Long Island - Fundamental Stumbling Block

2 Replies | Long Island, New York

Long Island is quite strange because NYC, JC, and CT are right next door, yet LI's fundamentals are making my head spin.

Both in NYC and Long Island, the net income from job would be about the same after the LIRR/MTA/city tax factored in. What's vastly different is the property tax, school zoning, and commuter costs.

I am very new to RE investing, but my hunch tells me that if the main source of funding for schools in a given school district is the properties and not a commercial sector, this will eat into the potential appreciation. Look at NYC. Schools are poorer, yet a home in Brownsville or Mott haven costs more than the average home in a good school district in Long Island. The island itself is great, but the home owner funding of schools is an extreme bottleneck on property tax, which increases exponentially with more crowding. Considering many people are renting basements illegaly, which they have to in order to afford the tax payment, it's not a sustainable path for growth in my opinion. Combine that with a hefty LIRR fee, and lack of commuter parking, and you get congetion issues which force owners to sell in Li and buy elsewhere, further away in the island, somewhere by riverhead or outright not in the island.

Rents are high, which is a good thing, but I am not sure if it would be wise to throw a huge portion of the rental income on property tax, when it could go into your home. The issue with then buying the city is that the rents are too low to pay for the mortgage, taxes, and maintenance,unless you get a 3/4 family home.

I remember when you can get max LTV on a 280k 2 family home in a good neighborhood in 2000 and still make $100 per month. Now, the only way to get that deal is in pre gentrified neighborhoods, and even those require rents of 2400/mo per 2bd apt, but that begs the question: if the cost to service the debt is not sufficient, either the asset needs deleveraging, aka price drop, or the servicing needs to rise, aka rents need to go up.

Seeing as most new yorkers do not have good paying jobs, who will pay for these rents should they go up? Are we talking groups of people living in one apartament, which each one chipping in? How long would this last? 

Financially, this makes sense, but there comes a point such that if every option is exhausted, people will leave and make a new economy somewhere else, the same way people left their origins to nyc for better opportunity, causing a mass exodus in the land they came from.

I'm not calling for it, but every post for a two family listing shows "investors dream" when it clear is not. The cap rate is negative, and that just tells me something has to give. It's either low rents, or the high prices, and they have to work for an economy to thrive.

My take on Long Island is that in order for it to thrive, there needs to be a city tax instead of a school property tax (just for school funding). The railroad has to be subsidized, because NJ transit is half the price and everyone seems to be developing there.

Connecticut, is by far the worst of these as there is only 1 train that goes in. To me, that is even worse than the property tax situation in LI as there is no scalability if there are no rails. It is like LA with one highway, and only one highway. JC, NYC, are way high, with exception of Wakefield, Grand Concourse, West Farms, nomansland wakefield, brownsville, and south JC/Newark, which have high cap rates and high potential for appreciation, but the chance of getting shot or mugged is much higher as well, something a house flipper won't do with a family should they have one.

That begs yet another question, if I am starting out in NYC with an ok Salary (150k-ish), should I stay here or make my ways to another market which is less saturated for a 50k pay cut, where the income while lower, can scale due to multiple series of house hacking in low property tax areas, compared to a higher salary with less RE possibilities?

Everything about northern NJ is better than Long Island currently, and long term when it comes to access into Manhattan, as well as quality of life.  Northern NJ will experience the highest amount of appreciation in the NYC area (outside places like JC and Hoboken) in my opinion because of the increase in future train service on the horizon.  Long Island will never get this.  NYC can't even keep up with what the MTA needs to meet the needs of NYC commuters, so the LIRR will continue down it's current path. At least I'm not aware of any future plans on how to make the situation better.   At least the passengers will be coming into the new Penn Station and have access to some of the best new office space to work at with Hudson Yards and future Hudson West coming up.