NIL in NYC. People will live anywhere. It's another world here. As for the .1 percent buyers. My wife has worked with some of these people as a Pilates Instructor. Someone owning a building next to Columbus Circle. They have so much money its not necessarily about cash flow for them I feel. Its about image or selling on appreciation, because lets be honest NYC is appreciating constantly. It's a gamble of course but are we the uber rich here? I've heard of the Rich Chinese coming over and buying condos but in that article it states its a status statement as much as owning a ferrari or rolex. It's pure insanity. If you could afford to buy a brownstone in NYC and keep it the point is it will appreciate, you'll be living in an amazing city, and when you sell you can move to the middle of nowhere and buy a mansion. The market here is insane. But when I see NYC prices in Boston I get a weird feeling in my stomach. For many reasons but part of it is maybe more people want to live in NYC not in Boston among other things regarding making it big and living the NYC lifestyle.
Perhaps one reason why is NYC added 280,000 residents since 2010. Brooklyn is still 4% under its 1950s peak population. I am not sure it would be considered a gamble to invest in NYC or even risky longer term wise really. It seems like a world class place to invest. It is uber competitive to find deals obviously. Location is primary and there is only one NYC on the planet - that part I can guarantee:)
Originally posted by @Mike H.:
@Account Closed Yea. Maybe. But when you're buying real estate strictly on the hopes that it appreciates, you're basically just gambling.
When you buy real estate that doesn't cash flow, you aren't investing, you're gambling - pure and simple.
Mike, you do not understand this type of investing. I invest for appreciation AND cash flow. I have a property that I bought for $35,000 that generates almost $30,000 in rents! It has produced about $400,000 in appreciation AND $400,000 in rents. THAT is investing. Bought with $2,000 down. Rent growth 6% and appreciates about 9% a year.
Now there are people here that sell books yet admit they can't figure out an appreciation rate and YOU want to call them investors. Maybe on a very primitive level.
Originally posted by @Mike H.:
I disagree. If you're buying and the only way you're going to make money is thru appreciation, then you're gambling. Because it doesn't matter how much research you do or how much supply and demand comes into play, the bottom line is that nobody can guarantee future results based on past performance. NOBODY.
And yet you count on YOUR cash flow because of ..past...performance? See how silly that is?
The Most Expensive Apartments in NYC
This map lays out the full picture. I would like to think it is not a bubble, but if all of these people are buying with the hope of future appreciation, it seems like they could be in for a rude awakening.
@Account Closed I'm interested in hearing about how you invest in the Hawaii market. Can you PM me?