All Cash Investors Beating Buyers of Townhouses in Brooklyn

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Investors are buying houses in Brooklyn to rent out — not flip — and doing the deals in cash, further adding to the lack of inventory and raising prices for would-be buyers who are looking for a place to live. “They come to all the open houses, they see every property,” a tipster told us. They are most active in Bed Stuy but are also purchasing in other emerging neighborhoods such as Crown Heights and Bushwick, as well as Clinton Hill, with occasional forays into more expensive areas such as Fort Greene and Carroll Gardens. They usually put in low-ball offers but not always. Some of their purchases “make no sense,” she said, citing SROs without certificates of non-harassment and properties with stop work orders on them. They go after everything: foreclosures, houses that would normally sit on the market such as SROs and wrecks, and regular properties that qualify for a mortgage. They are focusing on one- to three-families, the same types of houses would-be homeowners are looking to purchase to occupy — not groups of houses or large apartment buildings, although occasionally they pick up single-family houses that have been subdivided into more than four units. She said has encountered five firms, each of which buys five to 10 houses a month with all cash.

“Everyone’s talking about there not being any inventory,” she said. “There’s plenty of inventory, it’s just not being offered any more,” she said, meaning investors are buying houses before they go on the market. “There’s so much money around. A lot is getting bought out quickly. They’re not end users.”

A Brownstoner reader who has been looking for properties in Bed Stuy, Crown Heights and Bushwick said he has been frustrated by losing to investors. “It seems that I’m being outbid left and right by investors who are coming to the table with cash in hand as soon as (or before) the house lists.” He has been “looking aggressively” for the past two months and his price range is $500,000 to $550,000.

We spoke to six real estate agents, four of whom said they had encountered investor groups buying houses to rent out. Some of the firms are European and Israeli, they said. One broker had high praise for one of the private European investment groups he had encountered, a boutique firm with local buyers that focused on buying high end properties with historic detail to rent. He also said that in the first quarter, the bulk of all-cash buyers he dealt with were families, not investors.

One such outfit, operating under the name Newtown Jets, has purchased 24 properties in Brooklyn since March, including 12 in May, according to PropertyShark. The transactions were all over the map geographically and pricewise, from Park Slope ($2,675,000) and Carroll Gardens ($1,699,000) to Bushwick ($662,500 and $599,000).

Interestingly, this group purchased 605 Decatur Street, a wreck with lots of historic detail whose owner was reportedly seeking an all-cash deal at the then-seemingly high price of $649,000. (It was a Brownstoner House of the Day in February.) Newtown Jets bought it in May for $678,000, or $29,000 over the initial ask.

Newtown Jets shares a Jersey City address with NJ Cash for Homes and its owner Dixon Leasing, a subsidiary of Dixon Advisory. Australian firm Dixon Advisory “has over 4,000 clients with funds under management in excess of $4 billion” and manages the US Masters Residential Property Fund, “the first Australian listed property trust with a primary strategy of investing in residential property in Hudson County, N.J.,” according to the fund’s website. Dixon Leasing is a property management company that has recently expanded into Brooklyn, according to its website. The fund is taking advantage of an “historic opportunity to acquire high quality US residential property at attractive valuations” and focuses on “residential properties in Hudson County, New Jersey and more recently, Manhattan and Brooklyn.” As of March, it had a $246.2 million portfolio consisting of 475 freestanding houses and 15 multi-dwelling apartment complexes.

Newtown Jets is a subsidiary of US Masters Residential Property Fund, said Alan Dixon, Managing Director and CEO of Dixon Leasing. The fund has purchased a total of 47 properties in Brooklyn since December 2012 and has 22 under contract. (Each of its buying groups is named after an Australian football team.) The fund has paid an average of $1,200,000 per property. The fund buys to hold and rent for at least five years, as required by the tax agreement between Australia and the U.S. “You buy a property, renovate it, and the bank advances funds against a group of property,” he said.

“We are competing with people trying to buy houses to live in,” he concurred. Because the firm pays all cash, it can buy SROs, and owns nine in Brooklyn. They are going through the expensive and time consuming process of obtaining certificates of non-harassment for each one.

So far, two of the fund’s Brooklyn properties have been on the rental market. As this article went to press, there were no Brooklyn properties available to rent on Dixon Leasing’s website. Permits have not been filed for any of Newtown Jets’ Brooklyn properties, according to PropertyShark. Only one of the fund’s Brooklyn properties, 406 Monroe, has obtained permits so far, said Dixon. “Most properties we have bought are in need of renovation, so we haven’t done a lot of leasing yet in Brooklyn,” he said. “It’s not a fast process. We will always pull all the permits required. Rentals will come up in the next few months,” he said.

In Brooklyn in the first and second quarter, the number of sales transactions and inventory on the market were both down compared to the same periods a year earlier, while prices were up. More specifically, in the second quarter, listing inventory of co-ops, condos, and one- to three-family houses dropped 18.5 percent to 4,704 units, according to a report from Douglas Elliman. The number of sales declined 6.7 percent to 1,855. The average sales price increased 14.7 percent to $671,964. The average price per square foot of one- to three-family houses rose 13 percent in the second quarter vs. the same period a year earlier, to $296. There were 655 sales of one- to three-family houses in Brooklyn in the second quarter, a drop of 31.3 percent compared to the same period a year earlier, when 953 such homes sold. “The spring market marked the lowest inventory in seven years and as a result, sales slipped and prices pushed to 10-year highs,” said the report.

“Bed Stuy has shot up since we started,” said Dixon. But, he said, he believes “there’s continued room for upside in all the Brooklyn neighborhoods. Most of our investors are excited they got to invest in Brooklyn at a good rate.” The firm recently lost a bidding war by $450,000, and regrets not buying 333 MacDonough when it came on the market a year ago. “We heard they wanted $1.4 million and we said that’s crazy, it doesn’t make sense, but now the renovation is all done, there’s no hassle with the Building Department and all the rest, and now it looks pretty cheap. Whenever a market is moving that fast there is stress and risk. We’ve got a diversified portfolio. We think Bed Stuy prices in hindsight will look very cheap — unless something fundamentally goes wrong with the city. There’s no reason why Bed Stuy won’t end up as nice as Park Slope and just as expensive.”

What’s your opinion? Do you think investor groups snapping up property in Brooklyn could be good, on the one hand, because they are fixing up and renting out problem properties, or is it making Brooklyn unaffordable and creating another unsustainable real estate bubble?

 

78 Comment

  • interesting stuff but nothing new and there are more entities set up as pooled investment funds (some managed by prominent U.S. based investment advisers) investing in residential real estate in Brooklyn and elsewhere. The interesting part is that we lost out to the newtown jets on a couple of properties – I have learned that it gets easier to take each time we get outbid.

    Question for fellow readers – as a family that has been looking to relocate to and live in Bed Stuy, given what this post says about investment funds buying up properties in large quantities only to rent them out, does it even make sense to continue to look for a home in Bed Stuy (assuming of course, we get lucky and actually win a bid on one property)?

    • @stam I’m beginning to have those same thoughts. I am also looking for a home in Bed-Stuy and I am starting to think it’s close to impossible to compete with all-cash buyers.

      • I hear you, Jay. It’s tough out there but not much can be done when you are competing with investors (especially in our case as first time buyers). We had even made above ask offers on properties sight unseen and lost out to all cash offers that were well above ours. That said, I do try to maintain my sense of humor about the whole thing – I find it fitting that I lost out on 2 properties to an investor that has the word “jets” in its entity name. I am a Patriots fan:)

        • Lol. Definitely have to maintain a sense of humor about it all. And also have to try to keep your head on straight and not buy into/overpay for the hype of the neighborhood. I understand there is price appreciation, but when it is being accelerated by all-cash buyers that artifically keep the inventory down (because it never hits the market in the first place) then I have to take a step back.

    • Can you focus on only single or maybe 2 family units? It would seem to make sense for investment pools to focus on these larger places (or SROs etc)

      That still won’t help with the all-cash personal buyer described above.

    • No, it is fiscally irresponsible for you and your family to buy in this historic, pump and dump market. Winning a bid would actually be unlucky, unfortunate and possibly lead to financial ruin/divorce. Rent and wait it out. It’s cheaper. Run the numbers, all of them, not just mortgage vs rent. It’s resale minus sale minus ALL ownership expenses less rental income, all divided by months in between, versus rent.

      Look at 597 5th Street for rent in Park Slope for about 10 grand/mo. Buy it for 4 mil w/ 20% down @ 5% fixed and you’re already close to the rent. This is before rental income minus all expenses which you know will put you well into the red (expense). Market takes a 20% dive, you’re already well underwater. You think rental income won’t go down too? Better off renting it without the risk unless you’re flipping like the investors.

      When the market crashes, again, you’ll have to sell to a pool of buyers who will have to pay higher mortgage rates.

  • The $500-550k price range is not a good place to be in 2013 Bed Stuy

  • 605 Decatur Street is practically in Ocean Hill/Brownsville. Still very dicey. These prices are insane.

    • I walked that portion of Ocean Hill last week to see how it is doing. It has come a long way and so has Chauncey st. I really like the uniformity of the buildings in that area and how mellow it is there. Broadway St. near by is very clean also. Saratoga park is also there, which is a great place to relax. Excellent area close to a lot of transportation. Not even close to Brownsville though, but give Brownsville will be very desirable here shortly.

  • Also, Cate, well done. This is informative reporting and nicely focuses a general story out there to the community here in Brooklyn.

  • Yes, further analysis of this would be interesting. I have to think that it is primarily affecting multifamily properties, and is distinct from the renovators and flippers of single family houses.

    We had bid on 317 Decatur, which was sold to South Sydney LLC. It looks like they’ve bought 15 properties in primarily Bed Stuy for all cash, all between December 2012 and present. I’m sure these investment groups are getting first look at a lot of properties that would otherwise be put on the open market – and they’re able to make strong offers for suitable properties that do come to market.

    Over time, rising prices combined with a stronger dollar will make this a less attractive play for these investors – but to the extent these investment funds have already been set up and funded, and have capital left to invest, I assume they’ll continue to be a major factor in the real estate market in these neighborhoods.

  • As a long-term resident of Bed-Stuy, I find this very concerning, though I have to say it doesn’t surprise me.

    For starters, these investors don’t live in the neighborhood and aren’t part of the community. Their interest in creating a better neighborhood is minimal. Their interest in maintaining and preserving these older properties and their details is also minimal. Although, they may initially be fixing up these houses, I could see in the long run a deterioration. They are more interested in cheap. They don’t possess the love and attention to detail required to make these buildings a home and contribute to the overall beautification of the neighborhood.

    Living next to renters is very different than a fellow homeowner.

    Secondly, (and I’m usually not one for cultural protectionism), but it angers me that foreign investors snatch up these properties as part of an investment portfolio preventing actual NYC residents both citizens and non-citizens from buying a home. It’s very sad and another example of how the 1% is stealing the American dream out from under our feet.

    I hope Bed-Stuy sellers think twice about selling to these global investors.

    Thank you for the reporting by the way.

    • Thanks peterinbrooklyn – you articulated my concern much better than I could. As for sellers thinking twice about it, I think there are a lot of sellers in the area that want to sell their homes to families that plan to move in and be a part of the community but I also think it is a tough ask on sellers to take an offer that is in some cases significantly less than those made by investors just b/c a family wants to move in and live there. We had one instance where we even had an inspection done, signed our contract and given a deposit. Before the seller countersigned, she received an offer that was close to $200K above ours from an investor. We were angry at first and misdirected it towards the seller but had to realize that $200K is a lot of money for a seller to turn down…

    • Peterinbrooklyn, thank you for thinking about neighborhoods and people’s homes, not just investments or crazy money.

      Much of Bed Stuy will one day be landmarked, including much of Eastern Bed Stuy, but landmarking doesn’t place any restrictions on who can buy the property, or what they do to the inside. I agree, what Bed Stuy needs are owners/landlords who have a vested interest in seeing the neighborhoods thrive, not get sucked dry by investment vampires who don’t care about the neighborhoods other than what they can take from them. Their money does not stay in the community, most of the time, their workers renovating these houses aren’t even from the community; they are providing nothing to making sure these areas improve or even stay static, they’ve already moved on. Most of these people are trading houses like stock certificates, with about as much care as to what they’ve got, as your average person cares about what kind of paper the stock is printed on.

  • I too assumed bank-backed investment groups were mostly going after multifamily apartment buildings. But it turns out that in Brooklyn, a significant number of investor groups are focusing on regular houses, the same houses would-be homeowners are trying to buy to occupy. I clarified above. Also, South Sydney LLC is also a subsidiary of the US Masters Fund.

    • Thanks for the follow up Cate! We had been looking at a three family, so I think what has happened is that investment funds have moved into the small multifamily properties (2-4 family) that would typically be occupied by an owner looking also for a bit of rental income. Don’t know if they are buying single family properties to rent though. This is now done in other parts of the country, so maybe here too.

  • I spent over 6 months having the same experience bidding over ask, dropping all contingencies, getting shopped around and losing to all cash buyers as the cover bid on multiple places. After bidding on an amazing 1 family in PLG thru ask and not even hearing back for over a week, I decided to just stop doing the dance and wasting every weekend at open houses and going through the emotions of each place and being at the mercy of (in many cases, but not all) shady brokers and sellers. A few days after informing our broker of this, she called and said our offer was accepted on the last place we bid on and we just closed on it. The owners received multiple offers above ask, one in all cash from an investor and for whatever reason decided to go with us. I have no doubt if they went to a best and final and shopped around they would have gotten that guy higher, but sometimes you get lucky and people care about who they are selling to. This is obviously the exception in this market, but occasionally it does happen. It was so nice to deal with sellers/broker that I didn’t feel like counting my fingers after i shook their hand.

    • Welcome to PLG! It’s a great neighborhood.

    • Welcome to Lefferts Gardens brooklynnative78! I think you will realize very quickly why it’s a great neighborhood when you venture just a few blocks to one of the best maintained parks in the city, Prospect Park.

      I must admit the historical details on some of the Bed-Stuy houses are gorgeous! However, PLG’s access to the park completely shifted my decision back in 2011 to only look for houses in this neighborhood. Again welcome to the neighborhood.

      • thank you. really seems like a tight knight neighborhood. all the local groups are incredibly helpful and welcoming and luckily, we were able to find something with incredible historic detail in immaculate condition.

  • If you are looking for Brownstone value in the $500 K range, you need to look at East Bed Stuy know as Ocean Hill. You still get traditional brownstones and you are closer to transportation and retail activity. This area is appreciating quickly but there are bargains to be found this year. Next year will be a very different story.

    • i agree. the northern area of ocean hill (i.e. north of chauncey and east of saratoga, with broadway bordering the north and east) is actually pretty nice. the brownstones aren’t nearly as ornate as further west into stuyvesant heights, and the streets don’t have as many trees (at least yet), but this area is just as safe as other areas of bed stuy and much closer (than some areas) to transportation on the J train, which is actually quite a good train. i don’t know if there are bargains to be had from a real estate perspective, but there are certainly more and more people moving in every day from both the northwest (williamsburg/bushwick types) and the west (park slope family types).

  • “creating another unsustainable real estate bubble?”

    “LOOK OUT…DEER!!!” [bubble-mobile swerves outta control @ 105 mph on dark, icy road...was gonna crash anyway]

    • Not going to happen when you have people paying cash for their investment. I can understand if they were pulling credit that they could not afford, but at cash prices, not so much. Not to say that some people are going to foreclose on their homes that are financed, but how can a bubble happen on all cash purchases. This is more like the market here is catching up to what is around it.

      • A bubble doesn’t require financing in order to happen. A bubble happens when folks overpay for an investment – using leverage like miortgages is just a vehicle by which you pay. You can imagine if these are pooled inestment funds, and the valuations on the underlying rents don’t hold up, bringing low or negative returns on the investment pools, they will incur losses, pull money out of those funds meaning some of the property will have to go at “fire sale” prices. If that trend where to build upon itself, there you have a collapse of a bubble. Doesn’t have to be as far reaching as the Great Recession was, but nor was the Dutch tulip bubble. Using mortgages is just a vehicle to use someone else’s money, but it’s money at the end of the day.

      • That being said, I don’t necessarily agree with BHO’s outlook on the Bed-Stuy market without any data to back it up.

      • Yes it is. Where do you think all this cash comes from? Productivity? Innovation? Trees? It comes from debt. Leverage. Deficit spending (up $6 tril since Obama!!!). Borrowing on margin. We’re at the height of a worldwide credit bubble. Brooklyn RE is just a byproduct.

  • Who are these newbies posting thoughtful, well reasoned and rational points of discussion? What happened to the Frownstoner regulars DIBS, BHO and the now forgotten The What? This level civility is making me strangely uncomfortable.

    I think I’ll walk around midtown during lunch to seek the daily dose of hostility that I am accustomed to receiving (virtually) here at Jonathan’s hangout.

  • Ill take bed stuy at half the price of park slope any day. I like living in bed stuy better than P. Slope… the day they closed south paw to open a kids thing I knew was the day for me to leave. Some of these houses are boarding on collapse, some one needs to fix them. And renters need places too. .. I went to rent my garden level apt in b. Stuy and two days in craigslist and 5 couples were ready to sign the lease! The investors are here for a reason, its a great investment. Also, they are not the only factor, i got outbid 4 times on places by like 18 people, mostly couples before finding a place preopen house. Would be nice if all of b stuy was landmarked tho.

    • It truly is a great place to live and I agree with you about Park Slope. We need to start working on getting all our parks to standard. Saratoga Square Park needs some love folks, so do other ones. Call your parks rep and ask for improvements, also call council members.

  • Dixon (the Australian group) recently bought 1449 Dean Street in Crown Heights, too. Not sure what they paid, but, as before, it was apparently an all cash deal. Someone working for Dixon introduced themselves to one of that house’s neighbors and said, “congratulations, the value of your house has just gone up.”

  • How could overpaying for intended rental properties possibly go wrong?

    • Ok, once again so that it might make sense, properties here are catching up to what has been happening around other parts of Brooklyn for years. Brooklyn is catching up with some parts of Manhattan and now there is a micro real estate economy within Brooklyn. How long has Park Slope been expensive for? How bad did the bubble affect Park Slope? I know there have been properties in Brooklyn that have been exchanging hands for at least a decade in the millions and still do. It is not that Bed-Stuy is over inflated, but rather undervalued. An undervalued property catching up to the market is not the same thing as a bubble. Homes here are still undervalued, even if they seem to be selling for a lot of money. That is just my opinion though based on observations and a life time in NYC.

      • Park Slope actually wasn’t that expensive until quite recently. One reason for that was sheer volume–Park Slope, like Bed Stuy, is a huge place. There was a ton of inventory. And when prices inched up over the years, there was some inching–not giant, potentially unsustainable leaping. Look, I’ve been bullish on Bed Stuy for a while too–but there’s bullish and there’s insane. I just saw a listing on this site for a shell in Ocean Hill that needs everything for 899K. That is insane.

  • I just closed on a home in Bed Stuy…..and did it with an FHA loan and only 3.5% down. So its not impossible to beat out the cash buyers. My advice, work with as many brokers as possible but avoid Corcoran. They’re the worst.

  • What am I missing here? Seems like the return on investment is horrible. Especially if you have to sit on the property for years and years before getting the papers to go through.
    Additionaly, spending 1 million on a property that only collects 40k per year in rent seems like a horrible return on investment. Luckly for them they are cash buyers and don’t have a mortgage to pay. Because they are cash buyers there is no risk of a crash in the area…..but I just don’t get their reasoning (unless they are SPECULATING that the properties will go up a significant amount in 5 years).

    • I disagree with the point that there is no risk of a crash. While I can not be sure of who is providing the money, if these are equity investors filling up the pool of cash being used to buy up these properties and they require some rate of return and that RoR isn’t realized, they will start to pull out funds. Meaning the fund will need to (quickly) sell assets to fulfill redemptions. Someone is going to take a loss either it be on the equity or debt side. The stock market bubble fueled by internet stocks in 2000 wasn’t fueled by debt, but massive equity losses.

      • “The stock market bubble fueled by internet stocks in 2000 wasn’t fueled by debt, but massive equity losses.”

        Dead wrong dude. It was both. How do you think LTCM blew up? Leverage/debt. It’s always the case with these bubbles. Roaring 20′s. ’87. ’00. ’08-’09. Now. Compound interest and Ponzi returns go vertical to infinity and then kerboom!

        • Umm, LTCM was not the stock internet bubble. My point is – if you are even reading it – you can have a debt fueled crash or an equity fueled crash. The product type doesn’t determine whether you are in a bubble or not; it’s a matter of valuation.

        • unless you truly believe the dot com bubble was a matter of too much debt… rather than companies with no real profit making fundamentals burning through equity investments. LTCM is a completely different conversation. The tie that binds them is improper valuations. Not the product.

    • Maybe if they buy all cash they not only get the rental income for five years, but they also can sell and make not only what they paid into it, but the appreciation value.

    • R u crazy. Mortgage rates are dirt cheap. Look, I was paying more for my condo last year than I am for my bedstuy house this year and the bedstuy house costs double (due to lower rate and dropping common charges). Now that I rented out one of 3 floors it is paying 55% of my mortgage. I think it is fair to say, if I rented out two families today, it would be profitable. … profitable from day 1. And rents are going nowhere but up. … rents don’t lie, profitable investment.

  • Nice investigative journalism Cate, more of this please. Much better than last Friday’s “I walked around, it was hot, found a piece of paper, and here’s a pic of my boots” .

  • Great article. It’s cool you got one of the investing firms to talk to you. I kind of wonder though, if warehousing is going to be a problem–or if it’s the same issue it has always been, just with newer players and more expensive housing stock in mothballs. It’s not very community-building–replacing a vacant SRO with a vacant investment property. And, while the Jets firm seem very positive, they’re not the only game in town.

    What I mean is, Bed Stuy has always had vacant houses. The issue with this scenario is that stuff will stay vacant. I know, I know, they’re going to fix them up as rentals! But are they? In some cases, it’s probably more efficient to just sit and wait for appreciation. I suppose in others, Bed Stuy has the potential to be huge in terms of rentals–all those buildings, very few of them with any stabilization laws. Is this how it’s going to play?

  • Great details. The Newtown Jets are balling….. Looks like they dropped $30 million on 27 properties in Brooklyn in the last 2 months. The purchases don’t look to be confined to fringe BK either. One of today’s Biggest Sales of Week in Newtown Jets acquisition. 29 Prospect Place @ $2,675,000 is no small change. They also snapped up 274 Lafayette in FG for $2,400,000. Is this what private equity looks like when it’s put to work?

  • Money is cheap, and lots of folks are itching to get involved with the hot emerging areas in Brooklyn. Think of the investors that got into Williamsburg in the 90′s…they must seem like geniuses now. Young people are flocking to places like Brooklyn, and bringing with them their creativity and desire to make a place in the city. The fundamental appeal of Bed Stuy is that it appeals to young, old, renters, buyers, history lovers and clearly investors.

    I happen to agree that the global financial industry exists in a state of smoke and mirrors, but who is immune from the kind of systemic collapse that would adversely affect Bed Stuy?

    One’s viewpoint on this issue lies in your mental model of the trajectory of the presence of poverty and crime in Bed Stuy. Will it progress like a dozen or so Manhattan and Brooklyn neighborhoods into a trendy place to be? Or will it stagnate and falter.

    I believe the last 10 years are a good indicator…

  • Guys. This is pure euphoria (every other day there’s another feature like this). It’s fascinating how the human psyche can fall for it all over again, within the span of just four years. The fact that it’s investors is even worse. When it becomes revealed that “all cash” derives from credit/debt, all hell will break loose. Catastrophic price collapse here in Brownstone Brooklyn. 75% off.

  • The real thing to watch is when these large groups start liquidating. At the current pace they can sell in under 24 months and for a nice Return

  • While I bought a brooklyn townhouse at the start of the year, I did so having completed in 2010 a massive study of how assets behave in periods of money printing. The bad news is that real estate is one of the worst performing asset classes, contrary to conventional wisdom. The data set consisted of the last 30 periods of debt monetization. The reasons are probably too detailed for a post here.

    Net net – it is a home. Treat it as such unless you are developer. Don’t expect upside in real terms (although upside in nominal terms is likely) — and remember we have been in a period of 30 years of declining rates, so few people have the experience on the flip side — when rates rise. Leverage will help but the LTV would have to be pretty extreme to adjust for an effective quadrupling of cap rates. Finally – also remember most periods of money printing witness a deflationary bust in the middle — so if you have leverage, be prepared for some gut wrenching moments.

    As Boethius said “Nothing prospers perfectly”. Happy hunting.

    • Not sure I follow you. Are you saying not to buy a house during inflation/upcoming inflation? Because buying a house is exactly what you want for inflation. .. you don’t want cash, but most investments will help you keep up with the inflation. Housing is the best because it allows you high leverage therefore capturing the inflation on the total value of loan and equity. So while most of the increase is seen on the nominal value, the difference is, you never had 80% of the nominal increase therefore allowing high ROI. Also, I see no evidence of long term price decrease during rising rates historically. If you have seen this, where? You can see this relation on jparsons.net/housingbubble … you will also see the best indicator to true values is rent. As I said earlier, rent don’t lie.

    • I got outbid on a 2 family brownstone on Eastern Parkway right off Franklin last July, after offering $80k over asking. I was fortunate to buy a 4 family brownstone in Bed Stuy that was in limbo after a deal fell through. I tried for weeks to get in to see it, even made an offer sight unseen, and then through a bit of sheer luck — a matter of being in the right place at the right time — got in to see the place. The owner could have sparked a bidding war, but he had been trying to sell for 10 months, and honored my offer, after other bidders had tried to haggle price after having an accepted offer. I had to deal with HPD and fire code violations on the property and other issues, but I got my place. Sometimes it takes crazy amounts of perseverance and a bit of luck.

  • The current paradigm – Average Brooklyn Town Home Buyer vs Global Search for Yield.
    Early in Round 1.
    At this time last year I received a call from a London banker that specializes in structuring Special Purpose Vehicles for investment. He had read the recent NYT article from June 2012 that made note of previous 12-month appreciation in one- to three-family properties in northwest Brooklyn. Graphic was titled – Market Surge. He put forth a business proposition similar to what the funds noted in this piece are currently carrying out. Hearing his view on brownstone Brooklyn real estate really opened my eyes to what is now unfolding. Too early to tell how this will unfold, and eventually end, but it will certainly be interesting to see how brownstones perform as something more like an economic commodity vs utility of shelter.

  • OPM – Other people’s money. They may be in for a loss soon.

  • Bk33 – you have a point about leverage. However my data set across 30 periods of inflation shows real estate in real terms to be one of the worst investments. If you buy a building at a 5 percent cap rate and cap rates go to 15 percent, the math works out to a remarkable loss. This point is not well understood by many since no one has seen inflation for a long time and few people on this site are developers.

    Put another way inflation peaked at a time in the US when house values were at the very start of their long bull run. This is not a coincidence. If we return to 1970s levels of inflation, taxes will go up, crime will rise, and fewer people will be able to afford these prices.

    None of this stopped me from buying a townhouse. But I did so for reasons that were not financial. Life isn’t all about financial returns.

    I do believe parts of brooklyn are undervalued compared to manhattan. But I have found relative value to be a dangerous game when it comes to financial assets.

  • Wao! it’s really amazing, i cannot believe this .@stam you right.

  • Last month, the Newtown Jets group bought a small house in Brooklyn Heights for over $3 million…

  • I remember when BHO was “bid half off peak comps.” How’d that work out for ya? Still happy in your rental? PS didn’t even lose value during the “crash.” The only thing that’s going to cause NYC real estate to lose value will be the Tea Baggers bankrupting this country.

  • Town is now the exclusive agent for all of Newtown Jets’s properties in Brooklyn, including a brownstone on Lafayette Ave in Clinton Hill asking over $10K/mo. in rent.

  • Buying home in Brooklyn become a tough mission, you can only blame homeowners who become more and more greedy putting their crappy homes way over priced and prefer to deal with cash buyers only, that leaves you out of the game, I met with few brokers lately and they all told me that they are targeting these Brooklyn local companies such as GoAllCash.com -one of the biggest real estate cash buyers in Brooklyn instead of regular buyers and you know what these brokers are right they wants to collect their commission quick and with no headaches so they talk to these cash buyers first and get the property sold quick, these all cash buyers guaranteed closing in fourteen business days cause they using their own capital and in no need of a mortgage or loans in addition they have a proven system that helps them get to home owners and get their properties even before it hits the market, so most of the houses they buying is off market and non-listed properties, so basically they compete with themselves and we are out of the game, now how you can compete with them? think for a moment it takes us up to 90 days to complete the transaction of a traditional real estate from the counter offer thru the mortgage application with the ridicules amount of documents the lenders wants today, then the appraisal which in most cases kills the deal when it come short (did i mentioned overpriced and greedy sellers?) and so on and on and on, so sellers well aware to these facts and prefer dealing with real estate cash buyers. unfortunately it is an all cash market in Brooklyn these days and there is not much to do about it besides digging deeply to find these deals by yourself or as the wise man said if you cant beat them then joined them…

  • I’m still mystified by the economics behind this trend. Brownstones maybe, but decrepit frame SROs? Makes no sense. Could just be naive foreign investors buying into the Brooklyn hype.