Why London is a better investment bet than New York

London has lost its top spot to New York in a ranking of the most attractive destinations for foreign commercial property investors, according to the Association of Foreign Investors in Real Estate.

But overseas investors have more hurdles to overcome when buying property in the Big Apple than London. Here are five things to bear in mind from West End Estate Agents, LDG before choosing to invest in New York over the capital of cool.

Co-op or condo?

Be sure to establish your legal rights over the land your potential US investment is built on. A condominium – or condo – refers to an apartment that is individually owned. The use of land to access common facilities in the property, such as hallways, the heating system or lift, is granted under legal rights associated with the individual ownership.

On the other hand, a housing co-op is a legal entity, usually a corporation, which owns real estate consisting of one or more residential buildings. Most rental buildings converted to co-ops in the 70s and early 80s, so the properties tend to be older and less desirable to tenants. Owners purchase shares in a corporation and have a perpetual lease to a specific apartment, although in rare cases this can be terminated forcing investors to sell their apartment.

Owners also have to pay maintenance to the corporation in return for it maintaining common areas and facilities like the heating, water and pipework. To take ownership of a co-op property, the would-be purchaser has to be approved by a board.

Most boards require a 20% down payment and good credit score, good income to debt ratio and good references. Therefore, lenders make it tougher to get a mortgage on a co-op apartment because it is a more complicated process to buy and sell. Banks also look at the financial affairs of the co-op because many have mortgages themselves.

Condos offer more flexibility because owners are free to rent them to anyone. But the downside is the most desirable new-build properties are in short supply and competition among would-be buyers is intense.

Not only that, condos are also controlled by boards and their approval process can be as loose or strict as the resident owners wish. They also have application processes that can rival that of even the most strict co-op board.

Location is everything

Location is key, especially for overseas investors looking to rent out their properties. This means in-depth research is key to a profitable investment. Just because a property’s slap bang in the middle of Times Square doesn’t mean it will be desirable to tenants.

Other things to look out for are the services around the developments and the proximity of the nearest subway station. Investors should guard against focusing solely on a “cool” neighbourhood because it may not offer everything tenants are looking for. Even established stars such as Patti Smith and David Byrne have said that gentrification has gone too far and that artists should leave New York.

Carry out thorough research

As with any investment, make sure that you research the developer and the building. If you’re purchasing a condo, you’ll need to ensure that the developer has a positive track record. Find out about past products, how well they’ve performed and then you’ll know if you’re buying a good product.

When it comes to co-ops, it pays to uncover everything you can about the co-operative board and have a good understanding of what the future may hold when it comes to making changes to the building. Failure to undertake a time-consuming and thorough investigation will leave investors at risk of being hit by nasty surprises later down the line.

Will your income cover expenditure?

Your research must also give you an idea of the best prices you can achieve for the type of property you’re looking for and most importantly WHY you’re investing. Are you seeking a long or short-term investment option and if so, what kind of return are you looking for? Is your property to sell later down the line, or to rent out and turn a profit? Check it out yourself

It’s easy to get carried away about a property you’ve never seen. First-time investors in New York must visit the property they are interested in more than once in order to get a “feel” for the neighbourhood and ensure there are no hidden downsides to the apartment.

First-time investors in New York property most often focus on the purchase price, monthly expenses and projected rental income. But investment returns in this part of the US are also affected by complex tax issues such as depreciation and expense deductions. And long-term results can depend on price appreciation and the ability to raise rents – two figures that cannot be forecast with any certainty.

 

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