For many real estate investors (novice or seasoned), the choice of the borough they plan to invest in is influenced by more than pure numbers and profitability. It’s influenced by personal preferences as well. You may choose either Brooklyn or Manhattan to buy an investment property in because:
- You live there and may prefer a property nearby (easier to manage).
- You understand one borough and its real estate market better than the other.
- The type of property you aim to buy is more abundant in one borough than the other.
If you are looking for an office property, Manhattan will usually have a far richer stock than Brooklyn, even though the latter county is comparatively huge and more populous. If such factors are important to you, they may nudge you toward one of the two boroughs. But if you want to make this decision purely on financial profitability potential, there are certain comparisons you can run.
How To Choose The Right Borough For Your Investment Property
There are two ways to profit from an investment property – rent and value appreciation. You should have a clear understanding of which one is more important to you. This will make your comparison easier. A few guidelines to help you choose the right borough are:
- Remember that no two neighborhoods are alike, even within the same borough. The differences become more pronounced when we compare a neighborhood in Manhattan to a neighborhood in Brooklyn. So even if we make a choice using borough-wide averages and medians, the neighborhood itself will have a significant influence on a property’s financial profitability potential.
- The core merits of a property should influence your choice more than the borough. A million-dollar condo in Brooklyn in amazing condition, great views, a healthy collection of amenities, and a convenient location may appreciate in value faster than a Midtown Manhattan that doesn’t have these qualities.
- The property type is important, as it allows for an “apples-to-apples” comparison, and the more specific you are, the better. Comparing two-bedroom condos or studio co-ops between the two boroughs might help you make a more accurate comparison than comparing a Brooklyn brownstone to a Manhattan condo, even if they fall within the same price range.
It’s also a good idea to consider the relative strengths of the boroughs when it comes to real estate. Manhattan offers a lot of options for commercial properties, and since most of the commercial activity takes place in Manhattan, it also has a high demand. Even the residential inventory in the borough is influenced by the commercial industry as people often look for apartments closer to their work.
Brooklyn offers more diversity in residential properties. There is a good mix of co-op/condo apartments and brownstone/townhouses in the borough, in stark comparison to Manhattan’s apartment-heavy housing stock.
Brooklyn vs. Manhattan – Which Is Better?
If we look for a 2-bedroom apartment in Brooklyn using two online listing websites, we get about 900 results. Manhattan has over 2,300 2-bedroom apartments for sale (both condos and co-ops). The difference shrinks a bit for larger apartments (3-bed, 4-bed), but overall, Manhattan offers a larger selection of apartments for sale. The difference is most pronounced in studio apartments where the Manhattan stock is roughly four times larger than Manhattan. (Keep in mind, not every apartment is listed and some managements have multiple apartments of the same line and might not publicly market them)
Let’s assume you are looking for a two-bedroom condo either in Manhattan or in Brooklyn. Let’s see how the numbers pan out for each. The reason we’ve chosen to compare condos instead of co-ops is that condos are easier to rent out and are, therefore, a smarter investment choice.
In Brooklyn, roughly 40% of all condos on sale are 2-bedroom. In Manhattan, about 32.5% of condos are 2-bedroom. The difference is significant, but it’s associated with available inventory. If you look at the two boroughs in terms of capital, the difference is quite stark. About 48.5% of all 2-bedroom condos in Brooklyn are priced at or less than $1 million. In Manhattan, only 7.4% are below that mark. So if you are working with $1 million or less in the capital, you might find far more options in Brooklyn than in Manhattan, even though its overall inventory is significantly larger.
As for profit, Median Manhattan condo prices have actually fallen in the last five years (between Q3 2017 and Q3 2022), though not by a significant margin (somewhere in the magnitude of $50,000). The Brooklyn condo median price has risen by more than $100,000. However, it may not translate the same way for all condos in the two boroughs. Some Brooklyn condos might have actually seen their value deteriorate, while a few Manhattan condos might have shot up. But these overall changes might give you a clue about how a particular segment is performing (condos) in a particular borough.
We can also compare the cap rate the two boroughs offer. It can be more accurately calculated for Manhattan due to the quality of data available. Now in Manhattan, the median price of a 2-bedroom condo was about $2 million in Q3 2022. And the median rent for 2-bedroom apartments (both co-op and condos) was about $5,685 in Oct 2022. If we adjust for higher condo rents and slightly lower inventory (compared to co-op), we might assume that the median rent for 2-bed condos in Manhattan was about $6,200 (estimated). This translates to a cap rate of about 3.72%, based on income alone (no expenses are subtracted from the rental income). If we apply a similar approach to Brooklyn and divide the median rent (yearly) by the median apartment price, the cap rate is about 4.7%.
There are several other factors to consider:
- Building tax and monthlies may influence how much rent you can ask for.
- Turnover rates (and cost).
- The rental potential of the condo itself may be radically different from the borough average.
However, if we consider these averages/medians in rent and the general trend in pricing, Brooklyn seems to have the edge over Manhattan for condos as an investment property. The numbers might be different for commercial properties.
