Analyzing a MultiFamily deal in Union City NJ

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Analyzing a MultiFamily deal in Union City NJ

Chris H.
Brooklyn, NY · Member since 2014 · 6 posts · 1 vote

Looking at a 3 family w/ finished basement in Union City below I-495, approximately cost $750k with conventional loans (20%).

At present time, the basement is non a permitted living dwelling unit.  There's 2 vacant units and 1 rented for approximately 1300/mo.  Believe this unit was registered with the UC rent control boards.  Does the 2 other vacant units fall under the same Union City Rent Stabilization Ordinance 2017?   Don't think they were registered, but is there a online link or local clerk's office to check if these two vacant units were registered?

Would this be a good or bad deal?  Plan to fix up the 2 vacant units and raise the rent roll.  The after repairs rental should be enough to cover my expenses and cash flow ~$200 - 500 per month.  Thinking about a buy and hold strategy, and hopefully the UC area will appreciate over next 5-10 years. 

Any thoughts are welcome, thank you. 

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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
6y

That price is too high. Why are the units vacant? If the other vacant units would only rent for $1,300 also you are at $3,900 on a $750,000 purchase price. If you are going by classic 1% rule, which you need to try to get higher in NJ with the taxes, you need your rent roll at $7,500. Union City has a lot of options, but not a lot of room for new builds which is good. Is there parking? Proximity to NYC is good from there, but driving and parking is a nightmare so if you are going to pay high for a 3-family it would need to have amenities and a scalable rent roll. If it's 3 units and a non-conforming basement, it could sell high, but I'd be concerned about unrented units and renovation costs with an already high price tag.

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  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    6y

    That price is too high. Why are the units vacant? If the other vacant units would only rent for $1,300 also you are at $3,900 on a $750,000 purchase price. If you are going by classic 1% rule, which you need to try to get higher in NJ with the taxes, you need your rent roll at $7,500. Union City has a lot of options, but not a lot of room for new builds which is good. Is there parking? Proximity to NYC is good from there, but driving and parking is a nightmare so if you are going to pay high for a 3-family it would need to have amenities and a scalable rent roll. If it's 3 units and a non-conforming basement, it could sell high, but I'd be concerned about unrented units and renovation costs with an already high price tag.

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  • Allen Walton
    Jersey City, NJ · Member since 2018 · 11 posts · 2 votes
    6y

    Hey Chris,

    you should file an OPRA request to determine what the previous registered rents were.  all 3 units will be subject to the ordinance, & If I’m not mistaken, the allowed annual increases would remain effective from the previous registered rents (unless the other two units were never registered somehow)


    I would also say that that cash flow is disproportionate to the amount of money you’re paying for this property.  You’d be better suited with another deal that cash flows more.  Please feel free to message me for details and suggestions. 

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  • Chris H.
    OP
    Brooklyn, NY · Member since 2014 · 6 posts · 1 vote
    6y

    Thanks @Jonathan Greene. It seems hard to find a 1% rule in Hudson County area, no?  This location's proximity to NYC is probably the most attractive amenity.. no parking space for property.. overall nice size, 2-3 bedrooms per unit.  After purchase was planning to spend 25-50k for fix and updating the units. Not looking for insane cash flow, but break even or a bit on the positive side.

    Thanks @Allen Walton  Will check with the OPRA (open public records act) for the previous rental units. 

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  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    6y

    Yes, 1% is hard in Hudson so you bank on the appreciation and it will be much slower in Union City than in places like JC or Hoboken. Unit size sounds pretty solid, but with no parking it's a problem at that high of a price I think. I have a client who bought an orthodontic practice and the whole building with two units upstairs about the business and I think he paid less.

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  • Miguel Perez
    Member since 2019 · 7 posts · 2 votes
    6y

    @Chris H.

    Sounding like 200k all in. I recommend investing in a commercial multifamily 5+ units OT and get a lot better ROI with some upside for a long term hold.

    Be patient nothing less than 10% ROI

    Potential $500 monthly cashflow at best 6k/ year

    Or 200k @ 10% = 20k/ year

    For the same purchase price 750k

    Just an example

    Best of luck

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  • Chris H.
    OP
    Brooklyn, NY · Member since 2014 · 6 posts · 1 vote
    6y

    Thanks Jonathan / Miguel, for the help!

    The final accepted price was 700k for this 3-family bank-owned property.  The building next door was sold in Oct 2019 for 900k, but in better condition and was a legal 4 family (3 + 1 basement) unit.    

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  • Vaughn Smith
    Property Manager · NJ · Member since 2017 · 786 posts · 396 votes
    6y

    @Chris H.the answer @Jonathan Greene gave you was solid id also add that you want to be careful investing for appreciation, it should be icing on the cake but not a deciding factor for if you buy a property or not. Union City is a good place to invest IF you can find a property that makes sense, but keep in mind the following factors that are often overlooked by potential UC investors:

    -Many of the properties on the market are rife with functional obsolescence and layouts that often don't make sense, which makes the cost to renovation these units a bit higher as you may have to change layouts or do a bigger rehab than you would on units in other towns

    -Rehabs in Union City can be expensive and a logistical nightmare the cost of labor is high, the city can move a bit slow on permits and inspections and finding a place to place a dumpster...yikes

    When you analyze deals in UC make sure to run the numbers with higher than average rehab costs and realistic rents based on recent rental comps.

    2Reply
  • Mark F.
    Rental Property Investor · Northern NJ · Member since 2019 · 672 posts · 677 votes
    6y

    You need to look into UC rent control. I did and theres a lot to it. You cant just raise rents after its vacant. Only certain properties qualify and its mainly new construction. From all the crazy rules I can remember, you have to go down to UC city hall and find out the old rents and what they were registered at. 

    You can only charge the amount registered, period. If you're caught charging more, which isnt difficult as the tenant of a home I was looking at found out, their rent will be immediately reduced to registered rent numbers. You can only raise it once a year; which is the CPI. Usually 1% to 2%.

    Even owner occupied properties aren't exempt.

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