How to cash flow in New York City.

10 Replies

Hi all,

Looking for some input on how someone can cash flow with property in NYC. I’ve been a stock investor for the past 15 years and recently took out a large amount of cash and purchased two luxury condos in the brooklyn area to diversify. Thanks to everyone in advance! 

@Lawrence Tsui Go back in time to about 2012 and purchase the same condos. Hold them until today and then you'll have cash-flow or at least break even.

Did you run the numbers on these investments before purchase? What was the price/rent ratio, etc.?

I have two Brooklyn Condo rentals that I have owned for many years which have appreciated tremendously, but they still barely even cash flow.  The common charges and taxes make it almost impossible for the numbers to make sense on a new construction condo, but they are a great tool for building your wealth and net worth over time.  From my experience, another issue with the NYC condo, is that your fix cost are guaranteed to frequently change, common charges could double, large assessments, taxes going up 20% in a year, etc.

If you looking for monthly yield in the NYC market, you have to branch out to the fringe neighborhoods a bit and look a multi-fam properties.  I have been looking at several 3 families in Brooklyn that are true 5 or 6 caps, and you are able to really control your monthly expenses.

Best of luck in your search!

Hi @Lawrence Tsui

Very difficult to cash flow with that sort of luxury product in New York. Typically, those units are just appreciation plays. 

Best would be to get a 3-4 unit in an up and coming neighborhood. That would be ideal and create major cash flow and equity creation, plus you can not worry about a property manager and boost your yield.

Cap rates came all the way down to 3% (or below!) during the "boom" times but COVID has loosened everything up and now 5% can be had in Manhattan, 6%-7% in Brooklyn and even 8% in the Bronx. But to realize 6%-7%, you cannot be buying condos in Williamsburg, but rather a 3 family house in South Brooklyn or East New York / Ocean Hill. 

Going above 5.5% is an exception, but the properties can be found. Just realize, they typically involve either (a) a value-add component (b) more intensive management (i.e. no super on call like in a luxury condo).

Hi @Lawrence Tsui Lots of good advice here.    Would agree with all that condos will not be the path to cash flow but generally easy to rent.   Specifically @Alexander Szikla made some great points and realistic expectations.   If those returns are not sufficient you'll have to start taking on more risk.   Ultimately the best deals in NYC for investors are off market.   Specifically the most successful investors I work with have to make  instantaneous site unseen decisions on properties and close cash within 7-14 days with no contingencies.    If you're unwilling to take on that risk than I would suggest going to the midwest or the sunbelt.  While you may not see the same appreciation as NYC the cash on cash can be attractive.        

Wow this place is amazing. Thank you all for your replies and I have a much better grasp on the real estate market in nyc.

for some context, I purchased in the Williamsburg and clinton hill area upwards of $1,000,000 each. 

I realized a big debate in the real estate community is cash flow vs appreciation. Ideally you would want both, but it is for sure not possible with luxury condos that cash flow in the nyc area upwards of $1,000,000. I’m at about break even for both of my properties ( which some say is already really good). I hope in time, as rents increase and the value of the property increase, I hope to cash flow on the property. 

I have a few investor clients that only buy A and B class condos in NYC. They buy all-cash. Some buy pretty regularly and mainly B class with low taxes and common charge, with boards that have a history of strong financial management, and in areas that have consistent and strong rental demand. They don't care that they could get much better cash flow somewhere else. They get easy, A class tenants, do almost no management, the properties appreciate nicely, and the rents go up over time.

@Lawrence Tsui you should be in good shape.   Both areas are great and highly desirable for renters.    Breaking even at this stage is fantastic.   Some things I would do to monitor the investment over time. They may be common sense but figured I would add.      
#1. Keep focused on new construction in the area.   New York Yimby is a good resource -
#2 Pay attention to new rental development.  Specifically in Williamsburg a lot of the coming new construction is rental not condo.  It helps gives some perspective on where the rental market is going. Also monitor concessions.  Specifically in Williamsburg a lot of newer buildings will offer 1-3 months of free rent incentives.  This will make the net effective rent lower but will get the overall gross rent for the unit up.    
#3. Try to keep your vacancies in Spring/Summer months.   Generally April- August.   Traditionally speaking these are the best months to get top dollar for your assets.    With our own clients if we're renting in the winter we often tell them to consider longer lease to make sure there vacancy cycle shifts to spring/summer.  
#4.  Always recommend doing an annual review of your buildings financials.  So often there are opportunities for the buildings to save money on expenses that are easily overlooked.  
#5  Keep focused on your equity growth.  We've had quite a few clients that started investing in condos but later did 1031 exchanges in larger multifamily etc.   If you have an agent you trust I would suggest asking them for an annual review of your buildings value.   

Good luck and congrats on the awesome locations! 

jason, exactly my thoughts and my strategy here. It Is to buy a and b class properties and just get easy tenants to fill them with barely any time needed to manage them. Although, I do not buy all cash. 

This is currently how things are operating for me as of right now. The idea is to build equity and wealth with as little headaches as possible. My current places are renting out for $4300 and $7500. The $4300 I’m breaking even and the $7500 I’m actually able to cash flow a little bit. Both properties 25 percent down payment on them, condominiums.(both have under $400 in hoa fees and property taxes a month)

please correct me if I’m wrong but here are my thoughts after some research and help from you on this forum here. If you are cash flowing really well, chances are you are in a place where appreciation might not be so great. If you are appreciating really well, chances are you are in a place that doesn’t cash flow well. Then there’s always property that you can purchase that do a little bit of both.

Damon, thank you so much for your tips and things to keep in mind. Much appreciated. 

If your HOA and cc's are under $400 then you must be getting a tax abatement? The thing to look out for there is the cash flow can actually get worse over time as you get closer to the unabated amount. While your rent will go up over time, it won't jump up in sync with the 20% tax increases. It can also have a drag on appreciation as the cost to own goes up. That's why you often see a flood of inventory in recent new devs as the abatement comes to an end.

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