Real Estate Modeling Course

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Mar 15, 2021 - 3:03pm

Christian12

Is anyone building a personal portfolio of properties in NYC? Now seems like a good time to get into the market as I am seeing 5-6 unit MF buildings in the outer borough's trading for as low as $125K/unit and 6.5% -7% CR's.

What is the business plan?

Mar 15, 2021 - 6:39pm

Depending on FM or RS, if you wanted to be more aggressive, you are renovating FM units and raising rents, separating utilities, etc. At $125K/unit 75% LTV these properties are actually cash-flowing from day one even with the 15% - 20% discounted rents which in my opinion is short-term. For RS, there's not much you can do except hold for long term and bet that the tenant protection act laws will eventually be loosened or reversed which will immediately increase value to RS buildings.

Mar 16, 2021 - 9:14am

Christian12

Depending on FM or RS, if you wanted to be more aggressive, you are renovating FM units and raising rents, separating utilities, etc. At $125K/unit 75% LTV these properties are actually cash-flowing from day one even with the 15% - 20% discounted rents which in my opinion is short-term. For RS, there's not much you can do except hold for long term and bet that the tenant protection act laws will eventually be loosened or reversed which will immediately increase value to RS buildings.

FM units don't trade at that level.  He's talking about rent stabilized assets.

Mar 16, 2021 - 3:10pm

Christian12

Correct -- although I am seeing smaller FM 3-4 unit properties in the Bronx selling for around $200K/unit.

I am going to give you a piece of harsh but well meaning advice: you have no clue what you're doing and under no circumstance should you piss your money away on this.  Go to Vegas and play roulette.  Your risk adjusted returns will be exponentially better.

Mar 16, 2021 - 7:17pm

I'm not sure why people are so down on your idea. Yeah there's some regulatory risk, but from my understanding working with partners in New York the situation is stable from that perspective. You'll probably need to underwrite some sort of allowance for non-payers until the moratoriums are lifted, but this seems like a pretty good greedy/fearful play. Again, caveat is that I know very little about NY real estate outside of what I hear from our partners.

Mar 16, 2021 - 8:18pm

[email protected]

I'm not sure why people are so down on your idea.

Because "buy low, sell high" isn't an idea.  It's a meme.  Owning and operating real estate anywhere is a lot more involved than just buying at a good price, and you can dial that up to 11 in NYC where tenant protection is a thing and there is a ton more regulation.

Yeah there's some regulatory risk, but from my understanding working with partners in New York the situation is stable from that perspective.

We just saw a massive regulatory change not even 2 years ago.  And then another one with the eviction moratorium last year.  If you buy rent stabilized, well, we've seen like 1% RGB increases the last several years at best.  

You'll probably need to underwrite some sort of allowance for non-payers until the moratoriums are lifted, but this seems like a pretty good greedy/fearful play. Again, caveat is that I know very little about NY real estate outside of what I hear from our partners.

Half the people in NYC real estate don't know what the hell they're doing.  There are a million ways to go wrong in real estate in New York.  Especially when it comes to small buildings.  As I say often on this forum, people without experience in this industry assume that once you've underwritten a deal, you're good to go.  That is the tiniest, easiest, and least important part of the business.  There are five dozen tiny expenses most people never think about which completely sinks their deal - I know, I encountered all of them the first time I bought in the city (a 5-10 unit rent stabilized building, for perspective).  The new laws and all didn't help, but I was underwater before that.  It was a valuable lesson to have learned, and I was even less blasé than the people replying on this thread.

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Mar 16, 2021 - 8:48pm

Ozymandia

[email protected]

I'm not sure why people are so down on your idea.

Because "buy low, sell high" isn't an idea.  It's a meme.  Owning and operating real estate anywhere is a lot more involved than just buying at a good price, and you can dial that up to 11 in NYC where tenant protection is a thing and there is a ton more regulation.

I agree on most of this, but disagree on "buy low" being a meme. There are plenty of examples where people bought when others were fearful and made a killing (e.g., SFR post financial crisis, the stock market back in March, etc.). Again, with the caveat of not knowing much about the fundamentals of NYC and what market pricing looks like, if what he's saying is true, that properties are selling for half the price they were, that seems like a good opportunity to at least investigate. If it turns out that all of those properties have tenants who aren't paying/can't be evicted, etc. or have other hair on them, or have expenses not accounted for as you mentioned below, then sure, but it seems at least worth investigating.

Yeah there's some regulatory risk, but from my understanding working with partners in New York the situation is stable from that perspective.

We just saw a massive regulatory change not even 2 years ago.  And then another one with the eviction moratorium last year.  If you buy rent stabilized, well, we've seen like 1% RGB increases the last several years at best.  

This is the one area I do know a lot about for NYC as one our partners was concerned similar rent controls would expand in other major metros. Like I said, most of the regulatory risk has passed, people got their rent control laws and there doesn't seem to be additional change/risk on the horizon. This doesn't mean that you don't need understand the regulations to a T and account for them.

You'll probably need to underwrite some sort of allowance for non-payers until the moratoriums are lifted, but this seems like a pretty good greedy/fearful play. Again, caveat is that I know very little about NY real estate outside of what I hear from our partners.

Half the people in NYC real estate don't know what the hell they're doing.  There are a million ways to go wrong in real estate in New York.  Especially when it comes to small buildings.  As I say often on this forum, people without experience in this industry assume that once you've underwritten a deal, you're good to go.  That is the tiniest, easiest, and least important part of the business.  There are five dozen tiny expenses most people never think about which completely sinks their deal - I know, I encountered all of them the first time I bought in the city (a 5-10 unit rent stabilized building, for perspective).  The new laws and all didn't help, but I was underwater before that.  It was a valuable lesson to have learned, and I was even less blasé than the people replying on this thread.

I hope your investment turns around, or you're able to exit smoothly, as having an underperforming asset can be a huge stress, but it sounds like underwriting wasn't as easy/unimportant as you thought given misses on expenses killed your deal? I probably would miss them too not knowing the market, but that shouldn't dissuade someone who has experience and can, hopefully, account for them? As for the rest, I'm not really sure what you're trying to say other than that making investments in real estate is risky, which is true, there is a possibility they lose money here. 

Mar 16, 2021 - 8:00pm

Christian12

I already own MF in NYC, but good luck in Vegas.

Says the guy who thinks you can buy a real 7% cap in NYC?  Hah, you won't own it for long!

Owning small buildings in NYC is an absolute money pit unless you can self-perform a lot of the work or be an absolute slumlord.  Since 2019, the latter option has been made vastly more difficult, and even so good luck in this political environment.

Mar 18, 2021 - 9:44pm

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