Despite recent stock market jitters and volatility, America is open for business and investments. The economy is continuing to grow at a record pace, and with the recent tax overhaul, corporate earnings stand to reach new records. While the stock market will continue to provide exceptional returns over the long-term horizon, as it always historically has, the time is right to consider diversifying asset classes and ensure that not all of your eggs are in the same basket.
How can you Diversify into NYC Real Estate?
There are many different types of potential property investments that may be suited best for you. Whether you are looking for new development, pre-construction sales, up and coming neighborhoods, fix and flips or simply buying in an established neighborhood and riding the market while collecting rent.
This time around we want to introduce you to an ideal condominium investment for a savvy investor who is looking for some exceptional value capture based on playing around with an existing floor plans and layout.
What Type of Apartment can you Buy?
Here's an example of a 1,100 Square Foot duplex in Brooklyn, currently configured as a 2BR / 1.5 Bath, asking $800,000.
The savvy investor would be able to turn this into a 5BR / 2 Bath layout to maximize the functionality of the space.
Here are pictures and the floor plan of the existing property:
How Should the Apartment be Setup?
On the upper level, the master bedroom is wide enough to create 2 bedrooms, on the lower level the area next to the mechanical room is long and wide enough to create 5th bedroom configuration. Additionally, the bathroom can be extended to build a shower.
How Much Rent can you Collect?
An apartment which allows for 5 roommates to share would rent for $5,500 per month. Real estate taxes and common charges combined are approximately $700. An investor's net income after expenses is $4,800 per month, or $57,600 per year which is a cap rate (return on investment) of 7.2%.
What if you Finance the Investment Property Purchase?
If an investor wanted to finance and put a 30% down payment = $240,000 at an interest rate of 4.5% for investment properties, the mortgage is $2,837 per month, or $34,044 per year.
Annual net income becomes $57,600 minus $34,044 = $23,556
Return on cash ($240,000) is 9.8%.
Overall
Beyond the actual rent roll from which an investor would be creating value, a savvy investor would also benefit from the combination of capital appreciation, depreciation used on tax returns, and tax deductions based on mortgage interest and real estate taxes paid.
Note: All alterations to property in NYC are subject to approval by the DOB and respective condominium boards.