Foreign invasion or savvy investment?

Buy the buyers.

It’s a novel way to jump-start the housing market and an idea, originally credited to investor Warren Buffett, that seems to make sense.

A Senate proposal from the bipartisan duo of NYC Democrat Chuck Schumer and Utah Republican Mike Lee would grant three-year nonimmigrant visas to qualified foreign real estate buyers.

Little more than a week after it’s unveiling, the new concept – which could lure new buyers to the New York City real estate market - is generating more heat than light.

The suggested law includes caveats aplenty. Buyers must spend at least half million dollars in cash for their US property, and must actually live in one of their co-op, condo or homes for at least six months – triggering the need to pay taxes to the IRS.

The visa term can be extended in three-year increments, but only pending a reapplication and approval procedure. Permission to work in the US, on the other hand,  is not part of the deal. 

In addition, buyers must satisfy all US Immigration requirements and pass a security check.  Unsavory characters, terrorists, disgraced dictators and deadbeats are, let’s hope, not able to make the cut.

New overseas investors must be adequately wealthy to complete an all-cash real estate transaction, and sufficiently comfortable to do so without having to work. Forced to spend six idle months in their American domiciles, the theory goes, these investors would spend their long American sojourn enriching the economy in countless ways. They’d buy food, clothing, gas, cars – and entertain themselves with expensive concerts, museums, theaters and sporting events. Given the restrictions, it seems likely for buyers to gravitate to New York City . Where better to lay for six months than the capital of all things exciting?

Still, nay-sayers blast the proposed legislation as an assault on the American Dream; one that, they say, could undermine US Immigration policy.

Meanwhile, advocates point out that the same legal provisions work just fine in Canada, with a healthier economy – and without a terrorist attack.

In the United States, foreign buyers already account for more than $80 million dollars in annual real estate sales, a 24 per cent increase over the previous year (according to the National Association of Realtors). And that’s without any kind of visa thrown in as an incentive and, without any National Security incidents.

So to those who fear an alien invasion, we point northward, to the alien land that generates the greatest number of foreign investment invaders.

Too many immigrants?

 

Blame Canada!

The NYC real estate challenge: getting approved by a Manhattan co-op board

BOO! Did it scare you? Probably not.

On Halloween, all those ghosts, goblins, witches and warlocks (pint-sized and bigger) can look terrifying. But they’re not. You know the ritual, and, along with the rest of society, you agree to view the holiday as an occasion for delight rather than dread.

Turns out, a similar dose of understanding and acceptance can sustain you through the New York City home buyer’s scariest encounter: the much-feared coop board interview. 

This face-to-face meeting can feel like a test of personal worth, rather than an objective assessment of your financial health, but in the vast majority of cases, the conversation turns out just fine. Just another of life’s little tests, it can be aced with the proper preparation, and study, along with some capable coaching from your broker. Truth is, boards are happier than ever before to accept solid newcomers to their communities.

The good news

As for all those news stories about celebrities who were rejected by their buildings? Those are exceptions to the rule.

Former president Richard Nixon, singers Barbara Streisand, Madonna, Mariah Carey, Billy Joel and Cher, and actor Antonio Banderas, newsman Mike Wallace, and Designer Calvin Klein; all discovered that fame and wealth weren’t enough to guarantee admission to, or a peaceful relationship with, an upscale New York City coop board. But unless your presence is likely to generate round-the-clock crowds of paparazzi, you probably won’t face the same kind of grilling these folks did.

Protected areas

Legally, real estate buyers are protected in 14 separate areas.  The Federal Fair Housing act, the Civil Rights Act, and the New York State and New York City Human Rights laws, prohibit discrimination on the basis of:

-age

-alien status

-children (or childless state)

-country of national origin

-creed

-disability

-gender (including gender identity)

-lawful occupation

-marital status

-military status

-partnership status

-race

-religion

-sexual orientation

Once your rights are assured in those areas, though, you basically enter what one NYC real estate attorney describes as the ‘land of anything goes.’

The Real Estate Board of New York (REBNY) and the Council of NY Cooperatives and Condominiums (CNYCC), among others, guarantee the rights of the boards themselves. Made up of shareholders, these governing groups can refuse any applicant, no questions asked, as long as they stay clear of open discrimination.

Singer Mariah Carey was turned down flat by a Manhattan luxury building years ago, most likely because the then-single young women was viewed as a bad credit risk who toiled in a fickle business. Former President Nixon was nixed for sheer notoriety while, more recently, Dominique Strauss-Kahn had a devil of a time finding a place to await his hearing. None of these decisions were completely unexpected, nor were they enormously surprising.

Bank on your broker

With some cooperative boards of directors noted for prickly decision-making, the key to helping a new buyer pass the test on the first try often falls to the real estate broker.. A good realtor will know the peccadilloes of each individual board, and be completely up-to-date on the rules of the building itself.

I always remind my new buyers set aside some prep time, so we can rehearse the upcoming interview process.  Together, we explore the ‘what ifs’ and the ‘must-haves’. If I anticipate a particularly tricky situation, we conduct a mock interview. Because each board – and each board member – has a distinct personality, there’s no one-size-fits-all way strategy.

A good broker will also fully brief the buyer on the building’s guidelines, the ways they have been enforced in the past, and the general rules drawn up by the REDNT and CYNCC for coops. Many building have specific restrictions on pets, noise, and carpeting and renovation guidelines.  Again, provided these regulations don’t violate any civil rights guaranteed under state or federal law, they’re completely permissible.

On the other hand, boards should be open about sharing their meeting schedules, their interview process, and their approval schedule.  If they ask for some time-consuming records (for instance, credit checks from out of state) they can and should understand that it adds time to the approval process.

Thankfully, most buyers pass their test with nary a problem. In fact, 95 per cent of my buyers have survived the initial interview completely unscathed and the few who haven’t gotten the nod the first time out, have been approved soon afterwards. Some people even enjoy the interview process.

Yes, it’s a test. But unlike a driver’s license, a professional certification or an eye exam, it’s a once-in-a-lifetime challenge.

Pass it, and you’re done.

Buyer, be aware

Two coops are for sale: one for $500,000 and the other for $750,000.

Which one is cheaper?

Seems like a simple question, but it’s not. 

In the wild and wacky Manhattan real estate world, circa 2011, price isn’t absolute nor is it predictive of real cost. There are all kinds of other factors that play into affordability.

You already know that rock-bottom common charges can accompany the costliest coop, while what that ‘bargain buy’ may harbor costly structural problems.  And you’re only too aware that the bust after the boom shattered the old ‘property always appreciates in value’ assertion. But there’s one timeworn caution that is truer today than ever: Stay within your means and – for gosh sakes – know what those means are.

In this economic climate, no responsible broker advises a buyer to stretch beyond affordability. We advise would-be property owners to first take an unflinchingly honest look at their own finances.

My suggestion: assess your expected income and expenses and then play an aggressive game of devil’s advocate with yourself. What if the job went away? What if those investments dried up? What if that comfortable ‘contingency fund’ had to be tapped for an emergency? Could you still pay the mortgage? Do you have adequate reserves to stay afloat for at least six months or, even better, a year?

While we’re at it, take off those rose-colored blinders and examine:

·        What your current job pays – and how likely the position and the pay are to remain unchanged.

·        What extra income you can count on (interest payments, freelance work, rental property income), and which are precarious or market-dependent.

·        What expenses figure in to your monthly obligations (utilities, taxes, insurances, tuition, entertainment costs, second homes, memberships, you name it) and which are sheer discretionary stuff

·        How much you need to save each month to meet your financial goals, whether for college, retirement, loan repayment or other needs?

·        How likely your taxes to rise?

·        What big bills are looming? For example, is the car in its golden years? Are the kids embarking on an educational journey? Is your roof leaking, or your deck about to crumble?

Be as brutal as your bank would be. Remember: mortgage lenders cap your monthly housing costs at about 28 per percent of your gross income. They also set the maximum debt (including your mortgage payment) at 36 percent of your gross income.

Online calculators at Kiplingers, The Center for Economic and Policy Research and Decision aide can provide a rough estimate of affordability. But these offer broad general guidelines. Adjust for your individual situation.

Once you know your ideal price range, be prepared to adjust for variations. Those common charge and repair costs we talked about earlier make a big difference.

Once you’re well armed with the info, don’t let too much grass grow under your feet. Mortgage rates are likely to rise soon, and each additional one per cent hike can reduce a buyer’s maximum purchase price by nearly 11 per cent.

Screw up your courage. But first, fire up that calculator. You’ll need it.

Q3'11 NYC RE Market Report: safe haven in an economic storm

Amidst roiling financial seas, there are still some safe harbors. And one of the best is right here, right now.

Manhattan real estate – particularly high-end, luxury co-ops and condos – remains strong and steady in a shaky and uncertain economy.

In fact, New York City property is seven per cent more valuable today than it was during the same quarter just last year. According to this quarter’s edition of the Prudential Douglas Elliman Report on Manhattan coop and condo sales, condos alone gained 16.7 per cent year in year over year value since 2010.  Today’s average square foot in a Manhattan dwelling goes for $1,130, as compared to $1,095 just last year.

Not a bad return on a Great Recession investment.

True, foreign buyers lured by the cheap dollar drove some of the price gains. But locals are just as savvy when it comes to their real estate.  And let’s face it, what other investment promises a solid return while also providing a very nice roof (often with a garden and a view) over your head?

As housing heals, it promises to rebalance the larger marketplace.  Stubborn would-be buyers - many of whom are still sitting out the downturn hoping for even lower prices - may accelerate shortages that further increase the cost of real estate.  I predict that these housing ‘wallflowers’ could hasten the onset of four to five per cent rent hikes in the near future.  And it’s no secret that climbing rents make condos and coops even more attractive – and correspondingly pricier.

Our third-quarter report also reveals that the average Manhattan property now spends 119 days on the market, down from 125 days last year. At the same time, the discount from the original listing price at sale slipped from last year’s 5.8 per cent third-quarter discount to 4.4 per cent during the third quarter of 2011.  Nor is this exclusive to the Big Apple.  The Business Insider checked 14 top global destinations and discovered that 11 of them, including New York City, saw real estate prices rise this year.

At the same time, Seeking Alpha predicts a combination of demographic trends, household formation rates and housing stock depletion will create a need for roughly a million new homes each year for the next decade.

More people and fewer options lead to – well, you know.

And so, my advice to my clients is pretty much the same today as it was before the downturn;  find a place you love, at a price you can manage, in an area that’s appealing, vibrant and thriving - and take the plunge.

And if that place is the capital of excitement, convenience and solid value - Manhattan, New York City – you’re bound to win.

New York City rents are higher and apartments are smaller and bleaker, a New York Times real estate article complains.

People seeking NYC housing have to “settle in neighborhoods they would have shunned a few years back.  They watch their savings accounts shrivel as they cut into them to meet monthly rents…..creating a bleak vision of tomorrow,” the writer continues.

Sound familiar?  It should. It was written almost 32 years ago, and quotes one women who was so galled by the $345 monthly rent for a Manhattan studio apartment that she bought a $40,000 coop in Brooklyn instead.  

Today, that Boerum Hill loft is worth more than 100 times its original value.

Buying New York real estate made sense then, and it makes even more sense now. In fact, I believe it’s the only meaningful investment in this non-recovery economy.

Cash, stocks, retirement accounts, money markets, and CDs are all stumbling or losing value. Interest rate returns on most investments are rock-bottom low.  And precious metals like gold and silver are cripplingly expensive. Never mind the fact that precious metals are entirely different than housing. You can’t live in gold bars and silver coins, but even if the dollar crashes, a coop, condo or house will still stand. Housing is real, tangible and, as distinct from gold and silver, everyday practical.

So the conclusion now is the same as it was in 1980. It’s still wiser to buy property rather than rent it. Use your money to build equity and pay down principal, particularly in such a consistently ‘hot’ market as New York City. Take advantage of what may turn out to be a ‘perfect storm’; a combination of low mortgage interest rates (under 4 per cent, in some instances), abundant NYC property, and a willingness – in most cases – to negotiate price.

There’s only so much further prices can dip, only so many more housing options. Since everyone has to live somewhere, you may as use those monthly payments to build equity, pay down interest, and otherwise benefit you, not a landlord.

To the author who wrote, in the Times piece of Jan. 22, 1980, “there are no rules of thumb anymore,” I offer this counter-argument; property is forever. Over time, it appreciates – and rents rise, sometimes faster and higher when there are too few buying options available.

Remember that overpriced $345 studio from three decades ago? It’s going for about $2,500 a month today.

T  H  E  N    &    N  O  W  : 
Park Avenue

Once upon a time, a NYC buyer acquired15 floors, 131 apartments and a prime New York City address – for $100,000.

The property was the ‘white glove’ Beekman Hotel at 63rd and Park, the setting was a New York City real estate foreclosure and the year was 1935. Offered at auction, 575 Park Avenue attracted a handful of would-be buyers; those who could muster such an enormous sum during the Great Depression.

Original article published on January 10, 1935

The winner was Charles Buhl, whose $100,000 investment secured an eight-year-old terra cotta gem replete with original brass touches, a marquee entranceway, and a posh lobby. The Beekman’s lush interiors and fine design elements would later attract politicians and name entertainers. But on that day in 1935 – the year FDR created the Works Progress Administration - it was just another distressed New York City building seeking a buyer.  Among the other offerings in the New York Times real estate page were a three-story 97^th street dwelling listed for $10,000 and a Central Park West building available for a mere $1,000.

Today, there are no such Manhattan fairy tales.

Despite the troubled economy and an uncertain future jobs outlook, prime NYC real estate almost never reaches the foreclosure stage, and rarely hits a rock-bottom price. Manhattan property is too valuable, too scarce and too coveted to reach the open market. Instead, I routinely see ‘distressed’ coops and condos hungrily snapped up by friends, family or through word of mouth, despite its current condition. You can always repair a structure, but you can’t add more land.

In this Great Recession (or whatever we call it these days) NYC housing prices are “holding steady” and their volume is increasing, according to the Times.  A single Beekman room is now worth more than the $100,000 Buhl paid for the entire building in 1935, and a one-bedroom coop starts at five times the original purchase price.

Such ‘extras’ as daily maid service, a concierge, a valet, a state of the art fitness center, abundant storage space, a roof deck, and a chic address – all of which describe the Beekman – differentiate the best buildings from the merely ordinary.

If Charles Buhl had had a crystal ball on that January day in 1935 – along with an ability to hang around for a few more decades – he would have been mightily pleased by the brilliance of his buy. Ten years after his purchase, American was poised for prosperity, and a decade after that, the Baby Boom was in full swing. Had he been able to foresee that, he may well have those two Upper West Side properties to his portfolio that day.