In prime real estate markets marquis properties are selling for increasingly princely sums. High prices have generally done nothing to detract those drawn to real estate in these markets, whether for residential or investment purposes. As prices rise, though, it’s always important to ask: Does it still make financial sense to buy there?
Using New York as an example, there is plenty of data to show that big-ticket properties are more than holding their value. During the last five years, for example, apartments in well-known buildings, such as The Dakota, have sold for as little as $1.75 million and $3.4 million (both 2013 sales), according to data published in The New York Times. At One Sutton Place South, an apartment on the 12th floor with impressive views of the East River sold for $1.6 million in 2012 and again this year for $2.5 million.
Despite the strong prices, buyers need to take into account other factors that often come with city properties.
Units in older buildings in cities like New York rarely change hands — and when they do they’re often not inexpensive. In 2014, Keith Richards of the Rolling Stones bought a four-bedroom penthouse at One Fifth Avenue, a 1929 landmark on Washington Square Park, for $10.5 million, but during the last five years an apartment on the fifth floor of that building was sold for $532,000, a comparative bargain, according to The New York Times.
Another challenge for buyers of these types of properties is co-op boards, which govern aspects of many of these buildings, including buyers. While some boards care primarily about solvency of the tenants, some worry about social connections, and others are concerned about virtues like neighborliness. Many will require a strong balance sheet and will only allow new buyers to finance 50% of the purchase price. A few expect the entire purchase to be cash.
As a first-time buyer in an older building, one way to overcome this obstacle is to focus on buying a smaller unit. If you buy a smaller apartment in one of these grand buildings, you can be positioning yourself well for the time when something bigger comes on the market because you will know about it before the wider community, potentially giving you the ability to go straight to the seller having already secured board approval once. Starting small and expanding can be a valid entrée into a desirable real estate location.While acquiring a residence in one of these cities may seem daunting and downsides do exist, there can be significant upsides for those with a reserve of cash — and patience.