Buying in Brooklyn NY

[Yana M.]

This goes out to my fellow Brooklynites, what is the typical cap rate that you would consider as a good investment on an multifamily unit investment property?

[Jonathan Twombly]

Hi Martin,

I'm based in Brooklyn, but do all my investing in the south, for the primary reason that the cap rates in the New York area are outrageously low. I talk about this quite often with my professional investor friends around here. We marvel at the prevailing 3-4% cap rates in New York and wonder how anyone makes any money at all. Indeed, that 3-4% cap rate is often a nominal cap rate, with real cap rates being negative once you truly underwrite the property. To get attractive cap rates in New York, you need to find real distress and probably go into very undesirable areas -- except that everyone else who is chasing yields is doing the same thing! So, it's tough in New York.

If you figure out the answer or find a neighborhood where cap rates are better, you had better not tell anyone! Keep it to yourself, or the competition will bring the cap rates down in a hurry!