Primary resident investment in NYC vs. rental property elsewhere

19 Replies

Hello network,

I am in a conundrum in terms of where to invest with say ~120k. I live in New York city and would like to start investing in a property for future passive income and I would like to have the opinion, suggestion, comments of anyone with experience. If I invest in New York city and purchase a 1 bedroom apartment I can make my mortgage pay my rent, have the benefit of making it a primary residence (lower interest rates and less capital gain tax if I sell in the future) but the time it will take to get to 100% equity is much longer than using the same capital and invest in 2-3 single family housing in another city in the U.S. with a stable market where I would buy and hold and have the tenants pay my mortgage (interest would be higher given that it would be an investment rental).

I am trying to see what makes the most sence given that the ultimate goal would be to have passive income in the future (I expect to leave New York city in 4-5 years where I would rent out my apartment bought in the city).

Has anyone faced the same situation? Any feedback would be appreciated to weigh the pros and cons.

Thank you so much!

If you buy an apartment in NYC make sure that you will be allowed to rent it. Many co-op and condo associations in NYC do not allow the owner to rent. If they do allow renters, some charge a premium for being non-owner occupied. 

Does it have to be one or the other? It depends on your debt-to-income but you could purchase a primary residence in NYC and then also investment properties in areas that have better cash flow. Presumably your 120k will continue to grow and you can pick up properties even after you purchase a primary. You could also take out a Heloc on your primary and use that for investing.

Which neighborhoods do you want to live? If it's a frothy area where prices have gone bonkers than it might make more sense to rent, but if you're ok in a secondary or tertiary area where prices might not have peaked then purchasing could be a good idea.

Many of my landlord clients became landlords by accident. Most purchased as primary or pied-a-terre and then at some point outgrew or had to move and then decided to rent out their apartments. The good thing about condo and co-op rentals is you won't need property management, even if you move out of state or around the world. They're pretty easy.

@Anthony Rosa There are many condos in NYC that don't allow renting? I don't know of any. As for co-ops, there are some that allow investors and renting from day one, and some that allow open subletting after a certain period of ownership (usually after 1-2 years). 

@Aymeric De Conde Your other option is to buy a multi unit in NYC. Live in one unit and rent the other units. You will get an owner occupied rate, low down payment and be able to have rental income. You can buy a 1-4 unit residential property with as little as 3.5% down (FHA).

@Aymeric De Conde Where in NYC are you looking in?

If you are not planning to live in NYC for a long time then I think you better off investing in an area with a better cash flow...If you have in mind your next destination after NYC then you should probably research that area...NYC is like investing in bonds...very safe...but very low if any returns...Managing an apartment in the city can be quite difficult. I have 2 rental coops which I purchased after the crash...and recently purchased a house in PA...for turning over a 380sf 1BR in NYC I got a quote for $1700 (grout and paint)...while in PA I got $4800 for a 2000 sf 5BR house...In NYC with that money you are a little fish and it is even hard to find contractors to come give you a quote...in general knowing what I know now I would go to PA, Upstate or the Midwest if I could do it again.

Another factor...as mentioned by other is that with this money you are mostly limited to coops...It is quite hard to find those which allow subletting and for many of those it is even harder to get financing.

Management is another issue that have to be considered as all co-ops (and many condos) will demand to approve your tenants causing unnecessary delays whenever there is a turnover.   

On the flip side...appreciation is great and vacancy is as low as it gets.

In your position I'll focus on one or two other markets and compare them to the deals you find in NYC.


If passive income is your goal, then just run the numbers on all of the scenarios that are options. Which scenario gives you the most cash flow?

Originally posted by @Upen Patel :

@Aymeric De Conde Your other option is to buy a multi unit in NYC. Live in one unit and rent the other units. You will get an owner occupied rate, low down payment and be able to have rental income. You can buy a 1-4 unit residential property with as little as 3.5% down (FHA).

not realistic.   you will be lucky to even get a 2 unit for 1mil....  getting most lenders to get you in at 3.5%, you will be low in the spectrum when competing with other buyers.

Originally posted by @Eric Lau :
Originally posted by @Upen Patel:

@Aymeric De Conde Your other option is to buy a multi unit in NYC. Live in one unit and rent the other units. You will get an owner occupied rate, low down payment and be able to have rental income. You can buy a 1-4 unit residential property with as little as 3.5% down (FHA).

not realistic.   you will be lucky to even get a 2 unit for 1mil....  getting most lenders to get you in at 3.5%, you will be low in the spectrum when competing with other buyers.

I have done multiple multi unit transaction in NYC with FHA 3.5%, so it is realistic and can be done. Just need to have a good mortgage banker on your side and of course you are going to have to do a lot of legwork to find the right property.

 

Originally posted by @Upen Patel :
Originally posted by @Eric Lau:
Originally posted by @Upen Patel:

@Aymeric De Conde Your other option is to buy a multi unit in NYC. Live in one unit and rent the other units. You will get an owner occupied rate, low down payment and be able to have rental income. You can buy a 1-4 unit residential property with as little as 3.5% down (FHA).

not realistic.   you will be lucky to even get a 2 unit for 1mil....  getting most lenders to get you in at 3.5%, you will be low in the spectrum when competing with other buyers.

I have done multiple multi unit transaction in NYC with FHA 3.5%, so it is realistic and can be done. Just need to have a good mortgage banker on your side and of course you are going to have to do a lot of legwork to find the right property.

 

if that is true maybe i should be working with you.  what areas of NYC have you done this for?

 

Originally posted by @David London :

@Aymeric De Conde Where in NYC are you looking in?

Another factor...as mentioned by other is that with this money you are mostly limited to coops...It is quite hard to find those which allow subletting and for many of those it is even harder to get financing.


I disagree. If you’re just looking at sales prices then yes, you get more bang for your buck at co-ops but the barrier to entry is typically much higher with much higher minimum down payments, post close liquidity requirements, and low debt-to-income caps. It’s often much easier to buy a higher priced condo than it is to buy a lower priced co-op.


As for finding co-ops that allow investors and are warrantable, you just need to know where to look.


 

@Jason Lee - It depends. As for condos, renting is more likely allowed because you are considered an owner and not shsreholder like in a co-op but still have bylaws to follow. There are many co-ops that don't allow the shareholder to rent/sublet in Manhattan but people do it anyway especially if rules are not enforced.  My brothers co-op on the upper East side doesn't allow renting but people rent them. There are also the co-ops where the original building owner still has majority shares and allow renting because he/she controls the board, still owns the majority of units and calls the shots.  I don't know about the outer boro's. 

@Aymeric De Conde

I was in your position 6 years ago. I made a strong decision to go out-of-state, and I have never looked back.

After a number of evictions, repairs, and even selling units in markets where things can move faster and with fewer cuts to the middlemen, I am more sold on this idea than before. Additionally, I have now gone almost entirely passive with private loans and syndications. 

The state government is currently trying (and succeeding) to make it harder to own anything in NYC. You could get a price spike due to inventory pressures that come out of this legislation, but it's equally likely you'll get your price dragged down by new inventory in Long Island City, Jersey City, Hudson Yards, and the list goes on. 

The desirability of the market already makes it nearly impossible to cashflow. Renting feels like throwing money away, but so is paying interest, taxes, and insurance. On a 30-year loan, you will pay down very little equity until the 8th year of payments.

Let's be clear. I think New York is a fun and fantastic place to live. I have a motto to make my money here and get it out-of-state as fast as possible.

My primary residence is in NY, however my investment properties are at least 2 hr drive from where I live.

It's a hustle to manage, but I'm doing it, so its possible. In Upstate NY you can get a house for around 50-60K and rent it for $1500-$1600 per month. Just have to watch the taxes.

Originally posted by @David London :

@Aymeric De Conde Where in NYC are you looking in?

If you are not planning to live in NYC for a long time then I think you better off investing in an area with a better cash flow...If you have in mind your next destination after NYC then you should probably research that area...NYC is like investing in bonds...very safe...but very low if any returns...Managing an apartment in the city can be quite difficult. I have 2 rental coops which I purchased after the crash...and recently purchased a house in PA...for turning over a 380sf 1BR in NYC I got a quote for $1700 (grout and paint)...while in PA I got $4800 for a 2000 sf 5BR house...In NYC with that money you are a little fish and it is even hard to find contractors to come give you a quote...in general knowing what I know now I would go to PA, Upstate or the Midwest if I could do it again.

Another factor...as mentioned by other is that with this money you are mostly limited to coops...It is quite hard to find those which allow subletting and for many of those it is even harder to get financing.

Management is another issue that have to be considered as all co-ops (and many condos) will demand to approve your tenants causing unnecessary delays whenever there is a turnover.   

On the flip side...appreciation is great and vacancy is as low as it gets.

In your position I'll focus on one or two other markets and compare them to the deals you find in NYC.


I do agree with you in NYC (Manhattan especially) you'll never have problems finding tenants and while rental returns may be low appreciation skyrockets.  The best situation as a landlord in NYC is when you find out the value of your home 10-15 years after purchasing it and realize that if you were to do it again you cant afford to buy them.

As for repair costs. In NYC, the best person to do repairs in a co-op building is the live-in super especially for things like tile, grout repair, fixtures installations and paint.  They will do it correctly, no board approval for vetting the contractor and the super won't charge you nearly as much as a contractor.  Plus, the super is likely not to charge you for small future (backed up drain, change plumbing or electric fixtures) repairs because you established a relationship with him. Just be good to him around Christmas time. 

Contractors in NYC are expensive because it goes with the territory and labor rates are highest in the nation.  A NYC electrician will charge $100/hr and in PA its $20/HR.  

 

All, thank you so much for all of your insight. This is very helpful. It does seem like NYC would be a headache in the long-term if I am just looking for cashflow.

@ Trevor Ewen - seems like you made a great decision. I'm going to look at Ohio or Buffalo, NY as it seems like these markets could be a good first step.

@Jered Sturm, I read your blog article today on BP and you do have great points to look at Cincinatti. with 120-180k budget I think there are things to be done in that area.

@Aymeric De Conde I live in NYC and invest in the Mid-West.  However If I would have learned about investing sooner I would have elected to start, build and grow a rental portfolio prior to buying my primary residence.  a 3-5% return on your money locally pails in comparison to the amount of return you will make on your money investing in the right rental market.  Your rentals should pay for your local housing and provide you the ability to save money that you would otherwise spend in rent and or a mortgage locally.  All the best.  Persist and you will win!!!

@Aymeric De Conde I think it depends what type of apartment you're planning to buy and where.  Like some on this thread mentioned, a co-op can have a strict sublet policy.  Mine does, however in my building there were some amazing comparable sales that I was able to re-fi my loan and pull out cash.  All depends on the deal you're getting/when/where.