The vast majority (over 90%) of investors are obsessed about cap rates and cash-on-cash returns...i.e. cash flow only. They all use the rule of 72 to determine when they will get a 100% return on their money. The negative with this line of thinking is: there is no consideration about the appreciation of the property.
The more sophisticated investor will think in decades (not quarters or years) and can reap a much more substantial reward. With this line of thinking, no other city in the US can offer a greater reward than New York.
Here are some real life examples:
- Clients bought a 1,350sf 2-bed, 2-bath condo in the West Village for $685,000 in 1999 and did only maintenance over that time. It has been renting between $8,000-$10,000 for the last 10 years. I can sell it today “as-is” with 20-year old finishes for $3,000,000
- A Client bought an 800sf 2-bedroom, 1-bath in 1990 for $5,000. She rented it for $2,500 for the last 10 years. She just sold it for $695,000
- Today I met a person who bought an apt for $54,000 in 1977. I can sell it today for $1,800,000
With NYC a world capital in finance, fashion, marketing, entertainment, education and now high-tech (even w/o Amazon), the city is expected to gain another 1,000,000 people in the next 10 years. As such, property appreciation will continue. (Interestingly NYU Stern business school researched NYC property over 400 years and it appreciated on average 7% annually over that time.)
The 90%-ers will say it's very risky to bet only on appreciation (or the come). They would laugh at current 4-5% cap rates offered in NYC. However, they do not laugh when their investments that instantly gave them 8-15% cap rates show no appreciation in value or cap rates. The 90%-era look for cashflow. The 10%-ers build true wealth with what is perceived by many as risky investments.
