We are working with first time buyers who fear that Manhattan rents will become prohibitively expensive, trade up buyers who want space better suited to their post-COVID lifestyles, empty nest suburbanites who hit the motherload on the sale of their suburban homes, and 1031 investors who fear that this tax deferment program will disappear. In this month's blog post, I will address each of these demographics, and make a prediction about who our next significant wave of buyers will be.
First Time Buyers
Ben was finishing grad school and about to begin his first job. Although he was enticed by the incentives and date certain move-in offered by rental buildings, Ben feared that escalating rents would force another move at the end of his one year lease. With his parents' encouragement and help with the down payment, Ben explored purchasing options. He was pleasantly surprised by what he found. Historically low mortgage rates made purchasing affordable. And predictable. Rather than incurring the "expense" of rent, Ben liked the idea of investing in his financial future and building wealth. He identified a perfect studio apartment, negotiated a sweet deal and was able to close and move in prior to the start of his job.
Trade Up Buyers
Sharon and Gary began dating shortly before The City shut down for COVID. They decided to shelter in place together, first in his apartment, and then at hers. The "honeymoon" might have ended quickly; living together and working from home made them realize that they needed larger space, and a different configuration of space, to feel comfortable. They were freaked out by having to use their building's communal laundry facility. And they wanted private outdoor space. They pulled the trigger when they found the perfect home.
Empty Nest Suburbanites
Mark and Amy's kids had grown and flown. Their oversized house in the suburbs was a bit of an albatross, with its high taxes and its high level of necessary care and maintenance. Mark and Amy tried unsuccessfully to sell a couple of years ago to move closer to their children in Manhattan, but the cap on SALT deductions brought the market to a screeching halt. COVID opened the floodgates last summer with City Folk desperate to escape and willing to engage in a bidding war for a good, clean house with a yard and without having to commute. Mark and Amy sold their house at a steep premium and purchased a Midtown coop at a discount. They were confident that prices in Midtown would rapidly appreciate once the vaccine became widely distributed, office workers returned and theaters reopened.
A 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred. The popular program faces partial or total elimination by the Biden administration, and the real estate investment community has scrambled to take advantage of 1031s before the party ends. Vivian is selling an investment property and has always wanted to own a piece of The Big Apple. Her plan is to purchase a residence in Manhattan with the proceeds of her investment sale, rent it, renovate it and move into it a few years down the road. We're still looking; there is a narrow window of 45 days from the sale of the first property to identify the replacement property.
The Next Wave
Despite travel restrictions, foreign buyers are beginning to return to the market. Joe Tsai, the Alibaba billionaire and owner of the Brooklyn Nets, is a citizen of Taiwan, Hong Kong and Canada. He recently purchased a $157 million dollar home at 220 Central Park South. He is one of many foreigners who recently re-entered the market. Foreigners have always recognized the safety of Manhattan real estate, and they now appreciate the value offered and opportunity presented, especially at the very high end of the market. No, I didn't represent Joe in his purchase, although I wish I did. If you know any foreign billionaires looking to capitalize on opportunities in NYC real estate, please introduce them to me!