Investment property purchase?
Also – i just had another thought. If there are SRO’s on the market, these can be run as bed and breakfasts / hostiles for a few years while you wait out the CNH and paperwork. I’ve seen people do that in Harlem and since few investors or homeowners can justify buying those properties and getting held up for years on the paperwork. It might be worth looking into to get something on the cheap and after several years shoot for a regular housing stock rentals or condos.
dorkofwindsor
in About Brooklyn 11 years and 5 months ago
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13 replies
Splenda | 11 years and 5 months ago
Hello, I am considering purchasing a condo solely as an investment property. I have never done this before. IS there any rule of thumb as to how much to spend so that the endeavor is worth the time and effort. One apartment I was looking at was asking $360,000, with $950 in common charges/real estate taxes. Assume I can rent it out for $2000/month. Thoughts? What other figures do I need to account for? I assume the following: any sublet fees charged by the building; insurance cost; periodic maintence. Any thoughts?
xchx | 11 years and 5 months ago
Quick math – at 20% down, the mortgage payment will be about $1,500 a month. You will lose $450 a month. If you pay cash, the yield on your investment would be 3.5% a year. This is not a very good yield. So this would solely be a bet on the condo price going up.
landlord | 11 years and 5 months ago
I second xchx
curiositykilledthecat | 11 years and 5 months ago
Ditto xchx. Also, I would find it very surprising that whatever you are looking at will rent for $2,000/month if purchase price is $360k.
mrohrmann | 11 years and 5 months ago
If you have to ask about the math on how to invest in any type of real estate on a public forum like this you are definitely not ready. Save the time and money and put it in a ETF or other low cost investment. Investing in real estate can quickly become a full-time job and as the others noted above the yield you are looking at is not worth your time, you could buy treasuries that pay better than that and do nothing but sit there and watch them payout till maturity.
daveinbedstuy | 11 years and 5 months ago
What the others said, especially mrohrmann. you can get 3.5% in 30 year Treasuries now and still get returns of 3.5 to 6.0% in many stocks, muni bond funds, etc. Its all about opportunity costs and then, assumptions about future price increases.
Splenda | 11 years and 5 months ago
That is why I am asking preliminary questions here. The work would be minimal as I would buy in a building with a live in super. I also am heavily invested in stocks already, so I was just looking to diversify my holdings. What would be an “adequate ROI for a real estate investment holding? Finally, Curisity, what do you mean by “Also, I would find it very surprising that whatever you are looking at will rent for $2,000/month if purchase price is $360k.” You think you would get less than $2000? Why is that?
mrohrmann | 11 years and 5 months ago
The potential rental income is a unit by unit discussion, without all the details no one can say what the appropriate monthly rate would be. Just because you have a super in the building doesn’t mean its a set it and forget it investment so buyer beware. ROI is based on the individual’s risk tolerance in conjunction with the rest of his or her portfolio so that cant be answered without knowing all the details. For point of reference that average yield on whole commercial apt buildings in BK last year was roughly 6% across the whole borough, given that prices have risen dramatically that number would likely be lower in 2014\. With single unit or smaller townhouse rentals the yield is typically lower than that unless you are doing some material rehab work to a place, which is not uncommon.
nyc_sport | 11 years and 5 months ago
It will be very hard to make this math work for a small time property owner at current asset values and rental prices. It is indeed unlikely that a $360K condo would rent for $2K per month, but in any event the 3.5% implied cash return is very high. You need to figure in insurance, brokerage costs, vacancy costs, maintenance and management costs, etc., and maybe even the occasional deadbeat tenant. Some condos impose rental fees. But, in any event, the true annual rent revenues will net to much less than $24K. And, are the RE taxes abated? You may have rapidly escalating property taxes that might overwhelm the monthly rent.
resident2 | 11 years and 5 months ago
A condo is probably the worst thing that you can invest in, with your thinking. A super does not maintain the inside of peoples apartments for nothing, that is the individual owners expense and many condo boards do not allow them too. Most Condos are priced so that an owner occupant can buy and live in the apartment at the same price it would effectively cost to rent it, home owners get different tax breaks than investors, I cannot see something selling for $350,000’sh being worth $2,000 per month rent. A building that is selling units in the $300,000 range often gets too many naïve. investors, often owners that when they out grow it, become investors because they cannot compete with the marketing of the next new model, (I call it the used car syndrome). Once there are too many non owner occupants, a Bank will not finance the re-sales and the building quickly becomes a lemon that is only saleable to a cash buyer; a schmuck or a vulture. You have to have a good eye to see the classics coming, most just buy lemons. Especially if you are not in the business.
Splenda | 11 years and 5 months ago
I certainly am not experienced in this area but a few comments: 1\. I have lived in apartments before, and the super certainly does repair minor issues within the apartment (leaky sinks; etc). 2\. The condo I was referring to is asking $360,000\. There is a tenant in place paying $2000/month and I have loooked at publicly avaialbable information on streeteasy, which confirms that people are paying in the $2K range to rent in the building. Further, this is studio in a prewar building in Manhattan — $2K/month is certainly what I would expect for such an apartment. 3\. I was just wondering what return to look for to make this worth my while. thanks
bk1lnite | 11 years and 5 months ago
Most investors won’t find 3.5% a sufficient return, unless as mentioned before you’re betting on a big increase in price (or income). If your investment portfolio (in stocks etc.) is big enough that 360k is not a big deal then I’d go against the grain of the other posters and say it’s not a terrible idea. My back of the envelope says that your cash flow will be about the same as the depreciation so for tax purposes you get ~$12k/year cash with most or all the tax liability on the back end as capital gains tax on the appreciation + depreciation recapture when/if you sell. To many it’s not worth the hassle. If you want to try being a landlord and think you’d get some entertainment out of it in addition to the meager monetary return, then why not.
dorkofwindsor | 11 years and 5 months ago
NYC sucks for a cash flow rental. Many, many, many better cities. You are speculating on the direction of RE / condo prices in Brooklyn, and yo may have to have years of break even or even some negate cash flow. Luckily, to ease your pain on a cash tax basis, you can depreciate your investment, although that gets recaptured with a lower basis when you sell. GENERALLY, when you buy properties in condos, that have amateur boards, or hire management companies to manage, this eats into your profit. Residential real estate is better if you have a portfolio of properties and (either do it yourself) or have a seasoned team of reliable handymen and get to call the shots on expenditures, if you should pay $20k to redo the lobby because a few crazy people want flowered wallpaper and peach paint with a mirrored ceiling. To me, condos suck the life out of you watching idiots making stupid mistakes with your money. If i were you, i’d be into RE in a more committed way with whole buildings of some sort, or not at all. Even better – another city with realistic rent to buy ratios.