I've been looking for deals in brooklyn(bushwick, bedstuy) and queens(ridgewood) to use an FHA loan and house hack to get started as a first property. I am feeling intimidated by the housing laws in NYC and the fact that a wrong move or bad tenant could put me in a bad position considering the fact I'm just starting out. Anyone have experience buying small multifamilies in NYC that could share any tips or words of warning?
I want to make the most of my savings (hence the FHA), plus I live in NYC and would like to for a while so I'd prefer to invest locally. My intention would be to hold the property for a very long time. That said, these areas are expensive right now so it seems unlikely I'd be making profit at least the first couple years as I pay mortgage insurance.
Personally, I would not be too concerned about tenant risks. Since you will be living at the property and it will be a 2-4 family, you do not need to worry about Rent Control, Rent Stabilization, etc.
True, New York is more tenant friendly than other states but pretty much everywhere is due to COVID-19. I would just caution you regarding tenant selection criteria and your process which is key.
Every reward has an inherent degree of risk. But you want to make sure the risk/reward profile is asymmetric. Tenant issues will arise, but you can mitigate them by being selective.
As far as mitigating risk and juicing reward, you also want to limit your equity exposed (FHA) and buy at the "bottom" (NYC currently). So I certainly think a house hack via FHA in NYC right now is the move. If you can get a 4 unit and share the basement , that would be ideal and create major cash flow and equity creation.
Personally, I am very bullish on New York and NYC itself. Sure it suffered due to COVID, but you want to buy when there is distress. I think all the folks who moved away are already getting bored and already coming back. Plus, the vaccine is getting rolled out which will curb the spread tremendously. Now is the time to buy.
Cap rates came all the way down to 3% (or below!) during the "boom" times but COVID has loosened everything up and now 5% can be had in Manhattan, 6%-7% in Brooklyn and even 8% in the Bronx. The kicker here is that rates are much lower than the 7%. Today nationwide rates hit a low of 2.7% - so there has really never been a better time "spread" wise.
Long term, I think NYC will come back as it always has time and time again. I am also a great believer in investing when there is distress and deploying capital when you can.
If you are looking for yield in the short run, Manhattan may not be for you. However, it is certainly the most attractive it has been in years from a cash flow perspective. If you are seeking out asset accumulation and equity appreciation over the long term then there are certainly fortunes to be made. And there is still plenty of cash flow opportunities in the outer boroughs if you buy right!
Avoid low income housing.....do not deal with the City housing programs!! BEWARE!!
I am pretty much exclusively interested in the small multifamily properties you described. To be direct, I don't think the FHA program works in such a competitive environment as NYC. Sellers who are represented by brokers want to see a committed buyer who is putting down a solid down payment and can close. Additionally, savvy brokers know those programs tend to take time to close and are not guaranteed to be approved; thus they may steer the seller away from offers with an FHA approval contingency. If you are committed to the FHA path, you may have to end up offering asking price or above in order to get your offer taken seriously. Additionally, FHA programs have a maximum purchase price which is usually below the market prices of most 3-4 family properties.
If you find that you still want to/are able to move forward I HIGHLY recommend you purchase a property contingent upon it being vacant. You will have to do some work to fix up the units and there will be a cost to holding the property and fixing it up but you will be able to be selective about your tenants. Here is the most valuable tip I can offer, and it is genuinely priceless:
Rent to tenants that have their parents are co-signers. You will have multiple people responsible for the rent and care of the apartment.
Hey Gianni! I think it's quite normal to have buying your first property feel very daunting. You have to be able to embrace that fear, think logically and be risk averse. There are a number of ways you can mitigate risk when first starting off. I recently wrote a post about House Hacking in an expensive market, I think there's a lot of value in it! I'll be shooting you a dm.