An Ignoble Experiment: Risk Factors When Evaluating Potential Investments

Dear Investor,

When investing outside your home city - each market across the nation has its positives and negatives, local issues, and each city is constantly evolving. Today, with the help of Mortar Group, we will look at New York real estate, and try to learn some of the nuances, and understand how to navigate one of the most competitive and difficult markets in the US.

By way of disclosure, we have an advertising relationship with Mortar Group, meaning we get paid for making this introduction and sharing this content. As always with these types of deals, consider this an introduction and not a recommendation. Every deal is unique and the responsibility to vet any and every deal you invest in still lies with you. This opportunity is available to accredited investors only.

To jump right in - what are the pros and cons to investing in New York Real Estate?

Cons- New York gets a bad reputation mainly due to the following:

Tax Structure: Both property and income tax is higher than in many states.
Politics: The political landscape swings every few years and can affect investments.
Demographic shifts both by local neighborhood, but also nationally.
Unfriendly to new landlords or developers.
Lack of New Land for Development.
High price to enter the market.
Generally litigious and the insurance expenses are high (action over coverage, etc.)
Navigating construction unions and general market corruption.

While the above are very true, and may seem like something to avoid, this is generally true for most metropolitan cities in some way – there are always obstacles (otherwise everyone would do it).

Pros- If we shift focus to the positives and stick to fundamentals of real estate investing, we should acknowledge some aspects that make it great:

NYC has a population of 8,336,000 and growing – not decreasing.
The city firmly has the highest GDP in the nation.
Vacancy rates tend to be significantly lower than the national averages (~1.4%).
The Covid Boom cities that took off in 2020 and 2021 were overbuilt, and numerically are on the decline (for the time being) as markets slowly revert to less remote work.
Wage Growth and Population of high-income earners in NYC is booming
- Increasing steadily since 2020.
- Outpaces national market.
- Post Covid Growth in the outer boroughs is growing rapidly with some neighborhoods in Brooklyn surpassing Manhattan valuations.
New York has top 10 Year over Year Rent Changes at +2.9% while many secondary markets are now declining.

How can one navigate through the NY complexities?

Keep it simple – and avoid high risk situations.

Invest in "As of Right" Assets. Target assets that comply with all applicable regulations with NYC and are a way to avoid politics and bureaucracy.
Tax Class Protected Multi-Family Buildings – these are buildings that cap the increase in property taxes to a certain % per year, usually under 6%.
Low Allocation of Stabilized Housing – Avoid primary assets prone to political fluctuations, rent caps and potential negative sentiments.
If possible: Avoid government subsidies – The NY market has changed over the last 10-15 years, and the cost of subsidies is high. Not as a general cost, but via the limitations placed on an asset with subsidies.
Be an Expert. Know what expenses should be, who to call when, and how to navigate hurdles and bumps as they arise.
Access to the RIGHT Deals in a Competitive Market – As one becomes more experienced in a market, sellers become familiar with you (and know you will close a deal). Long term relationships allow access to the desirable off-market deals, or assets that are distressed.
Understand Comps and Market Shifts – Know what is trending and where people want to live. What neighborhoods are on the upswing, and which are trending in the wrong direction? What area is getting new parks, which area has a coveted school, new access to transportation, and / or new job / sector growth.

Again, just because you hear comments to stay away from California, Chicago, or NYC (or any other major metropolitan city), it is first important to see what those barriers to entry are before you decide. A seasoned investment firm can use this as an opportunity by navigating the market carefully – but investors should also understand how the cities they invest in operate, and any firm should be able to explain to investors how they tackle the obstacles in their market.

This content has been shared by Mortar Group. If you're interested in discussing this topic more, or you are interested learning more about Mortar Group, you can schedule a call here: Schedule a Call

Also feel free to view other recent resources from Mortar Group.

Mortar believes in experience and smarter real estate investing. Their fully integrated in-house design, development, and asset management expertise has resulted in dozens of successful privately syndicated deals. This, combined with skin-in-the-game co-investments and in-depth local neighborhood knowledge, helps Mortar mitigate risk and maximize investor returns. Focused opportunities combined with an intimate knowledge of New York's prime niche neighborhoods allows investors to diversify and deploy capital conservatively in projects and divest risk throughout the real estate lifecycle.

Mortar Group extends White Coat Investors access to exclusive opportunities on new offerings. If you would like to know more, please visit their website, or reach out to their Investment Relations Manager – Francesca Gaccione at 646-559-9471, or gaccione@mortargroup.com.