OMG! Sell b/c Net Migration Losses!! (except you got it wrong)

Buying & Selling Real Estate
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OMG! Sell b/c Net Migration Losses!! (except you got it wrong)

Llewelyn A.
Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes

Before I start this discussion, I wanted to post the link to the Article with the title "Population migration patterns: US cities Americans are abandoning" but don't go to the link YET. Wait until you read this post first then go to the link: US Cities America is Abandoning

From the Article, it states: "The 50 cities where the most people are moving away from can primarily be found in the Northeast, Midwest, and West Coast, particularly in states like Illinois, Michigan, Ohio, and New York. Among the cities where people are leaving in droves are places such as Chicago, Detroit, St. Louis, New York, and Los Angeles."

When you look at the statistics that are posted in the article for New York Metro, you see the following:

10. New York-Newark-Jersey City, New York-New Jersey-Pennsylvania

  • Population decrease due to migration, 2010-2017: -21,503

The NY MSA, a huge area, had a decrease between 2010 and 2017 of a whopping 21,503!! OMG!! SELL!!! Real Estate Prices will completely fall and you will lose everything!! The SKY IS FALLING!!!!!!

But wait Chicken Little!!

When we actually look at the prices of Real Estate, that's not what we actually have seen.

While I don't think one should take their personal experiences into account for fear of extrapolating a biased opinion, I see this scenario done ALL the time here on BP, especially when I see postings involving places like NYC where people are saying I wouldn't invest here because my personal experience shows that it is un-affordable.

YES... that is true... it is un-affordable.... when you do it ALONE, by yourself. But if you use the laws of Partnerships, like Syndications, Investing with your friends and family, or just putting together a Venture Partnership, what was previously un-affordable can now be achievable!

I form partnerships normally in order to buy Brooklyn, NYC properties and I had bought several properties in NYC during the 2010 to 2017 period.

Again, I want to state that this is my PERSONAL results so I don't want you to think this is the overall results in a vast area called the NYC MSA. Here is the results of my properties that I have bought within 2010 and 2017:

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Year: 2013 (locked in Contract, bought in 2014)

Type: 3 Family (2 Floor Thru's and 1 Duplex Garden Apt), Brownstone

Location: Bed-Stuy, Brooklyn

Price: $900k

Renovation: $350k

2018 FMV: $2 Million for an increase of $2 Million minus $350k minus $900k = $750k

Cash Flow Increase from 2013: over $4k per month increase! Rents skyrocketed!

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Year: 2015

Type: 3 Family (3 Floor Thru's with a Garden), Brownstone

Location: Bed-Stuy, Brooklyn

Price: $1.35 Million

Renovation: $30k

2018 FMV: $1.65 Million for an increase of $1.65 Million minus $30k minus $1.35 Million = $270k

Cash Flow Increase from 2015: over $600 per month increase. Not bad, most of the rental increases already happened a year earlier.

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Year: 2017

Type: 3 Family (3 Floor Thru's with a Garden), Victorian House, Multi-Family

Location: Ditmas Park, Brooklyn

Price: $1.71 Million

Renovation: $45k

2018 FMV: $1.90 Million for an increase of $1.90 Million minus $45k minus $1.71 Million = $145k

Cash Flow Increase from 2017:  We increased rents by adding value and duplexing the basement for an increase of $600 per month.

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SO............ my personal experiences seems to be far different than those that are really stating that these higher priced MSAs are not good for investing.

BUT, as you can see, I have been incredibly successful by investing in these higher MSAs, but in my specific locations in Brooklyn, looking for higher rental appreciation and value appreciation as well as a large supply of great tenants and low crime.

When I now go back to the article, which really is a bit misleading from the Headlines, here is the remaining part of the New York area statistics that I left out above:

10. New York-Newark-Jersey City, New York-New Jersey-Pennsylvania

  • Population decrease due to migration, 2010-2017: -21,503
  • Population change, 2010-2017: +3.9% (19,566,480 to 20,320,876)
  • Natural growth, 2010-2017: 1,811,927 births, 1,035,505 deaths
  • Median home value: $426,300

Yes, the Chicken Littles are correct, there is a NET MIGRATION OUT in the 7 year statistics of around -21,503. The average, 21,503 / 7 year = 3,702 per year OUT.

That's FINE..... as long as you then look at the Birth and Death rates as well. Taking that into account, you get 1,811,927 births minus 1,035,505 deaths = 776,422 added to the population or 111k per YEAR added to the population.

Take into account that the general population outside of the opiod addiction areas are living longer. Seniors are choosing to stay at home, keeping those properties out of the supply chain.

If we then ask the question, what is the quality of the population that leaves and the population that is staying and growing?

Generally, those that are leaving, a large percentage happen to be priced out of the market. They cannot achieve salaries that can help support their lifestyles as everything in the City increases dramatically.

The population that is staying are then benefiting from their higher equity as their home prices increase as well as their ability to achieve higher salaries from those jobs that require a skillset for it.

With the higher equity, if they owned, they are then able to send their children to higher quality of schools which we know are expensive today.

When those kids come back, they want to stay, mostly because it's a great place and they can afford it by going to these quality schools and Universities.

ANYWAY, I think you get the point.

I have been seeing this trend for the last 21 years investing in Brooklyn, NYC. It's a fantastic trend in order to reap the rewards on a Real Estate Investment basis.

I do think that everyone are entitled to their opinions, however. If you hold a different opinion especially, I would really like to understand why you do think otherwise.

I would especially like to hear from those that HAVE invested in NYC over the last 10 years (2008 to now) and have an opinion that it was really NOT good. I haven't really heard that opinion from someone who had, but I welcome that as well.

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    8y

    In my market I have experienced similar experience to yours but no $750k value increase in 5 years :=).  We do have a ~$1.2m value increase in 19 years.  Most years, in the last 6 years, my primary market has had double digit market appreciation.  Add the value adds on top of that. 

    Our rents have been increasing on average over $100/month year over year for last 5 or 6 years.  The market rent has increased over $100/month but we raise our continued tenants less than that but the value adds have had rent increase so substantial that overall our rents are up over $100/month per unit for each of the last 5 years. 

    There has been money to make in the expensive markets but I think it is getting a little more difficult or at least risky. Anything that I purchased 5 years ago in my market would have produced great returns.  Is that true for purchases today?   We will know in 5 years. 

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  • Llewelyn A.
    OP
    Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes
    8y

    @Dan H.

    Fantastic! Needless to say that anyone that had purchased in the last 5 years has done well as long as they were in areas that moved up with appreciating rents and values.

    Unfortunately, not all of America had done that.

    I still have a friend of mine that bought in Bristol, CT that have not seen much value or rent appreciation although it had maintained it's consistency.

    The problem is that he totally missed the boat on the appreciating areas which was where he lived.

    Unfortunately, investing in non-appreciating areas but living and not owning in the appreciating area is a formula that spelled disaster for him. His overall cash flow, meaning his cost of living declined while those of us investing in the appreciating areas where we lived increased our cash flow tremendously.

    Essentially, his rent increased in NYC while his cash flow for the investment properties outside NYC remained the same.

    So the overall effects is a decrease in net cash flow.

    I'm not sure why Investors don't realize that this is a phenomenon that can easily happens and I know it does from that particular friend.

    For the most part, the other thing that happened with those that did not either invest in the appreciating areas and also did not buy their homes either have become forever priced out.

    Even if they can barely afford the home in the appreciating area today, they will say it's just way too expensive. So they are priced out psychologically.

    But to your point, will the next 5 years be the same as the previous 5 years?

    Probably not, considering that 10 years ago it was the worse economic crisis in at least 70 years since the Great Depression.

    BUT, if those who did not understand that it was a FANTASTIC time to invest once the crisis was over, even if the same thing occurs, their risk intolerance will probably steer them to the investments that won't appreciate the most, and that is unfortunate.

    This is really about education in the long run.

    People have to add to their inventory of skill sets for an investor the ability to calculate and understand appreciation and other future values.

    It's the only way to get used to the psychology that things change in the future and where you buy can either capture that change if it's good, or avoid it if it is not.

    I just can't believe people make a decision on an Investment based on one single calculation for today, usually the Cash on Cash Return, and then completely ignore all future economics.

    That's like the squirrel that doesn't bother saving his nuts for the winter because he has a lot around in the fall when they dropped off the trees.

    Good thing squirrels can think about the future value of saving his nuts!

    Anyway, I wanted to get back on topic.

    A simple usage of statistics will mislead the individual investor (or if there are a lot of individuals, then the masses of investors).

    People seemed to use the "Net Migration" number versus "Population Growth". The reality is that one needs to take into account Net Migration plus Births minus Deaths to get a fuller picture.

    You will actually understand the trends better. There shouldn't be a surprise that NYC's MSA is really under supplied for the demand of a growing population.

    The problem is when someone says "But people are leaving!" yes... that's true... but more babies are being born! Less of the remaining population is dying!

    Right now, as according to the article, $7k  per year are migrating out of NYC MSA. But the birth/death numbers are ADDING 107k per year.

    That's a population growth of 100k per year. If NYC MSA builds only 10k housing per year, you will still wind up being under-supplied for the future demand! BY A LOT!

    So will the prices increase? My bet is that it has to until the supply catches up with the population growth or that population growth itself declines while the inventory increases.

    I don't believe that's the case just yet.

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