I am an investor in NYC looking to get end-to-end consultation and advice on how NYC's department of housing rent stabilization works on multi-fam units greater than 6. I want to invest in properties in the 5 boroughs but honoring the stabilization of rents for these units means that there's no cash-on-cash return, at least in the first few year--looking how I can get around that.
Unfortunately there is no “way around” rent stabilization. If a property has rent stabilized units you are legally required to keep them rent stabilized and to continue to offer renewals upon expiration. The only way to de-stabilize these units and convert them to “Free Market” units is by one of the following scenarios:
1. The rent stabilized tenant willfully moves out of the apartment at which point you would be required to substantially improve the apartment condition through renovations. There is a legal rent threshold of $2,700 that must be met to destabilize the apartments. This is calculated by taking the in place legal rent and applying 1/40th of the total cost of the renovation to the legal rent. For example if the in place legal rent is $2,600, you would have to put, at minimum, $4,000 worth of work into the apartment, of which $100 could be applied to the legal rent bringing you to the $2,700 threshold. At that point you have “de-stabilized” the unit and can charge whatever rent the market will bear.
2. Eviction if the tenant has violated the lease. Once the tenant has been evicted you can then follow the procedure mentioned in option #1. Note that evicting a Rent Stabilized Tenant in NYC is VERY difficult.
3. Buyouts. A lot of times landlords will offer tenants a payout if they move out of the apartment at which point the renovation procedure mentioned in option #1 must be followed once again. It is not uncommon to pay tenants upwards of $100k to move out of their apartment.
I am not a lawyer, and this is not legal advice. I would suggest doing a TON of research on the complexities of NYC rent stabilization. It’s a very difficult field to navigate and not for the faint of heart. The courts and legal system have begun taking destabilization very seriously, and many landlords have been put behind bars. Simply approaching a tenant and offering them a $100k check to love out more than once is technically considered harassment and can land you in severe legal trouble.
I would recommend Rosenberg & Estis LLP for L&T representation. I will tell you that good advice does not come cheap, but it’s worth paying for if you have a good opportunity on your hands.
Best of luck with your investing.
Louise Barrack of Rosenberg and Estis is a great attorney to use for this resource. You can use her to advise you on any deal you are buying, look at DHCR reports, and tell you what can and cannot be fixed, what your risks are, etc.
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