An Investor’s Guide — How to Buy an Investment Property in Brooklyn
The time is right for those who want to buy an investment property in Brooklyn. The market is getting stronger every day, but some neighborhood prices are lower than average. When affordable home prices are coupled with low mortgage interest rates, buying a home in Brooklyn makes for a wise investment.
Buying in Brooklyn can be intimidating, especially for new investors. If you’re not sure where to start or you’re worried you’re focused on the wrong neighborhood, read through our guide to investing in Brooklyn.
Buying An Investment Property Tip 1 – Do the Math
Before even looking at a potential investment property, decide what your overall goals are. Are you hoping to make some fast cash by flipping a property, or do you want to create a secondary source of income by renting a property out?
Next, it’s time to crunch the numbers. Knowing your end goal will help you stay out of the red. Just know that the equation is rarely straightforward. Speak to a fellow landlord about surprise costs that threw their original equations off. If their answers make you worry you won’t have enough cushion to absorb unexpected costs, you may want to spend more time saving before diving into an investment property.
But if you feel confident, start to explore median home costs in your target Brooklyn neighborhood. Where is there the most room for profit? Does it make more sense to buy an expensive home that can be instantly rented out or should you buy a more affordable home and upgrade it for instant equity?
At this stage, you’ll also want to get pre-approved and see what current interest rates are. Remember that monthly payments include principle, interest, homeowners insurance, and escrow contributions. Knowing exactly what you’ll be required to pay each month on your investment property will show you if you can make a profit.
For example, the average rent for a 645 square foot apartment in Brooklyn is $2,924 (it drastically varies by neighborhood, from $1,535 to $3,969). With the average price per foot being $747, a 645 square foot apartment will cost you $481,000.
If you put 12% down, your monthly payments would come out to approximately $2,780 a month (final number depends on your interest rate). This would leave room for a small profit margin based on average rent costs. But if you buy a property in a high-rent neighborhood, your chances for making a higher profit greatly increase.
Buying An Investment Property Tip 2 – Choose the Right Property
The type of property you choose as an investment property is important. Brooklyn has diverse neighborhoods, all with their own unique history and culture. These neighborhoods also boast of a variety of architectural designs. Some renters could be picky with what they want out of their Brooklyn home. Knowing the pros and cons of the following types of investment properties can help you choose one that will appeal to your target renters.
Condos are private residences within a larger building or community. When it comes to buying an investment property, condos can offer renters much more than a single-family home in the form of amenities. Depending on the unit, shared common areas could include a fitness center, outdoor space, or a pool. Keep in mind that these upgrades come at a price. HOA (Homeowners Association) fees can quickly outprice renters.
The main advantage of purchasing a condo as an investment property is that much of the maintenance is taken care of for you. While you’ll still have to take care of traditional landlord duties, like a leaking faucet or squeaky door, you won’t have to worry about repairs to the building or ground upkeep.
You can’t think of buying an investment property in Brooklyn without considering a brownstone. But there are a few factors to take into consideration. Brownstones can date back to the 1800s. While many brownstone owners renovate, you may need to do some major updates to a property to make it appeal to buyers who are also considering modern condos. For example, adding in-unit laundry or a dishwasher can be tough on the budget but typically worth it in the end.
Brownstones are also red-hot real estate commodities. If your budget is modest, you’ll be hard-pressed to find a brownstone you can afford. With such historical and architectural value, these types of investment properties are rarely sold for less than $2 million. But, if you can purchase a property, they’re a solid investment for both flippers and renters.
Brooklyn isn’t all brownstones and condos. You’ll find single-family homes as well in a variety of styles. You’re more likely to find a renovated home that can be rented out almost immediately should you decide to go this route. Prices can vary greatly, depending on the neighborhood and the size of the home.
If you’re looking for something specific, like a multi-unit or a property with great outdoor space, it will be easier to find with a single-family unit. But with modern condos and historical brownstones as competition, you’ll need to find a renter who’s not overly picky.
Buying An Investment Property Tip 3 — Always Be Prepared
Even with a great home inspection, repair costs can pop up, especially if you choose to do some renovating before a tenant moves in. You’ll also want to investigate HOA fees and any other monthly dues. Finally, if you know you plan on selling your investment property sooner than later, make sure you have enough money to cover any potential sitting time if you’re unable to find a month to month renter.
As a landlord, you’ll need to obtain homeowners insurance. It’s also a great idea to carry an umbrella insurance policy that will protect you in the event of an unexpected accident or litigation proceedings.
Many investors go into their first property thinking they’ll make a large enough profit to quit their day job and live comfortably. But even with high rent figures, it can be difficult to make a living from one property in Brooklyn.
Choosing to buy an investment property in Brooklyn for the first time should be viewed as a learning experience. Once you’ve made it through the experience, take some time to reflect. Is there anything you should have done differently? What took you by surprise? Is there anything that worked out as planned?
Take what you’ve learned and apply it to your next investment. Before you know it, you’ll be a professional investor in Brooklyn homes.
What to Look for in a Family-Friendly Neighborhood
Before we dive into our list of the best Brooklyn neighborhoods for families, learn what to look for when searching for a new address. Plenty of factors go into finding the best location, including the following.
It is important to complete extensive research on the school system in a neighborhood you’re considering. Ask the community about their experiences with public and private options. Look into high school graduation rates, college acceptance rates and what types of extracurriculars are offered. Don’t choose a neighborhood with a school system that limits your children’s future.