The Real Deal New York

Manhattan apartments haven’t been a great investment over the last decade

Median pad had annualized return of 1.8% between 2008-2017
February 20, 2018 02:00PM

NYC apartment

If you bought a Manhattan apartment in 2008, chances are it was a poor investment.

New data from Douglas Elliman show the median price of a Manhattan apartment was $1.14 million last year, up 20 percent from $955,000 in 2008. But that investment had an annualized return of 1.8 percent (excluding closing costs, taxes, maintenance and mortgage interest). Factor in those costs, and the investment is actually a loss, Crain’s reported.

For starters, most buyers finance their purchases. “It is the leverage that allows you to make so much more on your money,” said Jonathan Miller of appraisal firm Miller Samuel, who authored the Elliman report. But leveraging a property is only more profitable than all-cash purchases if home values outpace the mortgage interest rate. In 2008, the going rate was 5 percent on a 30-year mortgage with 20 percent down.

Condominium and co-op owners likely forked over $56,000 in property taxes between 2008 and 2017, based on the $6,206-per-year bill in 2008 for co-op owners.

Closing costs — which can be 5 percent on the buy side and 8 percent on the sell side — adds up to roughly $139,000 for homes bought in 2008 and sold in 2017.

StreetEasy, which plugged the numbers into a net-present value formula, found that a home buyer who forked over $191,000 for a down payment in 2008 and sold in 2017 lost about $27,000, or 14 percent of the down payment. If that buyer had rented instead, he or she would have broken even. [Crain’s] E.B. Solomont