I am very fortunate to own a small apartment in New York, which I bought in late-2010s with money that I saved up since working from early 2010s plus big help from a bank (i.e. mortgage loan).
Soon after I closed the purchase (defined as within 1-2 years), covid19 came along and I thought I was screwed – also I moved out to west coast – so I had to rent it out. Overnight, the condo turn into a cash-burning asset (like the kind robert kiyosaki tells you not to own) from a prized asset of mine that comprised +50% of my net asset. The rent, which took a deep discount, barely covered the fixed expense of ownership – including property taxes, management fee, and mortgage interest.
Anyways, I was about to extend the lease with current tenant and he declined – saying he is moving elsewhere. I was VERY worried about finding a new tenant, but within 24 hours, I found out that it was completely unfounded. I was a awakening moment about inflation / hyperinflation in the housing market. The story went as follows:
I reached out to my broker to find a new tenant and she gave me some good news:
“YOU COULD PROBABLY GET 15-20% MORE
THAN WHAT YOU ARE GETTING PAID NOW WITH A NEW TENANT”
Honestly, I could not believe it – it seems to be too good to be true. So on Sunday, we had a brief chat over the phone and decided to put the unit out there and I gave her instruction that she can give $100 discount per month if she identifies someone who she thinks could be a good tenant.
(By the way, a good real estate broker is worth 10000% of the fees you pay)
That was Sunday and I got a text from my broker, telling me that the listing is live on the internet.
OH HOW THINGS CHANGED WITHIN A FEW HOURS
By Monday afternoon, I got inquiry from someone that told my broker that he works at a highly reputable company with good financials – and more importantly, the broker told me
“He is willing to pay $100 above the ask on monthly rent if that means he can sign today”
I liked the prospective tenant’s profile and my broker told me that there was another inquiry for the unit
“THERE IS ANOTHER OFFER ON THE TABLE – THIS PERSON SAYS HE WORKS IN PRIVATE EQUITY AND WANTS TO PAY $200 ABOVE THE ASK ON MONTHLY BASIS”
My tenant search situation was flipped 180 degrees – it went from 1) me worrying about whether I can get good tenant to 2) listing the unit at 15-20% higher AND tenants pre-emptively bidding above the ask for the unit.
This instance tells you that New York residential rental market is VERY HOT.
In the end, I went with the person that put the first bid even though that person put a lower bid. Broker told me that the person seemed to be better tenant – responsive to communications and quick to get things done. I could also get a 18 month lease.
I LEARNED A LOT FROM THIS EXPERIENCE
- New York real estate market is very hot right now
- Owning premium asset not only makes your life easier, but also more profitable.
My unit actually has unique characteristics – that made me pay up when I was initially purchasing it.
- It is a waterfront property
- It has everything yuppies (young urban professionals) want / need within 5 minutes.
- It has very high ceiling as a converted warehouse.
- It has garage as part of the building (most buildings do not, so many people often have to walk decent distance to get to the garage that they part their cars in New York).
I did have to pay premium at purchase, but premium assets appear to preserve premium valuation / multiples (it would be cap rate here with a real estate asset).
Economic data continue to indicate “low inflation” or “transitory inflation”, but main street does not feel like it.
At times like this, we need to be even more cost conscious so that we can save more capital to reinvest. Don’t forget the labor-capital conversion method for long-term wealth creation
“Labor income -> cost saving / frugality -> more excess cash flow -> capital accumulation for aggressive investing”
*not investment advice
