TOPSHOT – The Manhattan skyline is seen at sunrise from the 86th floor observatory of the Empire … [+]
Investing in primary real estate markets like New York City comes with its own set of challenges and rewards. After being in the industry for more than 25 years, I’ve found that there are opportunities both for new investors and seasoned veterans, especially if you have the Insider’s Edge. Gathering information and following the right strategies can help you gain an advantage, even in highly competitive markets.
If you’re looking at a primary market, many aspects of the real estate industry will depend on the people in your network, as individuals can share knowledge and information with you regarding properties. For this reason, it’s all the more important to have your team in place and ready to move forward. You’ll find primary markets tend to move much faster, while transactions in secondary and tertiary typically take more time.
Consider these guidelines as you invest in real estate in primary markets:
Understand the Market Dynamics
There are certain characteristics that set primary markets apart from others. Primary markets refer to a geographic area that has a high population density, such as large metropolitan areas. They are economic hubs and tend to have a diverse range of industries, along with consistent demand and higher prices. Some examples of primary markets in the U.S. include New York City, Los Angeles, Chicago, and Boston. Secondary and tertiary markets will have less population density, and the demand can fluctuate.
Primary markets also have a wide variety of property types, such as multi-family, office, retail, development, and industrial. They may have more stringent rent regulations and zoning laws that you’ll want to be aware of. There could be opportunities for value-add properties, which allow for improvements that increase property value. Some investors in primary markets will focus on cash-flowing assets that provide consistent income in a stable neighborhood.
Develop a Niche
In a complex market, specialization can be a key to success. You might identify a niche that aligns with your skills, interests, and financial goals. That could include renovating distressed multi-family properties or acquiring stabilized assets for steady cash flow. Taking a focused approach over time could allow you to build expertise and establish a competitive edge.
On my podcast, “The Insider’s Edge to Real Estate Investing,” Peter Hungerford, a seasoned NYC real estate investor, emphasized the importance of understanding the “customer” – your tenant. You might decide to tailor your strategy to meet tenant needs and create a better rental experience. If done well, the result could be a win-win situation, in which both the tenants and investors benefit.
In competitive markets, you might be able to find a deal that involves solving a problem. Distressed properties, motivated sellers, or inefficiently managed portfolios could offer chances to create value. On my podcast, Peter spoke of a strategy which included identifying properties with issues such as vacancies, deferred maintenance, or operational inefficiencies. He then used his expertise to acquire them and improve them
Leverage Relationships and Networking
In my book, “The Insider’s Edge to Real Estate Investing,” I talk about the importance of relationships, along with the value of building and maintaining good ties with professionals in the area. For instance, NYC’s real estate ecosystem thrives on connections with players such as brokers, lenders, attorneys, and contractors. You can also use social media like LinkedIn and Instagram to share information and follow others.
Learn about Underwriting
In markets with high stakes, the margin for error can be slim. You’ll want to look at cap rates, interest rates, and also plan for unexpected costs or market shifts. For some investors, if the margins in a deal are very thin, they’ll pass. Instead, they’ll look for opportunities with more wiggle room to be able to better navigate unforeseen changes.
Stay Flexible
Policy changes, economic downturns, or crises like the pandemic can impact the level of activity and the number of transactions that occur in a primary market. You’ll want to remain adaptable and be ready to shift your strategy if needed. If you’re able to take a contrarian view and invest while others sit on the sidelines, you could gain an advantage when the market recovers.
Prioritize Long-Term Value
Attempting to chase profits quickly in a high-stakes market could lead you to a less favorable outcome. Instead, you might choose to prioritize creating long-term value. By improving properties, building tenant relationships, and holding assets through market cycles, you could create long-term, sustainable returns that outperform the competition.
If you’re thinking of investing in a primary market, you’ll want to have a deep understanding of the area. You might choose to establish yourself as an expert in solving problems to add value to properties. Once you’re aware of the market dynamics and have developed a strong network, you could be on your way to building a successful portfolio.
