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NYC Real Estate Synopsis Part 2

3/16/2021

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​For years the condo market in New York was untouchable. Prices per square foot where at worst two times the price and at best 60% more. In addition to that, one not only had to pay maintenance, but also property tax. For those of you who are unfamiliar with the New York market condos, NYC condos allow the owner full fee simple property ownership whereas the majority of properties which are built fall under a co-op ownership.

This co-op ownership type allows the building to regulate who can purchase based on their own private guidelines , they require board approvals interviews , reserves after closing, and typically only allow owner occupants meaning a purchaser must be willing to move in an with there as their primary residence. For this reason, condos which had none of these restrictions have easier guidelines and should be the first choice for any real estate investors. Historically speaking, about 50% of the existing inventory in Manhattan coop properties. These co-op properties could not be rented, therefore the only rentals available were all condos . This drove up the price of rent and attracted investors/speculators, which further drove up the price of  properties regardless of the condition.
 
Due to covid-19, we're now seeing a mass exodus of both renters purchasers in primary residences in what was historically one of if not the best rental market in the country. Overnight investor appetite to purchase properties has disappeared as well as the potential returns that they could reap from these rentals month over month. The causation of this occurrence could be due to the fact individuals continually pushed up prices because in NYC there is nowhere else to build because it's an one is landlocked you can only build up. Building up is only being reserved for high rise luxury buildings. In a city where everyone is reliant on public transportation and their jobs all being close by, one can demand a steeper price for a lower quality of winning and this model has worked for decades up until today.

Now due to the cyclical nature of real estate development, the approval process is time consuming, so finding a suitable piece of land anywhere from seven to ten years. What we're seeing now is that from 2010 to 2020 there's been an extreme boom of new high rise luxury buildings being built, which has left half of the city unrenovated pops. The vast majority of these luxury new developments were being built as condos, which could also command a higher purchase price. Therefore boosting the profits for the developer. 
 
Currently, the rental market has had a slowed inventory for sales, as well as rentals. The inventories have gone through the roof, and now more than ever we're starting to see a large shift of properties for sale go from not just the co-ops, which historically were making up 90% of the inventory of the city, but now we're starting to see uneven higher proportion of condos which are being put up for sale as well.

This can be driven in the large part because renters have been fleeing the city. If one were an investor purchasing these condos on the assumption that all of the debt would always be serviced through rent, this may now be in jeopardy. 
 
That's a very rough baseline because the cost per square foot for a New York City apartment is roughly $1000 per square foot, and for a condo historically you could expect to pay $1500 to $2000 per square foot. We're now seeing anywhere from first around 40% a 60/40 split between co-ops and condos which historically would never occur typically it would be 90/10.
 
Basic economics shows us that increased supply with reduced demand drop prices. That's exactly the force that we're seeing here with the condo average price coming in roughly at 1150 per square foot and co-ops coming in still at the $1000 to $1100 per square foot range. However, the smaller unrenovated properties are priced below $1000, hitting into the eight and $900 per square foot range. Now if one were to trace this back, we would see that this is starting to come in around the 2010-2011 year based on historical price alone.
 
Investors were flocking to these condo properties ten years ago because they knew that they were the only ones which would allow rentals, and that drove the price to double over the past decade. Similarly, New York City real estate has doubled as a whole. What we're seeing today is essentially a reset back to that time over that exact pricing scenario.
 
If we look back in that the 2010 interest rates were roughly 5 and 1/8% for a 30 year fixed rate purchase. Today, one purchase maybe a half a point at 2 1/2% for a 30 year fixed. Ten years ago, the financing was 30% higher to obtain the same purchase price, so that leaves one with a good assumption to purchase real estate in NYC today,
 
Historically one needed to put 20% down because that's how New York is with co-ops. With condos there are fewer restrictions in that you can put down less than 20% and still be allowed to purchase. Therefore if your bank will let you put down 5%, by all means put down a 5% payment and make the purchase.

Today one would need to offer a steep discount  at a 50%  discount, meaning if your mortgage is $2,000 on a $400,000 apartment, and you rent it for $1000 a month you'll be losing $12,000 per year. For many of you, that may be unacceptable, but you should also keep in mind that these losses are all tax deductible. Tax write offs are one of the amazing benefits of real estate. Take into account that this apartment which you just purchased you only had to put for example 10% down. This means that if it costs a total out of pocket of $78,000 for all of the expenses, due to all of the losses.

While stocks have rebounded quite nicely, NYC real estate has been down about 30%. This means that when real estate in NYC recovers the $78,000 total cost of ownership can allow for one to obtain about $150,000 in asset appreciation. That seems like a pretty good return on investment. Do you really think that restaurants will never rebound? Do you really think that you'll never go back to work in an office again? Don't you think that someone won't want to grab an amazing apartment for rent for only $1000 a month while you take the loss month over month?
 
This window of opportunity might not come back in quite some time, so if you have the risk appetite definitely go purchase some condos in NYC.

-Anthony Magno

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Take a SHREWD Approach to Know and Keep Employees

2/4/2021

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We were featured on NYK Daily news for this blog post. Human Resource departments constantly struggle with change management, organizational effectiveness, and recruiting and retaining a talented and diverse workforce. HR professionals and managers need a new paradigm, one that looks at the entire organization as a living, breathing organism based on valuing individuals — more gestalt than machine. He says that there’s been too much emphasis placed on metrics for evaluating a workforce, which deserves a humanistic method, something he calls the SHREWD Approach (Support, Humanize, Rotate, Evaluate, Win, and Demonstrate).


​Support All Personality Types with Real Action
Most employees at one point or another in their career have done a personality test to see where they “fit” in an organization. Frankly, you don’t need a test to know who the introverts and extroverts are. What you need is to be sensitive to them. There’s a lot of misunderstanding about introversion — it’s not about being shy. Introverts are enervated by extroverts in the same way that extroverts are energized by other extroverts. Many times, too much energy, conversation, or stimulation is physically painful for introverts. Respect that. Allow them to work at home three days a week. Don’t pair them with a team of extroverts for a project, and stop asking them to smile or why didn’t they show up for the last company happy hour.

​Humanize Your Management Approach
There are lists that calculate how expensive employees are, for instance, how much it will cost the company if someone comes in late or takes too many sick days. But if you treat people like transactions, they are not going to care about the quality of their work, or even the company. So, humanize your management approach to apply relationship-based management while still obtaining results. You will get better results if you treat people kindly. I’m basically talking about servant leadership — a flat hierarchy, where we’re peers, although I’m the manager. Even when you have to let people go, do it with kindness and humanity, not just because that person might end up being your boss someday, but because we are all going through a rough time, and losing your job just compounds the stress and anxiety.

Rotate Managers and Employees
Many times, I’ve seen a situation where an employee’s not performing, but it has nothing to do with them — rather how the manager is managing them. You need to analyze the team and see how they work together. If you’re leading a team as a manager, it’s your job to build their self-esteem and protect them — it’s not about you. I’ve had people on my team that others wanted to fire because they talk too much. Again, analyze. If someone is talking too much, move them to a place where extroversion is appreciated, like sales. When the workplace serves the employees rather than the other way around, everyone benefits. You’re going to have a much more productive company where people can do their best work, instead of a fear-based environment where people contribute because they are afraid of being fired.

Evolve the Business Model
The economy pivots every two years, but companies like to keep the status quo. Large corporations may not go bankrupt, but they can stagnate. You need to evaluate your business model constantly and be ready to adapt. Educate your employees to bring up the best of them. Encourage them to read new books and learn new things, or work to improve weak areas, like soft skills. And get into the mindset that change is good. People fear change because it means uncertainty — leaping into the void without direction. But if Covid has taught us anything, it’s the importance of being able to adapt to survive. Look at Netflix as an example. It began as a DVD service in 1997, but its CEO, Reed Hastings, anticipated streaming video would change the way people would consume media. So, a few years later in 2001, he introduced customers to streaming video and revolutionized his company, which now produces original content from around the world.

Win Over Employees to Boost Corporate Profits
If you’re really concerned about your bottom line, you should be equally concerned about your employees’ happiness quotient. Oxford University did a study a few years ago showing that happy employees are 13% more productive than their grumpy counterparts. They work faster and harder, make more calls, convert more calls to sales, and although the study didn’t say this, they take that happiness home with them. Less road rage, fewer disagreements at home, and no one is kicking the dog. It’s just common sense. Treat your employees as people, not as transactions. Encourage them to grow professionally and pay for courses and conferences. Give them the opportunity to speak. Be understanding about family emergencies. Best of all, happiness is contagious.

Demonstrate Good Behavior 
Returning to the idea of servant leadership, realize that managers must model good behavior. People are not ones and zeros or even introverts and extroverts. They are complex individuals, each with a history and story that cannot be summarized in a sentence or two, or reduced to a data point on a scatter graph. Unfortunately, many managers believe that remaining competitive and relevant depends on productivity, which depends on working at a rapid pace that does not allow for the expression of individualism or empathy. The SHREWD approach, which embraces “emotional intelligence,” proves this to be completely wrong. The best managers are those who lead by example with intellect, integrity, and imagination — and they most often produce the most effective teams.

​

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TOP 5 2021 Economic Predictions

1/3/2021

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We were featured on Influencive for this blog post

​1.The Gig Economy Is Here to Stay
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We’re going to see a continuation of consultants and fewer full-time employees. A trend I’ve been advocating for more than 10 years is an increase in remote workers. The workforce won’t be 100%, but I predict that people will only go to the office once or twice a week. We’ll see more migrations from high-cost centers to low-cost centers in cities like New York and San Francisco, where most of the real estate has dropped 30%.                                                                                                                                   
2. Interest Rates Will Remain Low for the Next Decade     
Technically speaking, inflation doesn’t exist in regards to some measurements. Due to the introduction of Amazon, many people are purchasing goods and services online, rather than in person. This allows inflation to go down on top of the global economy where many goods are produced outside of America. On top of that, millennials aren’t having children at the same rate as the Boomer generation. The overall impact will be similar to Japan in the time period from 1991–2001—the lost decade, where Japan had perpetual negative interest rates, which was partially because of population levels. We’re basically printing trillions of dollars right now, which is making the stock market go up, even though unemployment is so high. One can obtain a 2.5% loan for 30 years. It’s like getting money for free. The difficulty is getting approved.                                                                                                                                                                                                                                                                             3. In the Next Five Years, 50% of All Vehicles Will Be Electric or Hybrid
​Elon Musk has opened up his patents to make the technology innovative. He wants to be acquired by larger companies, and they’re going to catch up to him pretty quickly. Oil and gas have had their heyday. They are on the way out, and electric is on the way up. One will still need oil to create electricity, but big oil and gas are moving sideways to downwards. 
                                                                                                                                                     4. Machine Learning and Automation Will Increase Exponentially                               The future of the world is going to revolve around machine learning. Today’s user interface designers are going to become graphic designers. There’s a plugin called GPT-3 for Figma that’s going to be a game-changer. When I started Investment Science, my goal was to make money by just pushing a button. Individuals will be able to leverage existing toolsets like Weebly, and additionally some automation with tools like Zapier that don’t require one to know much in regards to coding. These automation tools are relatively inexpensive and will allow many non-technically oriented individuals to develop interesting products. Every crisis pushes the economy towards a trend rapidly.                                                                                                                                                                                                                                                5. Covid-19 Will Continue Into 2021                                                                                     
​Based on the 1918 flu data, this pandemic is going to last two years from the inception of the disease (i.e., 2019), even though the current technology today is better, and the vaccine is here. Unfortunately, many individuals are still going to be nervous about taking the vaccine. Based on corporate budgets and individual migration patterns, it’s going to have a long lasting impact. The overall economic impact will last longer than two years, just like the financial crisis did in 2008. Interestingly enough, many individuals are stating that New York City may not come back, but how can it not? New York is a major economic hub. If one has the money or can obtain the financing, then New York City and San Francisco may have some nice opportunities in regards to real estate from a long-term investment perspective.

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NYC Real Estate Synopsis

12/6/2020

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Before we begin this post, please read our disclaimer in regards to that Investment Science is able to provide financial education, but not financial advice to non-accredited investors.

Our findings are that NYC apartment prices are roughly down 30% for the past year. In regards to Co-ops, they make up about 80% of Manhattan real estate. It's important to note that Co-ops require 20% cash down, while condos only require 5%-10% cash down. Interestingly enough, 95% of Co-op purchases are restricted only to primary residence owner occupants plus additional financial restrictions set up on a case by case basis for each individual building and roughly half do not even all the owners to rent the property out.

In short, investors don't purchase co-ops. Conversely, investors tend to purchase condos, as condos do not have the same restrictions as co-ops.

Historically speaking, in 2019, co-ops went for about $1,300 per square foot and in 2020 they went for about $2,000 per square foot. As one can see, rent historically went through the roof.

Currently, rent in Manhattan is through the floor, and every incentive you could ever imagine is being thrown at any renter coming through the door with a little bit of cash in hand.

The investors who were depending on rent to cover the monthly debt service are now selling. Similarly, everybody who purchase property about a decade ago, made a substantial amount of capital. Those individuals are currently selling their studio condos via a 1031 exchange tax free, and moving out to the sub-burbs (similar to the 1950's).

Unfortunately, many individuals are speculating in the stock marketing trying to purchase NIO or TSLA (Note we don't hold any holdings in these securities), while scrolling through Netflix and waiting for this pandemic to end.

The coronavirus will last likely another year, and right now is similar to 9/11 in downtime Manhattan when nobody wanted to live there. A few years after 9/11, several properties skyrocketed 300%+. In the next 24 months, we do expect about a 234% return in Manhattan real estate.

Even better, if you have an opposing view please comment, and we can have an interesting discussion.

-Anthony Magno

​
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Finding Trends In Hiring

11/17/2020

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While Investment Science has no strategic ties to vendors, we can objectively tell you some interesting trends. If one wanted to view the trends in regards to which industries are rising, he or she could view the color grid on CB Insights to analyze whether or not the industry being sought is the most optimal industry to select. For instance, it looks as if anything to do with Software, Mobile & Telecom, Healthcare, and Internet is growing. Similarly, due to the correlation of the markets with the industries being funded, these grids can be used across hiring, investments, and prospecting. 
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Now we can talk about some ticker symbols. The ticker symbol VOX is up about 54%, which corresponds to the telecom. IGV is up 75%, which corresponds to software. XLV maps to healthcare and is up about 28%. We hope this helps all of our readers.

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Is It Game Over For UX Designers?

9/18/2020

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There are plugins coming out for tools such as GPT-3 for Figma, a prototyping wire-frame, where anybody can type in what type of screen he or she wants, and that screen will automatically create a user interface. The future of the world will largely revolve around machine learning, and this may change most UX designers to become graphic designers. It looks like GPT-3 for Figma will be coming out sometime next year, and as of now, it looks like the tool will be a commercial subscription. We posted a video, but this video is credit to Jordan Singer, and this tool is not yet available to the public, but it's interesting to imagine what the future holds of the economy, due to automation. Lastly, we do believe that this is the very definition of disruptive innovation.

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Is Day Trading A Substitute For Football?

9/9/2020

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Were About To Find Out.
Thursday, September 9th, the Kansas City Chiefs host the Houston Texans on NBC in prime time.  This will almost certainly break records for betting activity on a Week 1 NFL game.  But will it last?
 
We know that growth in active trading has been explosive, fueled by startups like Robin Hood and the elimination of trading commissions by the bigger brokers in the Fall of 2019.  Trading has never been simpler or easier.  ​
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In the first half of 2020, Robin Hood accounts grew by 30%. With new-to-the-game investor favorites like Tesla, Zoom, and DraftKings doubling, tripling and more in the past 6 months, and charts of the SPY and QQQ resembling the old Price is Right “Cliff-Hangers” game (https://www.youtube.com/watch?v=bWEGNe104To ), the average new retail investor/trader has likely had at least some positive trades and is feeling pretty good about it.
  
And without all of those commissions, day-trading, or at least short-term trading is no doubt looking pretty attractive relative to sports betting as a place to get some action.  For most NFL bets, whether with a casino, online sportsbook, or your Uncle Larry’s business associate, you generally bet $110 to win $100.  If the sportsbook takes in $110 on the Chiefs, and $110 on the Texans, the guy who picked the winner (including the point-spread of course) gets $210, and the sportsbook keeps the extra $10.  Over time, when you pay that 10% commission on losing bets, it means you need to win more than about 52.4% of the time to generate positive cash flow.  Most bettors don’t do that well long run, so they either accept that they enjoy the game, like the action, or kid themselves that they make money through selective memory.
 
Meanwhile, anyone with an E*TRADE account gets an easy peek at their balance and which trades made money.  You can forget about all the times the Jaguars or the Bears have disappointed you, but every time I login, I can see that GE stock is worth nothing close to what I paid for it. Though opening up a chart on Tractor Supply Company (TSCO) cheers me right back up.  
 
Crossing Over
We know that some of the football betting regulars are crossing over.  Outspoken Tweeter and sports betting guru, David Portnoy (founder of Barstool Sports) has made multiple appearances on CNBC’s Mad Money with Jim Cramer, and DraftKings is now running commercials during that show.
 
Is stock trading a substitute for betting in the NFL?
The NFL gets the largest share of sports betting action.  Academic research finds that baseball betting is a substitute for betting on NFL games (https://journals.sagepub.com/doi/abs/10.1177/1527002511417630 ).  When the NFL season starts, even the preseason, betting activity clearly declines for baseball as it grows for football.  In author Gary Mayer’s true story of life as a bookie, (https://www.amazon.com/Bookie-My-life-disorganized-crime/dp/0874770238/ref=sr_1_1?dchild=1&keywords=bookie%2C+my+life+in+disorganized+crime&qid=1599692442&sr=8-1 ), he explains that he only handled baseball bets to keep his football betting clients active until the next football season. 
 
The football bettors want action.  This Thursday night, they’ll get it.  With the double-stuff mustachioed Andy Reid and the Kansas City Chiefs, and a Las Vegas betting total of 54.5, this should be a high scoring game with plenty of fireworks.

Will the bettors forget about trading stocks? 
I doubt it, but there will be some trade-offs.  If the NFL keeps everyone healthy and the games are good, I’m predicting a dip in the Monday morning trades.  Some of their attention and the need for action will once again be met by the NFL.  If the market keeps going higher, NFL betting/viewing may lose some steam as people focus their attention on making money in the stock market.  However, if the markets hit a rough patch, with a sustained downward trend this Fall, NFL betting and viewership will be stronger than ever.  I’m rooting for good games and a strong market, but no matter what happens, there will be some tradeoffs between sports betting and stock trading.

- Dr. Weinbach

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Searching For Lost Money

8/25/2020

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Everybody should look into how to obtain his or her lost funds from their local state. What we did here was go into https://ouf.osc.state.ny.us/ouf/, and believe it or not, we received a few hundred to a few thousand dollars per occurrence. The next interesting thing one can do with real estate, is to grieve  property taxes every year. The next step is to hire a property tax attorney on a contingency basis. If the property tax attorney wins for a given tax year, the owner of the home will be responsible to pay the attorney 50% of tax winnings. Some properties we have tested have had property taxes reduced by about 50% or more. It's important to grieve property taxes every single year, as no payment is owed if the property tax attorney doesn't win. Please note that we do not receive any financial incentives for recommending this law firm, but we have had several success stories by using heller tax grievance. 
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How To Fix Technical Debt?

8/17/2020

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Many organizations have issues in regards to how technology is currently managed. One perspective firm's should keep in mind is that always using the latest technology could be an issue because the labor associated to that technology is expensive, there is a short labor supply, and some of the older systems may or may not work with it. On the other hand, if one uses the oldest technology, technical debt will build up, there could over the years be a short labor supply to service that technology, and it will be expensive to replace. Most firms should follow the reversion to the mean approach, which is regarded as a methodology coined in capital markets for statistics, but can be used across all industries. This means that use average technology associated to the business problem because there is ample labor available, it's not too risky, and easy to maintain. The question should always be is this specific technology needed? Who will support it? How much will it cost? How much will my firm profit on? What business features are obtainable in this technical solution rather than other technical solutions? As always keep things simple, and business driven.
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What Is The Best Investment Right Now?

8/16/2020

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As always, we begin these posts to read the legal disclosure for any posts in regards to investments on our insights page. With interest rates for loans being close to 2.5% for a 30 year mortgage, one may be wondering where is the best place to invest right now? If you read how to minimize portfolio volatility,  one can see Investment Science made a good call on bonds when the market tanked. According to Investment Lab, the best place for investments right now is commercial real estate, especially in NYC, and converting that into residential property. As Baron Rothchild once said, 'Buy when there's blood in the streets.' Investment Science feels that NYC will recover, but our firm does not know the exact year, and people always will need a place to live. Buy low sell high!

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    Michael Kelly has been working within banking technology for over a decade, and his experience spans across algorithmic trading, project management, product management, alternative finance, hedge funds, private equity, and machine learning. This page is intended to educate others across interesting topics, inclusive of finance.

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