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July 20, 2009
Renting Out Entire Brownstone?
I need advice or experience from owners on the ease of renting an entire brownstone. I am hoping to buy a brownstone in the Brooklyn Heights, Cobble Hill, Boerum Hill area to eventually live in. However, I currently have a very affordable, rent stabilized apartment that we have not outgrown, and I do not want to give up. My hope is to purchase a brownstone and rent it for 2-5 years before moving in myself. Clearly there are a lot of garden floor units for rent, but how successful can one be at renting an entire brownstone in these areas, or at least an upper triplex?
Comments
it's all about pricing. current mkt, the rent is probably lower than your carrying cost - by a decent amount too. There are a lot of people who would rather rent out a whole house, triplex than to buy now (ie rent now buy later). So if you're willing to deal with the negative cashflow (ie rent less than carrying cost), there's a mkt for it.
Posted by: more4less at July 20, 2009 12:29 PM
Someone like you shouldn't be sitting on a low-rent stabilized apartment. Just another example of how sick and broken the system is.
Posted by: starfish1948 at July 20, 2009 12:49 PM
Why do you want to rent it out? Profit? Joy of being a landlord? Watching tenants damage your future home?
Just save all the money that you would be spending on mortgage payments and put it into treasuries or a money market account and 2-5 years from now you'll have a nice down payment.
FWIW, I seriously doubt you can rent it over the next 5 years for what it will cost you to own it, especially if it is a 1 family building.
Posted by: northsloperenter at July 20, 2009 1:11 PM
more4less, thanks for your advice.
starfish, I actually agree with your opinion, though remember, I didn't make the rules here, I am just playing with the hand I am dealt.
Posted by: heart attack at July 20, 2009 1:11 PM
Agree - but the tax bennies could tilt the equation into the profitable column, if either the
house is in decent shape or you're handy with any repairs.
Plus any depreciation is I think waived once it becomes owner-occupied (I'm not an accountant!)
Conversely, not sure how it'd work mortgage-wise. I had to certify that I was gonna occupy property right away else the rules would've changed. Now, I'm not entirely sure the bank showed up to check but one never knows, especially if we're talking longer period of time and mailing address being different than property address.
Posted by: Johnny at July 20, 2009 1:18 PM
Yes, there's a market in these neighborhoods to rent an entire house. Mainly families temporarily relocating from overseas - think diplomats, i-bankers, etc.
But as mentioned above - why? Unless you genuinely think prices have bottomed out, or have already found a specific property that is super-unique, I don't see why you'd undertake the expense and hassle. All of the situations I know where people rented whole houses are because they needed to relocate (same case as their tenants) and didn't want to sell their house (due to personal attachment, market conditions, or both).
Further thoughts on the expense:
#1: People who rent are looking for a well-maintained, move-in condition property. People who can afford to rent an entire house in the neighborhoods you list are going to have even higher expectations. So if you're looking to buy now, you're going to need to pony up big bucks for either a renovated house or pay for the renovation yourself.
#2: I tend to agree that the ownership costs will exceed your rental income...housing prices are still pretty elevated in those neighborhoods. You don't see investors swooping in because the houses still don't make sense as investment properties.
#3: As mentioned above, if you want to get a mortgage, you will either need to fib on the "owner-occupied" part, or get an investment mortgage.
Posted by: NorthHeights at July 20, 2009 1:38 PM
talking from experience and depending on your lifestyle, renting your brownstone is a huge undertaking. we currently own a 3 family brownstone in clinton hill fort greene area made up of 2 duplex apartments and 1 one bedroom apartment. We used to live in the building but decided to move elsewhere due to a job relocation. We decided to rent as we thought we would return to Brooklyn but that may not happen. I think you may be able to get more of a rentroll with more aparments than only a garden and triplex. BUT that means more responsibilities to more tenants. It is a toss up. And maintenance and upkeep is always a common concern and is viewed differently with each tenant. I agree with a lot of the points NorthHeights is offering. Although for investment purposes I think the neighborhoods further east may be more enticing with respect to risk vs reward.
Posted by: bailey at July 20, 2009 2:13 PM
Not smart, heart attack. Wait in your rental for 2-5 years or until the market bottoms (NY Case-Shiller YOY passes back up through zero). You will have mucho choices. Buying at or near prevailing prices will redden your cashflow very quickly.
***Bid half off peak comps***
Posted by: Brownstones Half Off at July 20, 2009 2:14 PM
Great advice from all and much appreciated.
Many points I have considered, and some I had not (in truth, I forgot about the bank requiring the property be owner occupied for a mortgage).
I am bearish on the market and am willing to hang tight for a few more years. I was simply hoping to take advantage of the tax breaks during that time.
Posted by: heart attack at July 20, 2009 2:28 PM
Isn't it against the rent-stabilized agreement to own or rent another residential space in New York state while you're currently in a rent-stabilized apartment?
Posted by: lambretta76 at July 20, 2009 2:42 PM
Good point, but actually it's within NY City I believe -- I think you can still have a country place upstate. In either case, this person can't buy property in NYC under his/her own name (assuming that's the one on the lease).
But it's the disingenuousness of the comment, "I'm just playing with the hand I'm dealt," that really sticks in my craw. No-one is forcing this person to remain in a rent stabilized apartment, and if he/she can afford to consider buying a brownstone in "prime" Brooklyn neighborhoods, he/she can certainly afford to move to a more expensive place.
A more honest way to put it would be, "I'm just taking advantage of a flawed system and hoping to get away with it."
Way to go -- give a bad name to all the honest, not rich people who really do need the protections afforded by rent stabilization.
Posted by: babs at July 20, 2009 4:10 PM
The author of the CasaCara blog, who sometimes posts here, has done what you are proposing. Most recently, she has lived in a Boerum Hill rental and rented out several of her properties. Here's her blog:
http://casacara.wordpress.com/
Posted by: Brooklyn Chicken at July 20, 2009 4:40 PM
"I was simply hoping to take advantage of the tax breaks during that time."
The tax breaks would pale in comparison to the certain loss. I hope you weren't lured in by that laughable $8K credit. Do you have the math right in front of you?
***Bid half off peak comps***
Posted by: Brownstones Half Off at July 20, 2009 4:44 PM
I sincerely doubt that anyone looking to buy a brownstone would qualify for the $8K first time buyer's credit -- for a single person it starts to decrease at $75K per year,down to 0 at $95K. It's $150K - $170K for married filing jointly.
Posted by: babs at July 20, 2009 6:06 PM
Agree with all sentiments above. It makes absolutely no sense to buy right now if you just want to rent it out for a few more years. Whatever house you want to buy now will be cheaper by some unknown (and much argued about!) percentage and the rent you could get for a one family house and likely a two family house would not equal the mortgage payment.
Posted by: wasder at July 20, 2009 7:35 PM
Thanks, Brooklyn Chicken, for the shout-out. As others have pointed out, whether it's a good idea to buy and hold a townhouse at this time all depends on what it costs, mortgage terms, condition of house, etc. - but I'm here to tell you it's not as easy as in the past to find tenants for a 5BR, 3 bath brownstone. Not easy, but possible! Six real estate brokers couldn't do it, but a post on my own blog did: I've just rented my Cobble Hill house to a European family with FIVE kids. They're coming to New York for the dad's work, to learn English, and have a 'family adventure.' (They had searched on 'townhouse for rent by owner' and came to my blog)
Still, I sweated for a while and lost about a month and a half's rent before these folks came along. Also, I lowered the rent - am getting the same as I got 3 years ago. My previous long-term tenants were also a European family, for what it's worth.
Posted by: casacara at July 20, 2009 10:12 PM
Years ago, my mother had great success renting her extremely beloved house in California to an academic family from Japan while she temporarily relocated to Texas for her husband's job. They left the place spotless and in perfect condition. Though I suppose the Japanese professors are few and far between in Brooklyn.
Cara, love your blog!
Posted by: mopar at July 20, 2009 10:35 PM
You can afford to buy a Townhouse apt in Downtown Brooklyn but you are going to hold on to your "affordable" rent stabilized apt. Maybe you can afford to pay someone to give you advice.
Posted by: Crownlfc at July 20, 2009 11:17 PM
You'll "make" hundreds of thousands of dollars (by paying a much lower price) if you wait a few more years for the market to keep correcting downwards.
The fact that there's no way you can even come close to covering your costs by renting a newly purchased market rate townhouse in Brooklyn is the clearest evidence in the world that the market still has a long way to fall.
As a landlord who hates rent stabilization, I see no problem with your continuing to take advantage of your great rental deal. As you state, it's the idiotic laws that are the problem, not the fact that you happen to have been lucky enough to score a deal back in the day.
Rent stabilization should obviously only be allowed for folks of low and moderate incomes (not to mention it should be subsidized by the government -- not private landlords), but changing the rules to the detriment of tens of thousands of high income "voters" like yourself is something that will never happen in corrupt New York City.
How would a local Democrat get elected if he didn't promise to take something from one person and give it to another?
Posted by: IronBalls at July 21, 2009 7:08 AM
"I see no problem with your continuing to take advantage of your great rental deal. As you state, it's the idiotic laws that are the problem, not the fact that you happen to have been lucky enough to score a deal back in the day."
So if it's legal it makes it morally o.k.?
Taking advantage of a broken system is still taking advantage and pretty heinous.
But hey, that's just me.
Posted by: TownhouseLady at July 21, 2009 9:24 AM
I agree with you Ironballs. Gov Patterson has a rs apt, so does rep Rangel, if they haven't made 175k for two cons years and it's their primary residence, then good for them and the same for the poster. However, if this guy is earning over the legal limit (after all, you can't buy a townhouse in dt Brooklyn with out making $$) and still plan to hold on to his R/S apt, then shame on him.
Posted by: Crownlfc at July 22, 2009 6:47 PM
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