| Real Estate in New York: The Investor Next Door |
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Joshua Bright for The New York Times
From left: Taylor Hanex and her dog, Destiny Cauliflower; Fabrizio Uberti Bona; Jing Lin.
Published: May 4, 2012
FOR as long as there have been condominiums, there have been investors hoping to make an easy profit off an apartment here or there.
Joshua Bright for The New York Times
Elisabeth Kovac owns two apartments at Fifth on the Park, a two-bedroom to live in and a one-bedroom to rent out.
That was certainly the case when the market was booming and buyers — experienced and otherwise — snatched up apartments and quickly flipped them for big returns. They were often invisible owners.
A different breed of investor has emerged in the last year. This one already lives in the building and has decided to buy a second and sometimes third apartment to become an owner/resident/landlord. This investor is strongly motivated by two current market trends: low mortgage rates and record-breaking rents in certain neighborhoods.
“These are people who are looking for investments they can understand and somewhat control,” said Stephen G. Kliegerman, the president of Halstead Property Development Marketing. “The stock market has become something that’s not for the lay person anymore. But the one-off investor understands real estate and its income streams and sees it as an asset they can manage.”
For some of these buyers, costs are low enough and rents high enough that they can turn a nice monthly profit. For others, rent may barely cover the costs, but they view the apartment as a long-term investment and don’t anticipate a big payoff until they sell years from now.
Many owner/investors bought their own apartments at the height of the market and moved in even as sales stalled during the recession. They decided to invest further in their buildings as they watched sales pick up and the surrounding neighborhoods bounce back as well.
Elisabeth Kovac, a real estate lawyer, was one of the first to buy at Fifth on the Park, a 28-story tower across from Mount Morris Park in Harlem. She moved into her one-bedroom apartment in summer 2009 with about a dozen other residents.
“I thought it would be odd with so few people,” she said. “But I actually liked it because you had the gym, the pool and the roof terrace for yourself.”
The building is now more than 70 percent sold, and Ms. Kovac has seen the area become more lively as new restaurants and shops have opened. She says many of her legal clients are foreign investors and two of them bought apartments in her building. “When I saw that they were lucky with their investments,” she said, “it kind of gave me the confidence to buy in the building as an investor, too.”
She at first planned to buy a studio to rent out, but wound up buying and moving into a two-bedroom late last year and renting out her original one-bedroom. She was able to trade up because of low interest rates and apartment prices that have dropped by more than 10 percent since the building’s first offering in 2007. She paid about $600,000 for her one-bedroom, and one-bedrooms in the building are now listed at $517,000 to $552,000.
Demand for rentals there was such that Ms. Kovac did not even have to put her one-bedroom on the market before renting it to the co-worker of a neighbor.
Of course, many factors determine whether becoming an investor/owner in a building makes financial sense. Mortgage rates hovering around 3 percent would certainly keep that part of a potential landlord’s monthly costs low.
But many of the owners who have made the investment leap, like Ms. Kovac, also live in buildings with low common charges and significant tax abatements. The common charge for one-bedrooms at Fifth on the Park is about $400 a month; taxes are $9 a month.
Celia Chen, a specialist in housing economics at Moody’s Analytics, a research company in West Chester, Pa., says that anyone who decides to buy an investment property should plan on hanging onto it for a while. She also advised fixed-rate versus adjustable-rate loans, since interest rates are expected to go up in the next two years.“If you lock in low mortgage rates, you know costs will stay stable and you can hope that rents will go up,” she said. “But your mentality should be long term, because transaction costs can be pretty high and you’re tying up your cash.”
Joshua Bright for The New York Times
Taylor Hanex likes being an in-house landlord, and she thinks her tenants like having her handy, too.
Fabrizio Uberti Bona owns a two-bedroom apartment at the Edge in William*****urg, Brooklyn. He recently decided to become an owner/investor and is in contract to buy a studio. Mr. Bona thinks that with rents so high, he can come out ahead each month.
Cost of studio $495,000
Estimated mortgage amount $321,750
Quoted mortgage interest rate 3 percent
Anticipated monthly mortgage payment $1,357
Monthly common charge $408
Monthly taxes $4
Anticipated rent $2,750 a month
Anticipated monthly income $981
Joshua Bright for The New York Times
Fabrizio Uberti Bona is convinced his second apartment, to be rented out, will more than earn its keep.
Joshua Bright for The New York Times
Jing Lin lives one floor up from the tenant of her other studio. She would not mind a little more distance.
Low monthly costs were what recently inspired Fabrizio Uberti Bona, an agent at MNS, to buy a second apartment at the Edge, a 565-unit project on the waterfront in William*****urg, Brooklyn. When sales slowed to a trickle during the recession, the Edge seemed like a white elephant. But with little new development inventory coming to market, sales picked up significantly last year, and the building is now more than 90 percent sold.
Mr. Bona, who has helped sell or rent many units at the Edge, went into contract for his two-bedroom apartment in early 2008 while the building was under construction, and did not move in until last spring. He is now in contract to buy a studio that he says should rent for about $2,750 a month.
“As an agent and a resident, I saw the value going up with price increases and rentals being so high,” he said, adding that he had helped several owners buy and rent out second apartments. “I thought, since this is what I do for a living, let’s see if I can do it, too.”
The studio will cost him $495,000 — about 15 percent more than what it would have sold for in 2008, he estimates. “It’s still a great value for what it is,” he said, “because of the return on investment by renting it.” After paying his mortgage and monthly costs, which include $4 a month in taxes, he expects to clear almost $1,000 a month in profit.
“I didn’t come to America to move to Brooklyn,” said Mr. Bona, who left Italy for New York 12 years ago, “but it’s the best thing I ever did.”
Eric Benaim, a founder of Modern Spaces, a real estate brokerage and marketing firm, said that several owners at the View, a 20-story tower on the Long Island City waterfront, have bought second apartments as investments in the last year. The 184-unit building is now 85 percent sold.
“I have one buyer who has been here from the beginning, and he’s seen the waterfront change a lot in the last two years,” he said.
The building’s developer, TF Cornerstone, recently finished two others and has started construction on a third and fourth.
“Seeing that progress is what inspired him to do this,” Mr. Benaim said. “Because from where he lives, he can literally see a floor going up every two days.”
When the market was down, he recalled, TF Cornerstone rented out more than a dozen apartments at the View. But it is now selling those apartments with tenants in place. “It’s very attractive to investors right now,” he said.
Buying into a building facing challenges can offer a prime opportunity. That was Taylor Hanex’s thinking in 2008 when she bought into the Sheffield, a 58-story tower at 322 West 57th Street that had been converted to condo from rental.
The contentious conversion prompted lawsuits, and the original developers eventually defaulted, but in 2009 new owners stepped in and the building recently unveiled 24,000 square feet of indoor and outdoor amenity space, including a roof deck, a spa and a lounge, on the top floors. “When you have problems in a building,” Ms. Hanex said, “I think it’s an opportunity, because prices will be lower and you know that the problems will be solved.”
Ms. Hanex, a senior vice president of Merrill Lynch, bought studios across the hall from each other. One-bedrooms at the Sheffield weren’t configured to fit her grand piano, so she thought she could live in one studio and use the second as a piano home and guestroom. By 2009 she had started renting out one of the studios because she found that the arrangement wasn’t quite as convenient as she had anticipated.
Then, last year, she decided to buy a two-bedroom apartment with terrace space that had become available on the 15th floor. She now lives there, keeping a lush garden filled with holly bushes, camellias and tulips, and rents out both studios, each at about $3,200 a month. She has a mortgage on only one of them, and said she did not need the rent to cover her costs, “but I felt if the space is sitting there not being used, I should rent it.”
Like many other owner/investors, Ms. Hanex likes being an on-site landlord. “I’ve always been friendly with the tenants,” she said, “and I think they like to know that the owner is in the building.” Tenants e-mail her with any issues, and “they slip the rent check under my door,” she said. “I’ve been very lucky. My tenants have been wonderful.”
Ms. Kovac, the owner in Harlem, said she would not have considered buying an investment property in any building but her own. “I think it would be too much work,” she said. But knowing the building staff and occasionally running into the tenant are pluses, she said, “and if anything is going on that shouldn’t be, I would find out right away.”
But not every owner wants to be so hands-on.
Jing Lin, an art curator and art student, recently bought two studios at One48, a 55-unit glass-clad condo in the Gramercy area that is 96 percent sold.
She lives on the top floor, with her investment unit right below hers. But she wouldn’t mind being farther away from her tenant. She is indeed very far from the tenants of the four apartments that she owns and rents out in her hometown, Beijing.
“I actually want to try to avoid meeting the tenant in the hallway,” Ms. Lin said. “If I learn something about the tenant from the building manager, I would not want to see him or her all the time.”
She is so confident of the building’s success that she persuaded a cousin from Beijing to buy an apartment on a lower floor and has brought in two other investors from China. “If you compared the price and the quality of these apartments with properties in Beijing,” she said, “you would think it’s crazy to buy in Beijing — and I hate to say anything bad about my country.”
