Getting started in expensive markets

6 Replies

For a whole host of reasons I'm ready to begin real estate investing, but there's one minor problem...I live in Brooklyn. This place is a competitive shark tank, margins are razor thin, and price appreciation has been insane since the crisis. My broker just emailed me a Nov 2017 recap for Brooklyn highlighting that the median sales price is up 20% YoY and the avg price per sq ft is up 5% YoY! I can't fathom making my first purchase under these conditions. 

When I think about expanding my location parameters a bit into NJ (because I might end up there in a few years) the picture gets a little better, but it's still somewhat intimidating since I don't have any local knowledge and I don't know where I'll end up exactly. Furthermore, a lot of the general advice I am reading about real estate investing (e.g. 2% rule), doesn't seem to apply to expensive markets like NY, SF, LA, etc. 

Does anyone have any recommendations for resources specific to getting started in expense markets? That may be a pipe dream as markets will always vary, but I feel like there should be something to the handful of markets that are not "normal". Any help or recommendations would be much appreciated! 

Full disclosure- I'm looking for a fairly traditional investment strategy of 2-4 family multi-unit, putting 20% down, using a management company, etc. Not thinking about flipping, trying to swing a no money down purchase, or screening tenants on my own with a toddler running around. 

There is one rule in expensive market. Don’t follow any book rules. Just run your own numbers and maybe you can find something.

Originally posted by @Jesse S. :

For a whole host of reasons I'm ready to begin real estate investing, but there's one minor problem...I live in Brooklyn. This place is a competitive shark tank, margins are razor thin, and price appreciation has been insane since the crisis. My broker just emailed me a Nov 2017 recap for Brooklyn highlighting that the median sales price is up 20% YoY and the avg price per sq ft is up 5% YoY! I can't fathom making my first purchase under these conditions. 

When I think about expanding my location parameters a bit into NJ (because I might end up there in a few years) the picture gets a little better, but it's still somewhat intimidating since I don't have any local knowledge and I don't know where I'll end up exactly. Furthermore, a lot of the general advice I am reading about real estate investing (e.g. 2% rule), doesn't seem to apply to expensive markets like NY, SF, LA, etc. 

Does anyone have any recommendations for resources specific to getting started in expense markets? That may be a pipe dream as markets will always vary, but I feel like there should be something to the handful of markets that are not "normal". Any help or recommendations would be much appreciated! 

Full disclosure- I'm looking for a fairly traditional investment strategy of 2-4 family multi-unit, putting 20% down, using a management company, etc. Not thinking about flipping, trying to swing a no money down purchase, or screening tenants on my own with a toddler running around. 

 As much as i want to start investing here in brooklyn really bad. It's just not going to happen ;(

@Jesse S. you'll be hard to find anything in the top 25 markets in the US that will do the 2% rule.  You generally need to go into more rural areas to make that work, but then don't bank on your properties appreciating in value much over time.  Always best to find a good mix between cash flow and appreciate for long term wealth creation.  Look outside of Brooklyn but stay in the NYC area. 

@Darren Sager Thanks for the note. 

While I'm thinking of staying in the Metro area, I struggle to see why that is a better move than investing from a distance (e.g picking a new random location.... like Nashville) as in both cases I won't be familiar with the local area. 

@Jesse S. I prefer to have my investments close at hand and not needing an airplane to easily see them.  Especially for my first one.  Strong technology jobs in Manhattan will drive our growth long term.  It's a safer long term play in my opinion.

NY will be driven by tech, intelligence, a desire to have the best restaurants, and a desire by wealthy people to be near attractive things.  Could finance exist anywhere?  Yes.  Of course.  But it doesn't. 

NY's biggest issue will be "what the hell do we do with all these massive commercials spaces that are empty?!??!" 

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