They’re back

<i> A look at NY's new investors, the last bastion of undervalued nabes, and inflation's role in today's purchases </i>


Investors have long viewed prime Manhattan residential real estate as the equivalent of a blue-chip stock: expensive, but virtually guaranteed to appreciate over time. That is, until the 2008 Lehman Brothers crash sent prices plummeting, turning the conventional wisdom on its head. After Lehman, foreclosures appeared in investor-owned apartments all over Manhattan as the chasm between monthly costs and rental income widened. Buying an investment property in Manhattan suddenly seemed like a terrible idea, and all but a few daring small investors had since avoided Manhattan real estate. Instead, the city’s residential sales have been dominated by buyers looking for a home.

Surprisingly, however, brokers say that is now changing.

While investors still only make up a small share of today’s residential property hunters, they are now venturing back into the market, lured by today’s favorable buying conditions. For starters, prices have stopped falling, meaning investors can snatch up properties for lower amounts than they could a few years ago without fearing that their new asset will immediately lose value. At the same time, rents have stabilized, and concessions — like a month or two of free rent — are disappearing. Plus, interest rates are still low.

The resurgence of interest in real estate investing is part of a nationwide phenomenon, experts said. Despite the housing debacle of the last few years, many Americans ironically view real estate — especially income-producing properties — as a safer alternative to the volatile stock market.

But this time, their investment strategy is different.

With prices shooting upward during the boom, many investors sought to quickly “flip” Manhattan properties for huge profits. Now, buyers want stable, income-producing investment properties in established neighborhoods like the West Village and the Upper East Side, rather than making speculative bets on up-and-coming neighborhoods. To be extra-cautious, many are purchasing new condo units from developers with tenants already in place.

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For those investors willing to take a chance on up-and-coming areas, The Real Deal also looked at areas in Manhattan where property values are likely to appreciate in the coming years.

In addition, some savvy investors are using real estate purchases as a hedge against future inflation. With inflation already occurring in many countries, there are worries that it will soon spread to the United States, perhaps prompted by the government’s recent economy-stimulating interventions.

For more on New York’s new investors, check out the rest of the stories in this package:

Banking on returns

The inflation situation

Digging for diamonds