Although not every New Yorker can afford to buy an investment property, for some it can be a great way to make some extra money each month (especially here where the majority of people choose renting over buying). If you are up for the responsibilities of being a property owner and have considered the additional taxes such as the mansion tax, which applies to NYC homes over $1 million and rises incrementally with the purchase price, buying an investment apartment could be something for you. Need some help? Here’s how to buy an apartment to rent out – including where to look for one, what size to consider, and what you can expect in terms of earnings.
Where to look for an investment apartment?
You can never go wrong with buying an apartment in a prime Manhattan neighborhood, such as Tribeca, Soho, or the West Village. There is less risk involved as there will always be people interested in these areas. It probably means paying a higher price, but going with a known area also provides you with more rental security.
Another option is to look for up-and-coming neighborhoods. Buying an investment apartment in a less established area will certainly be cheaper. Of course, you’ll collect lower rent at first, but when the neighborhood increases in popularity, you’ll be surprised how much you can earn.
If you consider the last option, you need to know how to identify an emerging neighborhood. Look for any new investments in infrastructure, such as renovated parks or new transit options. Besides that, see if there’s a lot of construction work going on, like the development of new apartment buildings or take a look at the housing market in the neighborhood – is the average time a listing is on the market declining?
Should you go for a condo or co-op?
Buying a co-op might seem to be the easier choice as they are more available and typically more affordable than condos. However, they’re not so great as an investment apartment because a co-op doesn’t allow subletting from the start and also has a limit on the number of years you can sublet it (which is usually only two years). And, of course, a co-op’s lengthy initial approval process by the board, which usually includes character references, financial disclosures, and an interview.
As an investor-buyer, it is wiser to purchase a condo. Although some condo boards make things more difficult these days too, they can’t reject a buyer unless they buy the apartment themselves – which is pretty rare. Usually, you can sublet a condo from day one without asking permission or having to live in it for a certain amount of time. Just make sure to check the listing on whether it’s suitable as an investment apartment
What size unit should you purchase?
All sizes come with pros and cons, but we recommend buying smaller sized apartments as an investment. One or two-bedroom apartments are typically the easiest to rent out as the demand for these apartment sizes is the highest. A studio could also do as well as there are many prospective tenants looking for smaller units. By buying a few studios instead of a single two or three-bedroom, you can even spread out your risk.
Can you live off the rental income?
If you’re planning on buying only one or two investment apartments, the rental income probably won’t be enough to pay all your bills. But if you increase in quantity, let’s say 10-15 apartments, it’s likely that you can quit your regular job. Having a large number of different-sized investment apartments could potentially make you a six-figure income!
The question remains; how much can you earn each month? It’s a simple calculation: the total rental income minus all expenses (mortgage, taxes, maintenance) equals net income. So, do make sure your rental price is high enough to cover the expenses and still make a little bit of profit.
Final tip: don’t underestimate the amount of work required of you when you consider an investment apartment. By subletting your apartment you’ll become somebody else’s landlord and that brings certain responsibilities. They will call you for pretty much every problem and expect a quick solution for any issues with the unit. Besides that, you need to find tenants and collect the rent – or hire someone to do this for you.
So now that you know everything about buying an investment apartment, the next step is to find one! Click here or call 646.681.5272 with your questions to speak with an agent from Platinum Properties! We’re standing by to help you through every step of the real estate process, whether that’s buying an investment property, selling a home, or anything in between.