Recently, my friend asked me whether or not it’s a good idea to buy an apartment in New York. She knew that I have been investing in real estate so she asked me for advice.
My initial thought was HECK NO!
To give you a bit of a general background, as you would have guessed, a New York apartment is very expensive. Most apartments worth $1 million plus.
This is very different from my investment criteria, which is buying houses in up-and-coming, (currently) cheap, blue-collar neighborhoods (Jersey City is where I do my business).
Instead of buying a New York apartment, I use the same amount of money to buy several good houses in Jersey City.
By playing right, the cashflows that these Jersey City houses bring in are amazing. We are talking about income-replacement type of income (the amount of money is comparable to what you would have got with a 9-5 job).
This is already a worst-case scenario (and doesn’t sound so bad to me at all) ;). There are even better things to follow.
Jersey City is getting developed, with the aim of becoming a world-class city. Certain parts of the city (in 2014, e.g. Journal Square) are clear-as-day that the area is getting entirely upgraded and gentrified in the next several years. When this happens, what used to be old, dingy houses will all-of-a-sudden become the next hottest piece of property that everyone wants to own.
That’s why sometimes I see the houses that I own around there are like lottery tickets waiting for me to cash in at a future time! I don’t know when exactly this will happen. But if I keep holding onto these lottery tickets while collecting cashflows every month, I certainly don’t mind keeping onto holding these lottery tickets forever!
So I know buying a New York apartment is not the best thing for me to do. HECK NO!
There’s simply better ways to spend the money, I was thinking to myself.
Back to the story. Guess what I told my friend when she asks if she should buy a New York apartment.
Nothing. I bit my tongue.
You may wonder why I wouldn’t warn my friend if I feel so strongly against it.
Is it because I am evil that I secretly want my friend to do badly? Is it because I am afraid that she will find out what I do, like it, and I just created myself a new competitor in this process? (That’s not true, of course! The website is all about sharing what I do and cultivate being successful real estate investors!)
Truth is: I was about to burst out “HECK NO!” from my lung. But right before that, several thoughts came to my mind. In fact, during those split seconds, I thought of several reasons why it might make sense for her.
Here are some reasons why buying a New York apartment may make sense for my friend.
New York is special. During our latest financial “great depression” in 2011, while many cities have suffered a major drop in prices (50%+ price drop), New York Real Estate didn’t drop much at all (less than 10 percent). The reason is because New York real estate has a GLOBAL demand. Investors from US, Middle East, Asia, Europe all fight for these New York properties! Not a lot of cities IN THE WORLD possess this status. Personally I think only London and New York have this status. What this means, unless the ENTIRE WORLD goes down, the value is going to hold up.
I am aware that there are a lot of folks out there dying to invest their money. Money sitting in the bank account loses its value day by day due to inflation. We call them dead money. Buying real estate is traditionally a good way to protect against inflation. If you have a lot of cash that you need to invest, buying in the low-price neighborhoods will take too long. New York apartments? With their high price points and large amount of inventory, you can invest money at a much quicker rate.
There are real examples like that. There was a huge investment fund that started in Jersey City several years ago. Its original strategy was to buy a special type of houses in Jersey City. It was later forced to change their strategy because it simply could not find enough houses to buy! The investors’ money was not being invested hard enough! Because of this, the firm has since shifted its focus to higher price point neighborhoods (e.g. New York Brooklyn) and it has been doing great ever since.
Sometimes, both too little money and too much money can create problems.
My friend currently lives in New York. If she is looking for a home, it makes sense for her to buy in New York right?
Real Estate Investing involves hard work. We as Real Estate Investors spend a lot of time and energy in building systems to help run our business better, and it requires our time and effort. This may not suit everyone. For example, a good friend of mine makes her money (a lot!) in her trading business. Because of her business, she often travels back and forth between America and Asia. She likes real estate but at the same time she can’t afford too much time in it. Guess what she invests in? Apartments in very nice cities because they are the easiest to manage (and per #1, offer best price protection). New York apartments fit her criteria perfectly.
There are at least several other reasons that I didn’t write them down, but you get the point. While not all reasons above may be applicable to my friend, I am sure I would have given an incomplete advice unless I fully understand her entire picture. At least I need to understand the rationale behind why my friend wants to buy a New York apartment before giving any advice.
Just like other things in life, your actions need to congruent with your larger life-purpose goals are. What is your financial goal? Are you looking to protect your money? Are you looking for regular cashflows to replace your income? Are you looking for a big lottery-like pay day? Does Real Estate mean more about personal enjoyment or investment to You?
Spend time on figuring out what your end goal is and what type of resources (time and money) that you have access to. Then use those info to determine your suitable investments (e.g. high-priced condos vs low-priced entry-level properties). Everyone has his or her own niche to explore.
P.S. New York is truly an amazing city. Whether or not you decide to buy a New York Apartment here, it is a place you MUST visit! I guarantee the vibrant atmosphere, “friendly” attitude New Yorkers have towards visitors, and cultural and culinary scene will leave you with an unforgettable experience to this special place.