Was tasked to conduct research on the current situation of increased housing volume for multi-family buildings in Bushwick being cheap around $1-2M. The rent rolls calculated are for a 6 units of 2B1B under $1500 and my investment thesis is to buy these buildings and destabilize which allows for rents to instantly double which in effect jumps a cap rate from 4% to 8% minus expenditures. Does anyone have experience with this and how to go about this?
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Analyst 1 in RE - Res, bummer your thread hasn't had a response yet. Maybe one of these threads could point you in the right direction:
More suggestions...
Hope that helps.
FYI, rent regulation laws were passed in 2019 that don't let you do this anymore....
Plenty, as I tried to execute on the exact same plan back when this was possible, on a nearly identical building profile (6 units, western Brooklyn, rents 50% below market). It was a nightmare.
However, all of that is irrelevant, because you legally cannot deregulate those units through high rent vacancy decontrol anymore except in very specific circumstances.
So you were trying to eliminate the rent-controlled units and double the rent?? Aren't you one of the most left-leaning people on this site?
I understand that people with as little knowledge or nuance of opinion as you seem to possess might be shocked when someone doesn't adhere to all the imaginary boogeyman policies you want them to, but that isn't on me.
If a tenant wants to take a couple hundred thousand dollars to vacate their apartment, well, that's their choice. If they don't, that is fine too. I'm not about to tell them one way or another. Frankly, that kind of payday is a life changing amount of money, and seeing as you (or me, in this case) aren't reducing the amount of available housing stock, you're not actually having a negative impact on anyone or the market as a whole. The folks who harass tenants our of their apartment, on the other hand, are causing some very direct harm.
Rent stabilization doesn't work, nor does rent control (again, not that I expect you to have intimate knowledge of local NYC regs, but they aren't the same thing) except for individuals. I've long held that NYC could solve it's affordable housing crisis, or mitigate it, if they would actually follow their own regulations when it comes to rent stabilization - there was never any income verification, which was the whole problem. Really the only solution is to ease restrictive zoning and allow for more density and development, but there hasn't been a lot of political will for that on either side of the aisle.
As we've discussed before, when it comes to areas of your own expertise, then you're more free market. I got it.
You just need to admit this to yourself at some point which I know you won't. Instead, I'll probably get another page long response on how this is diffent. I could throw at you literally a 100 left-leaning reasons why everything you wrote above is wrong and racist (this one is particularly easy), just like you do for any other argument not related to real estate.
I'm always free market, or I am in the vast majority of cases. Again, I know it may be mind-blowing for you to think that someone can believe in the power of free markets but also believe that government isn't the devil incarnate, but there you go.
I mean, if we're discussing bigots or bigotry, then sure... I can argue about why those people/subjects are bigoted. I almost never use the term racism, which is stupid and inaccurate, so it's pretty obvious you don't actually read what I write, but rather get angry at your imaginary woke liberal, since you rarely seem to have facts or knowledge that actually address a point, just an emotional response to whatever the issue of the moment is.
To reiterate, you're welcome to keep imagining me as some sort of fanatical communist who believes in nationalization of industry and that we should kill all white people (or whatever it is you're angry about today) as that won't hurt me at all, but if you want to have an intelligent discussion about anything you're going to need to respond to the reality of what people believe, and not what you want them to believe such as you can feel good about yourself for dunking on some strawman argument.
Dude, you've called me racist before on this website just for disagreeing with your viewpoint. So you definitely do use it. Difference between me and you is that you're apparently the one kicking minorities out of their neighborhoods.
It's really incredible and very sad how you have compartimentalized in your mind views which are convenient for you.
For starters cap rates on stabilized buildings in bushwick are way higher than 4% today. You can likely find RS sellers in the 6s and weaker sellers near 7 caps.
The only path to free market status from stabilization is what’s called a substantial rehabilitation and that requires having more than a majority of the building vacant to start.
That being said executing will mean you’ll either start with vacant units or negotiate buyouts. Will help a ton if you know Spanish in negotiating with the tenants you’ll find in bushwick.
This isn't entirely true, but for the purposes of the conversation you are right in identifying that it is essentially impossible to convert units from rent stab to free market at this point in time.
Like others have mentioned the law passed in 2019 make it impossible to execute that business plan. You can temporarily recover a tiny % of IAI or MCI through increased rent. Vacancy decontrol is gone and the 2400 threshold has been lifted if i am not mistaken. The DHCR is the agency tasked with this in the past.
It is not impossible, but it's extremely difficult. So much so that as a business plan it is effectively dead.
And you can recover your MCI and IAIs to a point and then the increased rent goes away.
To back this up - pulled a report of over 100 annual reviews including updated rent rolls of rent regulated assets we did loans on in the past two years which would have been prime targets for destabilization and none have accomplished meaningful destabilization in that time. A handful of units here and there, but definitely no systemic destabilization. There are ways to destabilize, but there is no longer a one size fits all approach and doing this at scale is extremely difficult.
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