Buying a 1-Bedroom in Manhattan

Analyst 2 in IB-M&A

My parents are considering buying a 1-bedroom apartment in Manhattan in the coming months. They are looking to "park" some money in real estate and want to buy in NYC since I will be living here starting in the summer. They will rent out the property if I end up leaving the city in a few years.

For context, I will be working at a large cap PE firm starting in the summer and will be working midtown. I would be living in the apartment and covering property tax, maintenance costs, etc. The alternative is I rent and live with a roommate, which I could easily afford (and I feel would be the most rational choice) but my parents seem set on wanting to do this.

A few considerations and thoughts:

  1. What do you think of buying a 1-bed apartment in Manhattan in the current real estate environment in the city?
  2. What areas would you recommend?
  3. What areas would make it easier to find a tenant if I were to leave NYC in a few years?
  4. Somewhat related to the first question, how have 1-beds in Manhattan appreciated compared to studios and 2-beds in the past?
  5. I think we exclude co-ops since they wouldn't allow renting out if I leave the city, right?


United States - Northeast

Comments (2)

Feb 25, 2020

1-Overall, it's a good time to buy. However, the lower the price point, the less negotiability you have. The $650k-$1.5M market for 1br is always pretty strong and steady.

2-Depends if you are looking for yield or appreciation in the long term. Since you will live in the apartment for a while you might want to consider your own commute. In general terms, 1br performance as an investment is homogeneous. You're not going to make a killing by picking one area over another. The only thing you should really pay attention to is that your carrying costs are kept low.

3-Anything close to a subway stop. Think 7mn walking distance or less.

4-I would say 2br and 1br apartments always have a high demand in NYC (2br: shares and young families, 1br: singles and young couples). Studios are OK but a lot of prospective tenants want a room (i.e. a space where they can shut a door and have privacy). So, appreciation is probably very similar.

5-some co-ops have flexible sublet policies. A typical rule for co-ops is "2 out of 5". Live in the apartment two years and rent it for the next 3. At which point you (the shareholder) need to move back in the apartment, keep it empty, or sell. You have to be really clear about your timeline and objectives if you go the co-op route.

PM me if you want more input.

Feb 25, 2020