New York, NY: -42.8% Return on Investment (2011)

As the epicenter of US financial markets, New York has experienced a dramatic economic shock that is creating multiple problems for the state and city governments.  The most pronounced of these problems is massive budget shortfalls that have spurred the elected officials to raise taxes instead of cut spending. These high taxes and burdensome regulations are pushing many prominent businesses and individuals out of New York.  Currently, approximately 4% of listings in New York are from foreclosures.  (70% of houses in New York are occupied by renters.  The relatively low rate of foreclosures stems from the fact that very few people own a home.)

One of the unique effects that have emerged from the New York real estate market is a relatively mild value contracting resulting from the financial crisis of 2008, with volatility emerging out in time, instead of immediately following the financial crisis.  Much of this stems from the constrained land area of New York City that prevent new inventory from entering the market.  In parallel with this trend is the continued flight of commerce and business leaders out of New York.  This is expected to generate ongoing  difficulties for the city and state, since the government budgets are built on very high rates of taxation for top earners.

Generating returns from income property in New York will prove exceedingly difficult, due to the high prices relative to rents and resultant negative cash flow.  In this kind of environment, the only way to generate positive net profits is from leveraged appreciation that is realized when the property is sold and cumulative negative cash flows are offset.  In the current volatile environment, values cannot be counted on to escalate.

Our models indicate that New York will continue to be an extremely difficult income property market for quite some time.  For investors seeking to optimize the returns on their investment dollars, we believe that there are many opportunities that are much more advantageous than New York.


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