Duplex in Bushwick, NYC

Currently rented long term to section 8's, at 2,500$ for the larger apt, and 1,440$ for the smaller one. There is a basement that is maybe convertible to a third apt.

Taxes 170$
Hydro 30$
Mgmt 394$
Insurance 125$

No rehabbing needed, and assuming that I won't need to put anything into maintenance, as I was assured this is generally the case in NYC. (surely not losing 50% of gross rent like in other areas)

This boils down to:

3,046$ pre-tax monthly
36,552$ annually

the house is for sale at 372,000 including ALL expenses, including legal, title, first year insurance, broker fees, and forming an LLC.

So the cap rate is 9.82. I will try to finance this but getting a mortgage as a Canadian won't be easy. I can put up to 100% down, however, so I'll work something out.

The property is located in almost the southernmost point of Bushwick, though near the subways and bus stops. (5 mins walk)

This was offered to me by a friend who I trust. An experienced RE broker and former agent.

Comps are 450,000$, 505,300$, 550,000$ suggested by him and verified by me.

Thanks!

Uwe S.

Real Estate Investor · Chemnitz, Saxonia

1,241 posts
12 awards
69 influence

Jan 14, 09:06 AM

Hello Sharon,

with nearly $370k in cash you can buy a 20 - 30 unit in OH, NY or PA with an higher CAP rate than this in NYC. Thats only my first thinking.

Forthe duplex, you should calculate anytime with 50% expenses (maintenance etc.), when I calculate with only 45% you will net $26,000 per year so a CAP rate of only 7%.

Do the math, even with the comps if you want to buy and hold long time I wouldn´t invest in this house, only if you have to much money in your bank account its worth to buy.

-Uwe

Sharon Rolel

52 posts
1 award
50 influence

Jan 14, 10:13 AM

Uwe,

I appreciate the reply.

The number I provided after expenses, which amount to around 20-25% of the rent. I was assured that in NYC renters are more responsible for maintenance, and that the house is quite new so it won't need that much maintenance.

Other properties I own I do use 50%.

As a Canadian who doesn't frequent the states that much I would love to invest in the best properties I can find but often I am at the mercy of the management company I find, and this one is managed by one I have experience with, so that is also a consideration.

Nathan Emmert

Multi-family Investor · South Jordan, Utah

786 posts
5 awards
78 influence

Jan 14, 10:16 AM

You believe someone on Section 8 rent is going to maintain their own house? You do understand what Section 8 is right? You do understand the rules of maintaining Section 8 status for rentals right?

Sharon Rolel

52 posts
1 award
50 influence

Jan 14, 10:26 AM

I assume every case is different, section 8 is not a tag... I will make sure to get the management reports about the expenses for the property in previous years. I will judge the expenses according to that. Anything else you see that may need further inspection?

Chris Masons

Residential Landlord · Union, New Jersey

183 posts
2 awards
54 influence

Jan 14, 10:28 AM

Nathan is absolutely right. Be VERY careful about what you expect and what you will get with a section 8 tenant. ALso you should verify section 8 is paying 2,500 for an apt. How big is this aapt? How many bedrooms? Here in NJ a section 8 voucher for 3 bedroom is around 1600.00 I understand NY is probably higher but just verify all this. You should not count on your section 8 tenant to maintain the building.

Have you considered investing in NJ? Very NY commutable and there are some great buys right now. I am not too familar with the NY market but can tell you, you can do much better elsewhere.

Is there a reason you are looking at this perticular property? Do you own others nearby?

regards,
chris

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

Moderator Pro

12,319 posts
15 awards
95 influence

Jan 14, 10:34 AM

If I'm reading that right you're paying $370K for $4000 in rent. Just from those numbers its not a good cash flow deal. Expenses will NOT be 25% of rents. You will have maintenance. You will have vacancies, even if just between tenants. I've seen no evidence the 50% rule of thumb doesn't apply to NYC or anywhere else and have seen evidence that it does apply everywhere.

Jon Holdman, Flying Phoenix LLC

Sharon Rolel

52 posts
1 award
50 influence

Jan 14, 10:37 AM

Chris,

It is a 5 bedroom apt.

I considered many states and cities, as an out of of state (and country) investor I judge properties case by case. I have other properties, including shares in 400 unit complexes, and I am generally aware of the calculations to establish a property's cash flow potential, including 2% 50%. That's what I normally use.

This is a property that I was offered by a friend like I said, and he told me (I trust him and he is a partner in a very big RE brokerage) that 80% of the rent is what I can expect to pocket from the rent.

Thanks

Updated: 12:19PM, 01/14/2012

Thank you for your input Jon.

Edited: 01/14/2012 at 12:19PM

Andrew Jones

SFR Investor · Los Angeles, California

213 posts
3 awards
64 influence

Jan 14, 05:27 PM

If your goal is to buy and hold for the cash flow then 370k for 4k is simply not a good deal.