Prices in the residential real estate market may be flattening, but there are still opportunities for small investors in New York City – even those who are just starting out.
The wild appreciation rates on residential properties that buoyed many investors in recent years are waning, but the past year has seen many cheap sales of multifamily buildings in neighborhoods such as Bushwick in Brooklyn, Ridgewood in Queens, and almost any neighborhood in the eastern part of the Bronx. That’s an opportunity for the small investor, but it’s a proposition that needs a longer horizon.
“People are not as likely as they were to make money just on appreciation,” said Ryan Slack, a small investor and chief of Property Research Partners LLC. “Going forward, they’re going to need a more specific strategy. They’ll need to know what they’re doing.”
Targeting cheaper neighborhoods with high turnover and good housing stock is one strategy. Data compiled by Property Research Partners, and available on PropertyShark.com, shows a high concentration of sales of one- to three-family homes for under about $400,000 since the beginning of 2004 in large parts of the Bronx, as well as areas like Jamaica and Cambria Heights in Queens.
Many Queens neighborhoods, and some Brooklyn neighborhoods, like Bedford-Stuyvesant, East New York and Flatbush, to name a few, had a high rate of sales for one- to three-family homes that cost a bit more, running to as much as half a million.
Those investors with a bit more pocket money might check out Flushing, Bayside, Forest Hills or Jackson Heights in Queens, along with Bensonhurst, Sunset Park and Bay Ridge in Brooklyn, all of which saw many sales of one- to three-family homes in the half-million to $1 million range.
“People love to talk about Williamsburg – how it’s the next East Village,” Slack said. “But if you look at the housing stock, there aren’t enough buildings. Whereas Fort Greene, Bed-Stuy, Prospect Heights, Crown Heights have got some nice old buildings from the 1800s that can be renovated and look beautiful.”
Finding ways for good rents
Janelle Benjamin, who formed Red Real Estate with three partners to help investors find distressed properties, said 80 percent of the company’s clients are interested in multifamily buildings in Bushwick and the South Bronx.
“The L train is pushing people further and further into Brooklyn,” Benjamin said. “You can still get a sweet deal on a multifamily home in Bushwick. And you’re going to get a decent rent from that, because people are really interested in moving into that area, even as far as out De Kalb Avenue.”
At one time, Harlem had a lot of housing stock appropriate for small investors, but that time may be past. Shauna Gray, also a principal at Red Real Estate, said there may be a few things left in far west Harlem. “But I think Harlem may be totally saturated and done,” she said. “We’ve been targeting Inwood and Parkchester [in the Bronx].”
Matthew Haines, Slack’s partner at Property Research Partners LLC, is also a small investor who has invested in smaller Harlem rental buildings. Haines said New York City in general may no longer be a good place for entry-level investors to find great deals.
“If you set your thresholds low enough for how little money you’re willing to make, of course there are investments out there,” he said. “But I think the traditional New York City real estate investors who insist upon getting a cash return for their time and equity – they’re selling.”
Condos: harder than they look
Though condo projects garner a lot of buzz these days, “for starting investors, a condo conversion is a little risky because you don’t have the opportunity to fall back on the rental – at least not now” with such high building prices, Haines said. Many new investors start with a single condominium or co-operative unit. Nicholas Rodriguez, a small investor who formed NR Priority Holdings LLC, began with a two-bedroom condominium in North Bergen, N.J.
“It’s really a good area, and I purchased the condo at 25 percent under value, because the owner really wanted to sell,” Rodriguez said. “I threw some nice paint in it, and I’m renting it and getting about $200 to $250 cash flow a month off the property.”
Rodriguez then moved on to a three-bedroom townhome on Staten Island. The tenants had left, and the landlord hadn’t bothered to find new ones.
“It was under-performing,” Rodriguez said. “But it was a great neighborhood close to the [Verrazano- Narrows Bridge]. It was on a dead-end street, with a bus stop down the block. Close to schools and three daycare centers. And it was tax-abated.”
Rodriguez cleaned it, repainted it, replaced the boiler and flipped it for a 35 percent profit. Now, he’s working on his first condominium conversion in Myrtle Beach, S.C.
While Rodriguez found his first two investments through real estate brokers, Slack said small investors may do even better analyzing available data to find the best deals. He recommended looking at four-family homes as an initial investment.
“A four-family is a great way to buy a building that has tenants, but is considered a residence by banks,” Slack said. “You can get a residential mortgage on your personal credit, and get in with a low down payment, but still practice being a landlord. “You can get started in commercial in a sense, because you can live in one unit and rehab the others.”
Haines used data on PropertyShark.com to find the ideal seller: an owner of several buildings in Harlem with very low property taxes. The owner had recently sold off at least one property at below its value. Haines then purchased an eight-family rental building from her at discount to market.
“With my partner, I managed to vacate six of the eight units,” Haines said. “We were then able to renovate those units and raise the rents substantially.”
Harlem was an ideal market at one time because of the high turnover in the neighborhood, with its large student population, Slack said. Now, neighborhoods like Bedford-Stuyvesant and Bushwick are being targeted by investors due to the large amount of student turnover.
“Ideally, you want people to move out, so you can renovate the apartment and upgrade it,” he said. “Very stable neighborhoods are not a desirable place to buy. You want a market where you’ve got professionals who move to New York and leave; families who have babies and leave; students who come for four years and leave.”
Window of Bronx opportunity
Dan Fasulo, director of market analysis for Real Capital Analytics, is a small investor who has found good deals in the Country Club neighborhood of the Bronx.
“It’s really anchored by a large medical community out of [Weiler-Einstein Hospital],” he said. “There is a significant demand for rental properties because of all the medical employees and students.”
Fasulo said some of the best opportunities for small investors are in the Bronx, where the northeastern section of the borough has two- and three-family homes at low prices. Many neighborhoods have recently been rezoned to limit development – a plus for investors. “If neighborhoods are awash with new development, and there’s more available for sale or lease, it makes your property as an investor less valuable,” Fasulo said.
Since it’s difficult to get data for the Bronx, that can work well for the investor willing to put in the time to learn its varied neighborhoods, he said.
“Park Slope in Brooklyn, for instance, is much more efficient than some neighborhoods in the Bronx,” Fasulo said. “You know for certain, or within a very small spread, what you’re going to get if you rent a two-bedroom apartment. The spreads in the Bronx could be much wider, say 10 to 20 percent versus 5 percent for Park Slope, so a small investor who does his homework could probably find some profitable investments in the Bronx.”