Posted by Wei Min Tan on Feb 9, 2024
ManhattanIts skyline reflects ambition and its real estate echoes the sentiment. But for investors, the game revolves around two strategic plays: flipping apartments before construction and buy and keep condo in Manhattan. Choosing between them requires understanding the intricate nuances of each.
Read about Wei Min’s style at The best real estate agents in Manhattan AND The role of the buyer’s broker.
Pre-construction rollover: building profits, not walls
This strategy involves making a 20 percent down payment to secure a unit in a new development. The focus is then on observing the development progress as the building takes shape. The plan is to sell the unit upon completion or after leasing it for 1-2 years, potentially yielding a 15-20 percent profit. The allure is undeniable:
- Lowest Entry Cost: Unlike the traditional one flipping, where significant initial capital is required for both purchase and renovation, the pre-construction return does not require the buyer to incur renovation costs. And while waiting to sell, the owner can always rent out the property.
- There are no maintenance costs: As construction unfolds, the investor is free from the burdens of mortgage payments AND maintenance fees. These holding costs can feed into profits in traditional flips, but here, one reaps the benefit of time without incurring additional financial pressure.
- Integrated assessment: New Manhattan developments often see price increases after they are completed. This integrated evaluation it is basically the result of time passing while the owner waits, usually 1-2 years after putting down the 20 percent down payment. It acts as a natural incentive for returns, requiring minimal effort on the part of the investor.
- High buyer demand: New units in desirable locations often find buyers without difficulty. This provides a reliable exit strategy, as eager buyers from around the world are drawn to the latest additions to Manhattan’s urban landscape. This could potentially enable ad capitalization, facilitating a quick sale.
Read Wei Min’s article: Investment in new development before construction
The client’s apartment at The Sutton in Midtown East, booked in the pre-construction phase, waited to be completed and then leased immediately.
But like any ambitious game, pre-build change comes with its own set of challenges:
- Long waiting times: Capital is not producing returns while it is locked up for the duration of construction. This can take 18 months or even longer. This extended waiting period requires patience and the ability to manage the investment timeline accordingly.
- Funding challenge: It is essential to secure the remaining 80 percent of the purchase price at closing. While the initial deposit may be lower, it is essential to have access to capital when you close to avoid any potential setbacks in executing your exit strategy. This is because the buyer is required to complete the purchase at closing; you can’t just pass the contract on to someone else before closing. Therefore, having the necessary funds to cover the remaining 80 percent plus closing costs is necessary to finalize the purchase.
Read Wei Min’s article: Risks of buying a new Manhattan launch property project
Buy and Hold: Steady Income, Steady Nerves
This show takes a more long-term view. Buying an existing property, renting to tenants and enjoying a predictable monthly income stream that builds wealth over time. While the thrill of quick profits may be less pronounced, the stability and security offered are undeniable:
- Passive income: Rent checks roll in like clockwork, providing financial security and a hedge against economic uncertainties. Unlike the ups and downs of flipping, this steady stream of income allows for planning for the future with greater confidence.
- Lowest initial cost: Compared to pre-construction flipping, existing properties can be less expensive, especially when significant renovations are not necessary.
- Diversification potential: Owning multiple properties spreads risk across different locations and tenant pools. This diversification not only protects the investment from unexpected market fluctuations, but also provides opportunities in the event of vacancies or unforeseen tenant issues.
Read Wei Min’s article: Buying New York rental property
Client’s luxury apartment in Soho with buy and hold strategy.
However, rental property management is not a passive endeavor. Responsibilities require commitment and effort:
- Management Responsibilities: Dealing with tenants, responding to their needs, repairing and maintaining the property takes time and attention. While one can hire a property manager to handle these tasks, it comes at an additional cost, affecting overall profit margins.
- Risk of vacancies: Empty units translate into lost revenue. In volatile markets, periods of vacancies can significantly affect returns and require contingency plans to cope with such periods.
- Renewal costs: Older properties may need renovations to attract and retain tenants. These unexpected costs can add to the initial investment and potentially disrupt the rental income stream, requiring flexibility and adaptability in financial planning.
Choosing your game
- Rotation before construction: Ideal for risk-tolerant investors with access to substantial capital who seek potentially high returns within a shorter period of time and are comfortable with long lead times and a competitive market.
- Buy and keep: Perfect for those who favor long-term income stability, prefer manageable risks and are comfortable with ongoing management responsibilities.
When considering pre-construction flipping or buying and holding Manhattan apartments, it’s essential to do thorough research, seek expert advice, and understand your risk tolerance and financial resources. Whether one chooses to roll for future gains or hold for stability, make sure the decision is informed by having a strong team on your side.
what we do
We focus on Global investors buy apartments in Manhattan ABOUT portfolio diversification and long-term return on investment.
1) Identify the right purchase based on objectives
2) Manage the purchase process
3) Rent out the property
4) Manage tenants
5) Show the property in the eventual sale