What’s that we hear? It’s opportunity knocking! And it’s coming from urban real estate markets. Are you ready to buy a house in the city?
Social distancing and stay-at-home directives have been the theme song of 2020, leading more and more urban dwellers to exit densely-populated city locations in favor of suburban residences. According to a late 2020 Harris poll, as many as 39% of urbanites have at least considered moving to a less-populated area due to coronavirus concerns.
Take Manhattan, arguably the epitome of city living, as an example. CNBC reports that Manhattan apartment sales plummeted by a staggering 46% in the third quarter of 2020, leaving more than 10,000 properties for sale — a new record for the area.
But not everyone wants to leave downtown. Actually, some homebuyers are looking to capitalize on the unusually soft market by buying in the city for the very first time.
Cities still represent the center of culture, entertainment, and industry, providing cosmopolitan allure that transcends pandemic-borne lifestyle changes.
Brian Boals, a real estate pro with experience in both the urban and rural parts of Colorado Springs, Colorado, says that some of his clients have chosen to move to a city condo for the first time in order to reduce personal maintenance costs and gain additional flexibility for future travels.
For those with similar goals, now could be an excellent time to consider buying in urban areas, either as a primary residence or as an investment property.
Buying a house in the city: The current buyer’s reality
While suburbs are becoming more and more competitive for homebuyers, certain cities, such as New York, Miami, Las Vegas, Houston, and Los Angeles are firmly in a buyer’s market, with homes sitting on the market up to 125 days on average. (Nationally, a more typical “days on market” timeline would be less than 30 days.)
More real estate inventory means buyers tend to have more negotiating power. Not only could a buyer’s market mean lower purchase prices, but it might also lead to better contract terms. Add in low interest rates, and you’re looking at a pretty sweet time to buy in the city.
Investors may also want to take advantage of this unusual situation. For example, the Houston and Atlanta markets represent remarkable opportunities, with low cost of entry (around $70,000), decent median rental income (around $1,500 per month), and incredible forecasted appreciation (around 10% over three years).
Looking for the right place in the city
For buyers who haven’t lived or invested in urban areas before, there are some key elements that you’ll want to keep in mind, both from a lifestyle and resale point of view.
The features that make a home desirable in the suburbs don’t necessarily translate to the city. Here are some things to prioritize as you search for a home in the city.
What do you need?
As with all home purchases, location is paramount, but in the city, a good location is literally the most important thing. In fact, research indicates that when looking for an apartment, only 14% of people are willing to compromise on location. By contrast, nearly 30% say they’d compromise on space. That’s right — a smaller place in a better location is more desirable.
In the city, a good location is usually defined by:
Consider the laws of scarcity. There’s only one center of the city, and housing options there are physically limited.
The closer a property is to the city center, the more valuable it tends to be. Centralized city locations tend to appreciate faster, as well.
Proximity to stores, restaurants, and pharmacies makes an impact on an urban lifestyle.
“Having conveniences a little bit closer can be very nice,” Boals says, emphasizing the perks of being able to easily hop out to grab some bread or coffee.
How will you or your renters move throughout the city? Transit access is important for city dwellers, many of whom may not own a car. Look at how close a property is to major public transportation, while at the same time keeping access to parking in mind.
After location, you should consider your need for space, which is, of course, a subjective thing.
You may be used to three bedrooms and two bathrooms in the suburbs, but do you actually need that much space? Thinking through functionality can help with assessing space needs.
Could your bedroom double as an office? Would lofted beds eliminate the need for multiple kids’ rooms?
Security needs should also be considered. Crime rates in certain cities can be three to four times higher than surrounding suburbs, but good security measures can still help create a safe urban environment.
Look up crime statistics in each neighborhood that you’re considering and focus on proper security measures (cameras, alarms, locks, and so on) to keep your household safe.
And finally, don’t forget about Fido’s needs! If you’ll be taking a pet to the city, you’ll need to look for a building or neighborhood that’s pet-friendly. And dog owners will need to prioritize individual or shared outdoor space, or search for a place with a nearby dog park.
In terms of rentals, nearly one in five tenants specifically look for a place that accepts pets, so investors may also do well to consider pet-friendliness in order to increase their tenant pool.
What do you want?
Moving beyond needs, there may be certain features that you might simply want in an urban property.
Skyline — or even spacious — views will come at a premium in the city, but if you’re moving from a wide open space, good views could help ease your transition.
What building amenities are important to you? These might include onsite laundry, high-speed internet, outdoor space, balconies, a fitness room, or a pool.
Theaters, museums, cafes, and bars all add to the allure of city life. Being closer to the action could enhance your daily experience.
COAs are common, but each performs a little differently. What do you expect in terms of cleaning, security, and maintenance requests if you buy a condo?
What do you not want?
Aaand…there are certainly undesirable features that you might want to stay away from.
When moving from the suburbs to the city, noise levels can come as quite a shock. If this is a concern for you, consider a street with less traffic, or perhaps a townhome with no neighbors above or below you.
Fees and assessments
In a shared building, it’s impossible to have zero COA/HOA dues, but be sure to weigh the costs with the benefits.
Also, have your real estate agent ask for a copy of the bylaws and budget to determine if additional assessments are common, or if a large repair (roof, balconies, systems) might be on the horizon.
Think through how you feel about common spaces, especially during a pandemic.
If the lobbies, hallways, and recreation rooms of a condo building turn you off right now, consider a townhouse that’s a bit more autonomous. And shared laundry rooms could be completely off the table for you, depending on your comfort levels.
Investors should always keep return on investment and capitalization rates in mind, especially in the city, where margins could be tighter.
Making a savvy offer in the city
If you’re not competing against other buyers, you might be able to negotiate a deal that’s tipped in your favor.
Where a seller’s market may bring in bids above asking price, a buyer’s market may allow you to offer lower. In Manhattan at the end of 2020, apartments were selling for 9% below list price.
When sellers are motivated to accept your offer, you can get away with requesting more contingencies that work for you, including additional or stricter financing, appraisal, inspection, and current home sale contingencies.
Repairs and improvements
Boals says that in addition to the health and safety repairs that may show up in an inspection, you might also be able to get the seller to make cosmetic or less-important improvements as well.
Sellers may agree to pay for some or all of your closing costs in order to make the deal happen.
An unprecedented buyer’s market in the city may give you a sense of confidence as you move into the offer stage, but don’t assume that you can get a deal handed to you on a silver platter. Every market — and every seller — has a limit to what it or they can accept. Talk with your real estate agent about what’s reasonable in your desired urban area, and prepare to enjoy your new future in the city!
Header Image Source: (Erol Ahmed / Unsplash)