Issue 13, February 2008: How to Make Money in Real Estate

For many years, owners of residential properties had one thing in mind – having as nice a home as possible. Granted, over time the value of the property went up – whether a co-op, condo or house – but the true value was as a home.

The times are changing and I am frequently asked, “How do I make money in real estate?”

With Manhattan prices continuing their vertical ascent and the weak dollar bringing foreign money into the U.S., investing in real estate has become as important to the market as people looking for a home. Many of the new condos are being gobbled up by foreign investors who see an opportunity to get a solid, tangible asset in a stable country at, for them, bargain prices. Many Americans, seeing this, and hearing the numerous stories of people who made significant gains in real estate, are looking to do the same. How do you do it?

I see three prime routes to making money. They all require some thought and research for smart investors. It’s not like shooting fish in a barrel.

Buy early in a new property

The fastest way to get a solid return on your investment is to be one of the first buyers before a building is under construction. It’s a bit like a venture capitalist investing in a company. The closer you are to the first release of product, the more likely the developer or sponsor will increase prices several times before closing. It takes a leap of faith in the property, but there is usually little downside risk, though your money will be tied up for several years.

Two keys in selecting a property are the location (this holds true with any real estate investment) and the quality of the building and the amenities. Much of the new product on the market today is conversions of impressive buildings to condominiums from the most luxurious of all, The Plaza, downtown to Philippe Starck’s 15 Broad Street.

Buy one at a time

The second route is to buy bit by bit. Start small, possibly with a one-bedroom that is in a prime location and has excellent amenities such as top-of-the-line appliances. This is important for re-sale. Then try to get a rental that will be converted and live there. This way you will be able to buy the apartment at a favorable insider price then flip-it into something larger. By continuously trading up, the small investments will grow.

Find an emerging neighborhood

The third way, and one that can show great appreciation, is to find a property in an emerging neighborhood. Often it may take five to eight years to get the benefits, but they could be well worth the wait. Look at the neighborhoods of Chelsea, the Lower East Side, and now Harlem, which over the past decade have experienced great increases in value. While the choice of neighborhoods is diminishing as more and more are upgrading, there are still areas where solid returns can be had. In some cases, it means looking outside of Manhattan.

There is no guarantee any of these three methods will pay off for everyone because of the uncertainty in the economy and world and national events. But, based on my fantastic belief in the viability of housing in New York City and the historic upward trend of the value of real estate, I am confident that in almost all cases the prudent investor who takes a bit of time to learn the market and works with a broker who can look at the transaction as an investment; will reap significant gains.

MANHATTAN MARKET (all Co-op & Condo Sales)
MatrixCurrent QtrPrior Year Qtr%Chg
Average Sales Price$1,439,909$1,224,84017.6%
Average Price per Sq FT$1,180$99818.2%
Median Sales Price$850,000$799,0006.4%
Number of Sales$2,518$2,4413.2%
Days on Market (From Last List Date)131149-12.4%
Listing Inventory$5,133$5,934-13.5%
Average Sales Price by SizeCurrent QtrPrior Year Qtr%Chg
2-bedroom$1,898,784$1,554,64522.1%
3-bedroom$5,076,798$3,630,93839.8%
CO-OP MARKET MANHATTAN
MatrixCurrent QtrPrior Year Qtr%Chg
Average Sales Price$1,142,232$1,047,2199.1%
Average Price per Sq FT$1,055$87221.0%
Days on Market (From Last List Date)127141-9.9%
Listing Inventory$2,254$3,054-26.2%
Average Sales Price by SizeCurrent QtrPrior Year Qtr%Chg
2-bedroom$1,622,386$1,243,16630.5%
3-bedroom$3,823,957$3,202,71419.4%
CONDO MARKET MANHATTAN
Average Sales Price by SizeCurrent QtrPrior Year Qtr%Chg
Average Sales Price$1,750,634$1,486,05717.8%
Average Price per Sq FT$1,310$1,18410.6%
Days on Market (From Last List Date)135162-16.7%
Listing Inventory$2,879$2,8800.0%
Average Sales Price by SizeCurrent QtrPrior Year Qtr%Chg
2-bedroom$2,066,987$1,906,6098.4%
3-bedroom$6,075,155$4,487,38535.4%