When we think of big cities like New York or Los Angeles, we automatically picture tall buildings, busy streets, and very high prices. So many people are attracted to these cities for so many reasons. These localities with their diverse population, culture, and job opportunities are every real estate investors‘ dream for success. The problem is that real estate in big cities like New York is very pricey. So how can investors succeed in making money in real estate in such cities? The answer lies below.
Related: How can millennials buy real estate properties in pricey cities?
Rule #1. Actively look for deals
Real estate investors who live in high-priced locations often get asked “How do you find investment properties when the prices are so HIGH”? The answer is: “You have to search for the right properties”. Let’s give you a quick scenario. When you go into a grocery store, you have two types of products: the one with an original price and the one on sale. Unless you don’t like saving money or have too much money, the product on sale is the better option. The same goes for real estate investing – you need to actively look for properties on sale. Go out there and search your market. Look for sellers who are in desperate need of buyers. Finding a cheap property is not impossible, but it’s not easy and it takes determination and eagerness. How else do you plan on making money in real estate without actively looking for deals?! And here I am talking about your NOT-EVERYDAY-DEALS. So, what kind of deals should you look for?
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Foreclosure Deals
If you are not familiar with the term, foreclosure is when homeowners fail to make payments on their property. Not being able to make the payments results in a default on the loan. These have proven over time to be great bargains for those investors who know how to navigate them. The very nature of a foreclosure is very attractive to real estate investors. The price tag associated with each is usually representative of a significant discount. If done correctly, buying a foreclosure property can be one of the most profitable strategies applied by an investor. However, it is also one of the most misunderstood. So do your research and consult an expert before making any decisions to ensure success. But do not make the mistake of ignoring this option of making money in real estate, particularly in expensive cities.
Related: How to Buy a Foreclosure as an Investment Property
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Auction Properties
While not as well-known as foreclosures, or at least less understood, properties up for auction can be a very affordable bargain and a great way of making money in real estate in expensive cities. There are two different ways in which a house can be placed up for an auction: either the homeowner has not been able to pay property taxes, or the property itself has gone into foreclosure. Basically, houses placed on the auction block receive a starting bid of less than or equal to the remaining balance of the mortgage. The auction will be fast paced, and those who intend on participating must act quickly. As with any auction, home auctions are no exception, there is a great deal of risk involved. However, that risk is made more bearable by the exceptionally high reward that may come from it. In order for investors to decide on how much money to put into the property, a great amount of research must be done on the investment property. Keep in mind that buying a rental property at an auction usually requires a cash payment. However, there may be exceptions. Each auction company and municipality has their own way of running these events and the method in which transactions will be made.
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Bank-Owned REOs
These bank-owned properties may be considered as the safest deals on the entire market. Since the bank owns these properties, there is a chance that they will take care of tax liens or repairs that were once a hindrance. Also known as real estate owned property, these assets are a perfect bargain for investors looking for income properties and could a great way of making money in real estate.
Rule #2. Look for relative prices
Finding a property which has a price that is relative to your financial situation takes a lot of math. Do your calculations and determine how much you can spend on a property with detailing your monthly cash flow. So for example, would it be the same if you paid $500,000 for a property as if you paid $250,000? Well, it would be the same for you if you had twice as much money. That is, if your income was twice as much as your income right know. So if you suddenly made double your income and spent double the amount on a property, the percentage you are spending is still the same. So, before you instantly assume that you live in an expensive area and that making money in real estate is impossible, do your math, and you just might find the right solution.
Related: 4 Investing Mistakes that Kill Profits and Result in Negative Cash Flow
Rule #3. Know your area
No matter which city you are living in, making money in real estate isn’t an easy process. One of the most important all investors should follow is KNOW your area. Understand what your city has to offer in terms of properties, home values, population rates, supply and demand, and so many other factors. Each city is different from the other, and by doing your research correctly you can turn an expensive city into one that is full of low-cost opportunities.
If you are willing to explore options of making money in real estate in expensive cities, you should be familiar with some of the most expensive cities around the country:
1. Seattle
According to the Cost of Living Index Housing, related costs for renters and homeowners in Seattle are nearly 80% higher than the US average. This is one of the nation’s fastest growing cities.
- Cost of Living: 44.9% above US average
- City Population: 684,451
- Median Household Income: $70,594 (US: $53,889)
- Median Home Value: $452,800 (US: $178,600)
- Unemployment Rate: 4.5% (US: 4.9%)
2. Washington D.C
The nation’s capital is a tale of two cities when it comes to living costs. Housing-related expenses including rents and mortgages are by far the most burdensome at more than double the national average.
- Cost of Living: 49% above US average
- City Population: 681,170
- Median Household Income: $70,848
- Median Home Value: $475,800
- Unemployment Rate: 3.8%
Related: Washington DC Real Estate Investing: Should You Jump In?
3. Brooklyn, N.Y.
Not so long ago, Brooklyn was considered a viable alternative for those who couldn’t afford to live in Manhattan. Not anymore. Housing-related expenses including rents and mortgages are three times the national average.
- Cost of Living: 73.3% above US average
- City Population: 2,629,150
- Median Household Income: $48,201
- Median Home Value: $570,200
- Unemployment Rate: 4.8%
4. San Francisco
San Francisco has some of the highest living costs in the country, meaning even those with fat paychecks can struggle to make ends meet. Home prices are infamously high. The average rent for an apartment in San Francisco is $3,548 a month, that’s 3.5 times the national average.
- Cost of Living: 77.2% above US average
- City Population: 864,816
- Median Household Income: $81,294
- Median Home Value: $799,600
- Unemployment Rate: 3.8%
Related: How is it possible to have an investment property in San Francisco?
You need to plan for the unexpected and challenge yourself if you plan on making money in real estate. You never know where you will find a low-cost deal, but it takes hard work and a great amount of research, even more so in the most expensive cities across the US. You have to trust yourself and know that no matter where you live or how expensive your city might be, there is always a deal waiting for you. Be sure to check out Mashvisor for the best real estate investing tips for investors to increase your chances of making money in real estate in expensive cities.