Difference in Value Between Rent-Stabilized 3 Family and Market Rate 3 Family?

How much less sales value (Percentage-wise) would you say in this (real-life) scenario? The building in question is a new (5 year old) 3 fam, with two 3 Bedroom/2Bath apartments and balcony (1000 sq feet) and one 2 Bedroom/2bath garden (750 sq. feet) Right now, the building is rent stabilized because of 421-a, but we may be able to revoke the 421-a. Each apartment is currently about $200 under market value but of course that spread will increase over time. The tax savings are about $650 a month. If you are a broker and can give a good estimate, I am open to it or leave a contact. I am asking on behalf of two buildings with the same scenario, so there may be a future listing involved. FYI, the 421-a was done with out buyer’s knowledge, by the developer. Please keep that in mind when moralizing about our motivation. The building is within 1/2 block of Bedford Avenue in the “Do or Dine/Scratchbread” neighborhood. Thank you.

webby1000

in Real Estate - Sales 9 years and 6 months ago

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daveinbedstuy | 9 years and 6 months ago

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“He pulled a fast one, but then left the country.” Why am I now more worried about the potential construction defects that inevitably surface with slipshod developers than the current issues???

webby1000 | 9 years and 6 months ago

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Basically, the developer had the 421-a in the works, it wasn’t complete for closing so not on the records. Then a few months after closing the info came from HPD. I tried to get them to revoke, with no luck. This hit me as well as my neighbor who bought the adjoining property by the same developer, so yes, it is possible. I guess the developer made the calculation that buyers would rather have market rate units than a tax break, especially as bed-stuy heated up. He pulled a fast one, but then left the country. It’s not a total loss, but without a doubt, almost immediately after becoming stabilized the “Trigger” you talk about kicked in. I don’t want to sue anyone, but I am looking for an attorney who thinks they can revoke the 421-a. (We would have to pay back the back taxes we didn’t pay. )

resident2 | 9 years and 6 months ago

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There is no way that you can buy a building if you got a complete title search & title insurance and did not know that there was a 421A tax abatement on it. The apartments may not have been registered and so you may have just found out that you need to register them? But, to answer your question. No one can put a percentage or number on it but…. For an extra $650.00 a month, which is tax deductable off your rental income and Federal Taxes, you will also be able to determine to whom you renew leases and when. And I can assure you after owning apartments under rent stabilization that is huge. It seems that no matter what the education level, income level or any other socio grouping you want to make, Rent Stabilization creates an abuse trigger in many tenants, and you have to renew their lease. The problem with rent stabilization is not the rent increases, although this year it is particularly absurd! It is that you have to renew leases to people that anyone in their right mind would never otherwise do.

daveinbedstuy | 9 years and 6 months ago

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$200 below market isn’t that much at all. Maybe what, 10% +/-??? If you are buying this purely as an investment property, you just need to determine whether the cap rate at the sales price less all the expenses on a yearly basis is attractive. If it is 2%, walk away. If it is 7%+ then it may be worth pursuing.

slopefarm | 9 years and 6 months ago

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“FYI, the 421-a was done with out buyer?s knowledge, by the developer.” This makes no sense. Buyer closed on a building without knowing about 421-A and rent stabilized status? Is that even possible? Seems like a very hard thing to hide, but I could be wrong. Where was the buyer’s lawyer?