What to do with my first purchase??

40 Replies

So you say your goal is to build a portfolio of buy and hold rental properties. Be honest with yourself here, will your current apartment be cash flow positive and give you a CoC return in which you are okay with? If the answer is no, then option #2 is probably out of the question. If yes, then maybe consider in conjunction with another option.

You also say that your payment is a cash drain.. I assume that means you feel like it's expensive and you can live cheaper than you currently do.  If yes, then option #3 would make sense.  If you were to buy a small MFH and house hack, you'd be able to reduce your living expenses and that's definitely a win!  It will allow you to ramp up your savings and move to the next investment.

Option #1 could work but if your current payment is a cash drain, how will you save for your next investment? Also, if you go multifamily and don't OO you'll most likely have to put down 25%. I have heard that 25% down on MFH is pretty standard nowadays.

At the end of the day, you have to determine what will be the best for you and your goals. Hopefully you find this somewhat helpful though!

Account Closed

I'm not trying to be rude here but what advantage does owning a cash flow negative property hold?  I could *potentially* understand holding onto a property that breaks even after ALL expenses (P&I, Repairs, Cap Ex, Management, etc) if there's a good possibility of appreciation due to some sort of gentrification in the neighborhood but remember appreciation is never guaranteed so it's more of a gamble. 

I'm located in Central Jersey (about an hour South of NYC) so things definitely make more sense near me.  I have heard that there's been a lot of efforts of revitalizing some of the North Jersey cities such as Newark, Jersey City, Harrison, etc though so that could be worth looking into but I just don't know personally.  This is all speculation but I would think that there would be more opportunities for cash flow in New Jersey then NYC though.  

Without some numbers showing equity, income etc I suggest you use the tools provided. It sounds you are motivated possibly ready to make a move.  I suggest you talk to your CPA figuring out the options. One CPA always advises a small rental to offset tax on standard deductions in cheaper neighborhoods.

Your apartment has appreciated over the past 3 years, not even including the renovation. You can sell now and cash out and avoid paying any capital gain. If you think you'd be a little cash flow negative renting out your co-op it could turn in to a lot. Timing co-op leases gets a little tricky since you have to wait for board approval and so you could end up with more vacancy than you expect even if you can line up new tenants quickly. You're also open to board turn downs. Your maintenance will go up, and any special assessments could ruin your numbers. And does your board allow open subletting indefinitely? If so that's great for now, but those buildings can get in trouble down the line with having too many sublets and becoming non-warrantable. If that happens, and you want to or need to sell in the future, that shrinks the buyer pool pretty dramatically. You want to get into real estate investing and your first investment property would be negative cash flow. I think that in and of itself answers your question.

House hacking in NYC is tough. Townhouses and MFH are very expensive and you're probably looking at a long commute to find something that pencils out. I'd think about continuing to hack co-ops. Depending on where you want to live there are usually a lot of options for co-ops that need work, that trade at a discount because of their condition, and can sell at a premium once they're renovated. Just like what you've already done. You can do this every two years and avoid capital gains AND you can try to figure out other MFH strategies at the same time.

Account Closed i really believe that house hacking in NY is almost impossible. The cities you mentioned are amazing, close to NYC, but I'm not familiar with the market in those areas. I would include Weehawken in the list as well. 

Originally posted by Account Closed:
Originally posted by @Stefano Grottoli:

Account Closed i really believe that house hacking in NY is almost impossible. The cities you mentioned are amazing, close to NYC, but I'm not familiar with the market in those areas. I would include Weehawken in the list as well. 

 Thanks for the tip! Would be interested to hear if people have had success with house hacking in NYC. It just doesn't seam feasible.

 Would love to learn that as well! Curious about it!

With regard to the sublet policy and problems for buyers, I meant that if more than 50% of units are sublet then the co-op is no longer warrantable, meaning Fannie and Freddie will not back loans there. You see this more in smaller buildings with liberal sublet policies and it can definitely hurt resale values. Just something to consider if your long term strategy is to sublet a co-op apt.

As for NJ, I'm guessing you'll be priced out of downtown JC and Hoboken. Try JC (Heights, Journal Square, McGinley Square, or the Communipaw section of Bergen Lafayette). Union City and West New York should also provide some options and probably a faster commute for you.

I would consider Westchester.  It is an easy commute into the city.  For example, White Plains, has a ton of commuters into the city and the projected growth rate is exponentional.

@Account Closed
I'm house hacking a 3 family in Jackson Heights ,Queens it's 25 min to midtown , 5 train lines. Prices have gone up but it's still makes sense to get in, rents have been rising steady and there is nice housing stock, I keep my eyes on the JH market and houses are taking longer to sell, I like North Western Queens long term potential, lots of new people buying from Manhattan.
Good luck, it's possible!

Originally posted by @Christopher Giannino :

Account Closed

I'm not trying to be rude here but what advantage does owning a cash flow negative property hold?  

Because if you believe it's going to appreciate, you might be paying a small fee for an asset that will be worth quite a bit down the road.  NYC doesn't really depreciate long term. 

Simply put small or negative cash flow = sell the asset PERIOD! The idea that you are "investing" in real estate when in fact the asset has a negative equity situation makes zero sense to me unless you are forced to do such because of difficult market conditions. SELL SELL SELL! Take your equity and repurchase an "income producing property!"

Happy hunting

@Account Closed I House hacked a 3 family in Bed stuy in 2006. The first few years if you include closing costs and fees and renovations I was probably out of pocket 150k. After a few years I was breaking even. By year 3 I was making small profit. By year 6 I had most of my money back.

I think that in NYC the market is such a different animal. Even when compared to westchester or NJ. It’s extremely difficult to get property and hold onto it in NYC.

Before you think of selling...and not trading up in NYC......I would speak with other veteran NYC investors. Get their take. Unless you don’t plan on staying here. It’s pretty common to hear of investors selling NYC property to buy assets in another market and later hear that they got lapped a few times in 10-20 years by their NYC neighbors that held on. If they decided to rent in NYC they got taken to the cleaners.

I know many of my fellow westchester neighbors sold property in NYC to move up here by me. That’s pretty normal. Some of them sold 10-20 years ago. They all wish they had kept the NYC stuff. Not always possible financially. The people I bought my current house from sold property in NYC in 1997. The NYC property appreciated at a Crazy rate and the westchester neighborhood appreciated slightly. That’s pretty typical accords the US. Many, many areas stay flat for 10-20 years. You could get lucky and find the next Crazy Midwest market but chances are NYC would do the same thing with much less risk.

Account Closed I would probably get rid of the coop and use the cash to get yourself into a MFH. It'll help your cash flow and would probably allow you to get into a better MFH. I agree with others that it is still possible (but very difficult) to house hack in Queens although you will have to work hard to find the right opportunity. One thing you should be doing as you investigate your options is figure out financing options. There are a lot of options other than a traditional 20% down loan that may allow you to get yourself into building and fund the renovations.