rent controlled tenant in New York City

12 Replies

Hi all,

I guess I already know the answer to my question, but I am still curious what pros would say. Would you ever, under any circumstances consider buying a property with a rent controlled tenant in it? Let's say it's a great area, way under market prices and tenant's rent is covering basic monthly costs.

Thanks!

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It depends on a lot of factors.

One of the biggest is what is the age of the tenant, and do they have any immediate family members living with them?  In many cases, an immediate family member who has lived in the unit for the previous 24 months can assume the rent-controlled lease in the event the primary lease holder passes away.

Also, just to be clear, the unit is rent controlled, not rent stabilized?  There are few of the old school controlled units still around, but they do exist.

If its a 75 year old single person living by themselves, and you're reasonably sure that their rent will at least make you break even after all your expenses, I say go for it.  You could be in for a serious windfall when you eventually are able to take control of the unit, but you really have to be in it for the long game.

You could also explore the possibility of buying the tenant out of their lease.  Tenants in places like Central Park South have been bought out for over $100k plenty of times.

Tyler, thanks for your reply. This is is a rent controlled (not stabilized) unit and there is a single guy in his 60s living there alone. He pays an unbelievably low rent for the area which covers monthly fees of the coop he is in. If repairs will be needed (or demanded by the city) the expenses are likely to go over what the rent brings. Since whomever is trying to sell this place low, it's likely that the tenant is not ever leaving (or willing to be bought out) right? I was thinking maybe my kids one day will cash out lol 

William, it is tempting right? But this could potentially be so long term, I won't live long enough to see it vacant LOL

@Lina Shum ,

Depending on the location, the size of the unit, and the price, if the rent he pays more or less breaks even with your mortgage, I'd be tempted to go ahead with this.

I wouldn't be too concerned with repairs. Since its a coop inside with an HOA, you shouldn't have any of the major issues that someone with a single family home would have, such as having to replace a roof or digging up a leaking sewer line. You'll only be responsible for what's inside the actual unit itself, so maybe replacing a refrigerator or stove once in a blue moon or what have you. Things like that should be pretty minimal in the grand scheme.

That's assuming the HOA in question has good financials and an adequate reserve fund, so if they do suddenly find out they need a new roof, they don't have to hit the owners with a big assessment, but that's a whole topic by itself.

The real gamble is how long this guy is going to be around.  If he's 60 and has lived there forever, it's a good assumption that he isn't going to voluntarily move out any time soon.  He may very likely stay there until he dies, which could be 40 years from now, or it could be two weeks.  

Don't forget this story:

http://www.nytimes.com/1995/12/29/world/a-120-year...

Basically a 47 year old man agreed to pay a 90 year old woman the equivalent of about $500 a month for the rest of her life, in exchange, he would get her awesome apartment in the middle of Paris upon her death.

Well, she ended up living to be the oldest person in the world, and the man passed away at 77, never getting her apartment, and what's more, then man's widow must continue to send the woman these checks every month, and if she passes away, the man's children must keep them up!

Of course this isn't really a parallel situation and I don't envision anything like that happening to you, but its an amusing anecdote if nothing else.

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@Lina Shum

Welcome to the Bigger Pockets community. It is a great place to learn about real estate.

William, I believe yes, but in a for of rent stabilization.  

@William M. , Yes, as long as it is a family member and the individual has lived in the apartment for at least the past two years.

Note that the primary tenant doesn't have to necessarily die, they could simply retire and decide to move to Florida, but if their son has been living with them for the past two years, he is now entitled to take over their lease.

So it's a big gamble.  It could pay off big time and you could find yourself living in a prime location of NYC for pennies on the dollar compared to what it would cost to buy a regular unit, or the guy could be alive and well for another 30 years.

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