MANHATTAN-BASED real-estate investor Jonas Lee has bought 793 single-family homes – and them are in New York.
Lee, managing partner at real-estate investment firm Redbrick Partners, purchases rental properties with strong income streams.
“We looked throughout the five boroughs and found it impossible to find [rental] yields of over 7 percent,” Lee says.
But working closely with MIT economist William Wheaton, Lee has identified other attractive markets.
In Trenton, for example, the firm purchased a three-bedroom, one-bath row house for $65,000 last July. (The firm spent another $4,000 for closing costs and improvements.) The house now rents for $1,000 a month.
Even after factoring in monthly costs of $581 (for property maintenance, taxes, insurance, capital expenses, and an allowance for vacancy between tenants), the yield on this property is 7.3 percent.
“You just can’t find deals like this in New York City, unless you back into something with your cousin,” Lee says.
Redbrick likes Trenton and Jersey City, but Lee warns that it’s difficult to find a “detached home that makes any kind of sense” in those markets. Instead, Lee has invested in row houses.
Working-class Connecticut is another area Lee favors. “There are opportunities from Stamford to Bridgeport to New Haven to Hartford,” Lee says. Condos in some of those under-served markets offer good yields while eliminating much of the hassle of managing property.
Philadelphia and Baltimore are picks too. “There are large neighborhoods that are undergoing substantial change, where you have many owner-occupants moving in,” Lee says. “Whenever owner-occupants move in, home values start to skyrocket.”
The point is that you can get good cash flow by buying a rental property now – and then benefit greatly as the neighborhood is transformed.