Posted by: Wei Min Tan Posted on: February 9, 2024
manhattan's skyline reflects ambition, and real estate reflects emotion. But for investors, the game revolves around his two strategic plays. It involves flipping condominiums before construction, Condominiums to purchase and hold In Manhattan. Choosing one requires understanding the complex nuances of each.
Read about Wei Min's style Best Real Estate Agents in Manhattan and Role of buyer intermediary.
Pre-Construction Flipping: Build Profits, Not Walls
This strategy involves making a 20 percent down payment to secure a unit in a new development. After that, the focus will be on observing the progress of the development as the building takes shape. The plan is to sell the property once it's completed or rented for one to two years, with the potential for a 15 to 20 percent profit. Its charm is undeniable.
- Reduced cost of entry: Unlike conventional turn over, where both the purchase and renovation require significant upfront capital, a pre-construction flip eliminates the need for the buyer to come up with renovation costs. And while waiting for a sale, the owner can always rent out the property.
- No cost of ownership: While construction is underway, investors are relieved of the burden of: mortgage payment and Maintenance costs. In a traditional flip, these holding costs can eat into your profits, but here you reap the benefits of time without the added financial pressure.
- Built-in gratitude: Prices for new developments in Manhattan often increase after completion.This built-in thanks Essentially, it is the result of the passage of time while the owner waits, usually one to two years after making a 20 percent down payment. This acts as a natural return increase and requires minimal effort on the part of the investor.
- High demand from buyers: New properties in desirable locations often have an easier time finding buyers. This ensures a reliable exit strategy as eager buyers from all over the world are drawn to the new addition to Manhattan's urban landscape. This could leverage the hype to drive a quick sale.
Read Wei Min's article. Investment in new development before construction
Our client's condominium at The Sutton in Midtown East was booked during pre-construction and rented immediately upon completion.
But like any ambitious play, pre-construction flips come with their own set of challenges.
- Long wait time: The capital city is not generating any revenue while it is closed during construction. This may extend to 18 months or more. This extended waiting period requires patience and the ability to manage your investment schedule accordingly.
- Funding challenges: It is essential to secure the remaining 80% of the purchase price upon completion. Although your initial deposit amount may be low, it is important to have access to capital at closing to avoid potential obstacles in implementing your exit strategy. This is because the buyer must complete the purchase at closing. You cannot simply transfer the contract to someone else before closing. Therefore, to complete the purchase, you will need the funds needed to cover his remaining 80% and closing costs.
Read Wei Min's article. Risks of purchasing a new condominium project in Manhattan
Buy and hold: stable income, stable nerves
This play has a long-term perspective. Buy existing property, rent it out to tenants, and enjoy a predictable monthly income stream that builds wealth over time. While the thrill of immediate profits may not be as pronounced, the stability and security it offers is undeniable.
- Passive income: Rent checks come in like clockwork, providing financial security and a buffer against financial uncertainty. Unlike ups and downs, this steady source of income allows you to plan for the future with more confidence.
- Lower initial costs: An existing property can be cheaper compared to pre-construction flipping, especially if no major renovations are required.
- Diversification possibilities: Owning multiple properties spreads your risk across different locations and tenant pools. This diversification not only protects your investment from sudden fluctuations in the market, but also provides options in the event of a vacancy or unexpected tenant issue.
Read Wei Min's article. Buy and rent real estate in New York
Luxury condominium for client in Soho with buy-and-hold strategy.
However, managing rental properties is not something that can be done passively. That responsibility requires dedication and hard work.
- Management responsibilities: Dealing with tenants, attending to their needs, taking care of repairs, and maintaining the property all require time and attention. You can also hire a property manager to handle these tasks, but this comes at an additional cost and impacts your overall profit margin.
- Vacancy risk: Empty units lead to loss of income. In volatile markets, periods of vacancy can have a significant impact on returns, so you should have a contingency plan in place to weather such periods.
- Renovation cost: Older properties may need renovations to attract and retain tenants. Financial planning requires flexibility and adaptability, as these unexpected costs can add to the initial investment and disrupt the flow of rental income.
- Inversion before construction: Ideal for risk-tolerant investors with access to large amounts of capital who are looking for potentially high returns in a short period of time and are used to long wait times and competitive markets.
- Buy and hold: Ideal for people who prefer long-term income security, enjoy manageable risk, and are comfortable with ongoing management responsibilities.
When considering buying and owning a pre-construction flip or condominium in Manhattan, it's important to conduct thorough research, seek professional advice, and understand your risk tolerance and financial resources. Whether you choose to flip for future gains or hold for stability, make sure you make your decision with a strong team on your side.
what we do
we will focus on Global investors buy Manhattan condos for Portfolio diversification and long-term investment returns.
1) Identify appropriate purchases based on purpose
2) Manage the purchasing process
3) Rent real estate
4) Tenant management
5) Put the property on the market at final sale