International investors are pouring streams of wealth into US real estate, bringing the New York real estate market to a feverish frenzy.
In 2014, investment sales volume hit at a record high, overall property value appreciated by 20%, and in January, a New York condo sold for a record $100.5 million.
With the record-low interest rates compounded by the dollar’s record-high gain against foreign currency, international and institutional investors are cashing in both long term and short term, seeing returns as high as 30% a few months after purchase.
For the rest of the market, however, sales have yet to reach the same heights as the luxury market, as national home sales continue to flatten.
In order to give the market a shot in the arm, Fannie Mae and Freddie Mac announced their plan in December to back mortgages with down payments as low as 3%, a move done to lure more first-time buyers market.
With the FED keeping interest rates low for at least a few months longer, how do private investors without nine-figure backing play and win in the lucrative New York market?
Real estate investor, commentator and founder of leading real estate publication The Real Deal Amir Korangy keeps close tabs on the real estate industry, correctly forecasting trends while providing investment tips during the recession.
Known as one of the 100 most influential people in real estate, his outlet now influences the New York real estate scene, drawing both industry praise and chilling threats from local real estate tycoons unhappy about reporting.
Before launching the magazine, the Brooklyn real estate boom that saw the borough’s prices push buyers back to Manhattan, Korangy started his investment career by purchasing a $105,000 property with a modest down payment.
Two years later, the value had shot up to $385,000, giving him the next egg to invest and flip multiple properties, amassing a diversified portfolio of New York real estate and launch his magazine.
TheStreet sat down with Korangy to get his tips to spot neighborhoods on the rise, when and where to invest, why the 3% might not be such a good thing, and how to score in the real estate market without large amounts of cash.
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TheStreet: Where should people invest?
Amir Korangy: You always want to buy in areas that you know. It’s very much like in literature where they say, "Write about what you know." Real estate is the same thing: buy in the areas that you know.
A lot of people like to say you go to where to where the deals are. The fact is the more successful REITs, Empire State Realty Trust (ESRT), SL Green (SLG), New York REIT (NYRT), they focus on New York City. They have billions of dollars to invest anywhere but they choose to be in concentrated areas.
Urban areas are only getting more populated, the percentage of people moving from rural areas into the urban areas is just going to increase more and more so there’s this halo effect that’s going to happen.
TST: How do you spot up-and-coming neighborhoods for investment?
AK: You always want to look at the schools in the area.
[Good schools add] tremendous value to your property and to everything else, especially the larger the property is. And if you can save say $30,000 per kid and, say, on average you have two kids, that’s $60,000 after taxes, which means a $120,000 every year just from sending your kids to a good public school.
The other thing you want to look at is crime statistics. A lot of people don’t care, but for a family and for most people who can afford to buy valuable real estate, that’s going to be an important thing.
In the city, the thing I look at, which is very important, is transportation. If you and I don’t have cars — no one really has a car in New York — so transportation is a very big key, especially if you live within the city.
TST: What’s the next hot NYC neighborhood?
AK: Right now, looking at the South Bronx, it’s going to be the next hot area. You have both the East and the West side trains going to the South Bronx and it’s very convenient.
It hasn’t been approached. People have been going to Brooklyn, going to Queens.
TST: What kinds of investments are you looking at right now?
AK: In an ideal world, I want to buy something larger because the gains on it will be larger. If you buy a townhouse or buy a two-bedroom, it has a much higher upside than if you bought a small property.
Right now, I’m looking in the South Bronx, I’m looking for multi-family, commercial buildings that have an upside because once the zoning changes in those areas, all of a sudden the property values are going to shoot up.
TST: Explain how that works.
AK: What happened in [the Brooklyn neighborhood of] Bushwick, three years ago or four years ago, we were looking at properties there, you could’ve bought a building for $5 million because it was zoned manufacturing commercial.
Now that zoning for that area changed, the same exact building is worth $17 million. And that’s in three years where it’s gone up over 300%. That’s because of the zoning change.
Here in the city, on the West side where I bought my place, I bought it for $298 a foot. Three months later, they changed the zoning to residential. Since then, 11 high-rises have gone up from 8th Ave to 10th Ave, and of course the price of my property shot up tremendously, just because of the zoning change.
TST: What should you do if you’re a first-time investor?
AK: The thing you want to do when you’re younger — and this is what I did — I built up money for a down payment, I went into a fringe area I thought was going to be hot with good transportation, it was in a good area, it had that Halo-feel going on. I bought it for $105,000 and in two years it had appreciated to $385,000.
In an ideal situation, you would live in your investment property, you add value to it, change the kitchen for instance, or buy it from one market and sell it to another market.
This article was republished with permission from TheStreet.
