Looking at my first investment property in NYC: any advice?

Looking at my first investment property in New York City. Looking at a multifamily (3-unit) property in Brooklyn (Bushwick). From my understanding the new rent laws passed do not effect it, only for 5 units+. Any advice for how to evaluate the property? It was on the market, but is now off around it's current price. I've asked for current rents as they use projected in the setup and will model out the expenses because they say it's 15% of gross which seems way too low (was thinking it should be in the 30-50% range).

Plan on walking the area during the weekend to see how it is/are people out walking etc, also have looked and it's a 5ish minute walk to transportation (3 blocks) with multiple stations so that seems good. Anything else I need to evaluate? I understand it's probably priced high and there's a reason it was taken off the market. Going to take it slow, line up financing for it, but want to at least learn if I don't purchase this specific property.

Comments (28)

Most Helpful
Oct 4, 2019
  1. Don't believe a word that comes out of a broker's mouth;
  2. Pro forma belongs in Disneyland because it is all made up. You want actual verified rent rolls;
  3. Operating expenses hover around +/- 30%. Very property specific. Use higher for older buildings;
  4. Your really buying at the top of the market so negotiate the price;
  5. Check cap rates in the area to get a sense of how the price compares.
  6. If your not already wealthy, you may want to look at markets outside NYC that offer better caps. Manhattan, Beverly Hills, SF are mostly (not always) trophy properties for people looking to place $ for low returns over long term or exiting a 1031.
  7. Good luck!
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Oct 4, 2019

Thanks for the reply

  1. I agree
  2. Exactly and they put bs in there like "projected" and make up numbers. I looked at it and thought wtf where are you pulling this from, this is also if I put in $xx,xxx + in renovations to get these rents.
  3. I agree,seems they want to get rid of it if it's been on the market already.
  4. How would I do that? Any public websites to check, maybe other brokerages with similar properties in area and ask for rent rol?
  5. N/a
  6. But outer boughs are not as much right? I agree with Manhattan but seems I'm looking in a normal resi area.
Oct 5, 2019

Ask for the trailing 12 expenses (at a minimum). If you can get it, ask for the trailing 3 years. Ask for the current rent roll and expiration dates. Expenses could be 30%, but they could also be 50% if it's a 50 plus year old property. Getting trailing expenses will tell a better picture. Also ask if any capex was spent in the last three years, if so, what and how much? This last item might be something that comes out in due diligence. You could also speak with a property manager in the area who can help you create a budget and tell you if your property is operating in line with market (they can provide rent and expense comps). The property management firm also may have someone who can walk the property with you and let you know the boiler need some to be replaced, roof needs to be replaced, etc., so you can budget for it. As it's a 3 unit, you could ask a home inspector to do a free walk through and give them the business if you buy the property.

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Oct 6, 2019

Taxes alone can be 20 percent of egi in NYC. y'all are fucking nuts.

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Oct 7, 2019
maineiac42:

Taxes alone can be 20 percent of egi in NYC. y'all are fucking nuts.

The operative word being "can", since anyone who knows anything about NYC multifamily knows that this is a Class 1 building and thus will have almost no tax basis at all. Assessed value is 6% of market instead of 45%.

Oct 5, 2019

Hey buddy NYC local here.

It is actually very interesting to see you are buying because one of my dads close friends is selling a building in Harlem within the next 6 months. NYC real estate market is in a very precarious state at the moment. My building as well as many others are increasing the flip tax making it harder for people like you to do what you do. I would actually wait a year and a half before buying. There is a lot of instability. Billionaires like Carl Icahn leaving as well as the Amazon debacle frighten me in terms of NYC's future economic prospects and neighborhood changes. You gotta be careful about the expenses because DOB will strike down like fire and hell. Prices are definitely dropping at the moment in reaction to many events listed above but that is at a much higher level the median home value I expect to deteriorate. Best of luck.

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Oct 5, 2019

Harder to buy building in NYC, could you explain the flip tax more?

There's going to be instability even in a year and a half though, that's not that long in the grand scheme of things. Can you elaborate more on what you said?

Oct 7, 2019
abc1324:

Harder to buy building in NYC, could you explain the flip tax more?

There's going to be instability even in a year and a half though, that's not that long in the grand scheme of things. Can you elaborate more on what you said?

I'll elaborate for him. He knows nothing about NYC or real estate in general. The market is always "in a precarious state". And yes, it is possible a couple billionaires leave the city due to the SALT cap, which is a true shame - these people weren't being taxed at NYC rates anyway, probably weren't staying one way or another, and I'm sure the luxury condo market is fucked because there are half a dozen fewer buyers out there for a $50mm condo. And yes, Amazon not coming to NYC is a pretty good indicator that most major financial institutions, law firms, cutting edge medical facilities, and tech startups are all about to flee the city. It's really some hard hitting, insightful analysis.

Look, land in NYC has been overvalued for years because the condo market has been so hot. Recently, a bunch of changes both within the city and globally have cooled the condo market off considerably, and the recent rent law changes have also dampened the MF rental market. Shit happens, pricing will adjust, and business will go on. The only people who are freaking out are the ones who don't know the market, don't know the business, and don't understand that fundamentally, these kinds of risks are why real estate developers make money. Folks like @MRBIGBUCKS95 (who has a very appropriate name) seem to expect the universe to provide a win button for them, instead of understanding that in any industry, but especially one where you take personal financial risk, the rewards only come when you wager something.

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Oct 5, 2019

Why buy at all time highs?

Oct 6, 2019

I'm looking at it now, but this is probably a 3 month+ down the line decision. Also, not going to pay full price, I'll see where the numbers make sense and wait, just want to get started with looking and evaluating different properties so I have some experience when the time comes (say 6 months to a year down the line).

Oct 7, 2019
abc1324:

I'm looking at it now, but this is probably a 3 month+ down the line decision. Also, not going to pay full price, I'll see where the numbers make sense and wait, just want to get started with looking and evaluating different properties so I have some experience when the time comes (say 6 months to a year down the line).

Are you involved in the business at all anyway? If I were you I would spend the next 3 months (or whatever time period it is) throwing yourself into the minutiae of property management. For a 3 unit property, it makes no sense at all to hire a property manager; it's extremely inefficient at that building size

Oct 6, 2019

NY has been down for a couple years now... peak was in 15-16

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Oct 6, 2019
bleep:

NY has been down for a couple years now... peak was in 15-16

By a few points. Still extremely high overall.

Oct 7, 2019

Shit may live near the bushwick area.

OP shoot me a message and I can tell you how good or shitty the area you are considering is. It's a slowly gentrifying area, some parts of town are still "ghetto" (for lack of a better word, don't get mad at me) and some are relatively good.

Array

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Oct 8, 2019

What are your thoughts on Bushwick in general? Sorry it's a quiet deal so rather not. I plan on walking around the area during the weekend/daytime anyway. See how it is, who's in the area, time to walk to subway. Thanks tho

Oct 8, 2019

It depends where you are. I just walked back at 3AM and it was fine. However the place near me has low income people and we had to call the cops because the "urban youth" were smoking pot in our laundry "shed" (really a tiny shed type room next to the complex for laundry) and we had to call the cops to get them to go away.

It seems good, train service is not terrible. However appreciation is my eyes is 50-50. It's really going to require the area to fully develop and not be half gentrified half ghetto. It's kind of far from Manhattan so not a tier A spot, however decent commute for those who work in the city and want a lower costs overall at the expense of the quality of the area.

Lots of dirty hippies too, not that many attractive women. .

2c

Array

Oct 8, 2019
abc1324:

What are your thoughts on Bushwick in general? Sorry it's a quiet deal so rather not. I plan on walking around the area during the weekend/daytime anyway. See how it is, who's in the area, time to walk to subway. Thanks tho

Depends on what part of Bushwick. Western Bushwick is rapidly appreciating and rapidly gentrifying. I'm referring to the parts west of the DeKalb Ave L train stop, roughly.

Any further out and it becomes a lot more residential, low density, stereotypically NYC ethnic community enclave type of neighborhood. The transit isn't as good, it's a far commute to Manhattan, not a lot of nightlife... just a tougher area to see prospects for appreciation.

Oct 8, 2019

If I've got to throw something of value in the ring...Don't underestimate the amount of time/hassle it is being a landlord. Ex; fixing sinks, heating/air conditioner, "xyz is broken, etc. its a PITA. If you hire a property manager or whatever to take care of those headaches for you then great. But they are just that, headaches. Be mindful of that if you are working a busy schedule.

Just my $0.02

Best of Luck

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Oct 9, 2019

Go ahead and read The Real Estate Game by William Poorvu before even thinking about buying your first property. Honestly can say it's the best RE book I've ever read and you'll be way more prepared for any deal IRL after having read it.

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Oct 9, 2019
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