Section 8/Creation of a Separate Unit - First Rental Property Investment

New York, New York
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Section 8/Creation of a Separate Unit - First Rental Property Investment

James Bavaro
Member since 2022 · 19 posts · 6 votes

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*This link comes directly from our calculators, based on information input by the member who posted.

Hey Everyone,

Looking to get into my first rental property. This is a legal two family property that I plan on purchasing with a conventional loan. The upstairs unit is a 1 bedroom and 1 bathroom apartment. The first floor unit is a 2 bedroom 1 bathroom unit with a completely finished basement with 3 more bedrooms and one bathroom. Based off rental comps in the area, it seems as if it would cash flow very nicely. I also am considering seeking section 8 renters to fill the home. 

I am seeking advice on how and when to separate the first floor unit with the finished basement into two separate units. There is a basement door with a lock that separates the upstairs area from the basement. Also, there is a side entrance/door which leads to the basement floor. I understand there are certain rules and regulations that a unit must meet before being able to list it as a separate unit. However, I am currently uneducated about the process and the best way to accomplish task.

Also, if you have any advice regarding section 8 renters/properties it would be much appreciated!

The report is listed above. Let me know what you think!

Best,

James

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  • Abel CurielBusiness Member
    Real Estate Agent · Queens, NY · Member since 2016 · 2k+ posts · 1k+ votes
    2y
    Quote from @James Bavaro:

    View report

    *This link comes directly from our calculators, based on information input by the member who posted.

    Hey Everyone,

    Looking to get into my first rental property. This is a legal two family property that I plan on purchasing with a conventional loan. The upstairs unit is a 1 bedroom and 1 bathroom apartment. The first floor unit is a 2 bedroom 1 bathroom unit with a completely finished basement with 3 more bedrooms and one bathroom. Based off rental comps in the area, it seems as if it would cash flow very nicely. I also am considering seeking section 8 renters to fill the home. 

    I am seeking advice on how and when to separate the first floor unit with the finished basement into two separate units. There is a basement door with a lock that separates the upstairs area from the basement. Also, there is a side entrance/door which leads to the basement floor. I understand there are certain rules and regulations that a unit must meet before being able to list it as a separate unit. However, I am currently uneducated about the process and the best way to accomplish task.

    Also, if you have any advice regarding section 8 renters/properties it would be much appreciated!

    The report is listed above. Let me know what you think!

    Best,

    James

    Hello James,

    Looks like a pretty good opportunity - 6 months on market... also has R5 zoning which could allow you to add more sq. ft. to the property in comparison to most neighboring properties. The zoning for this property could allow you to add an additional 1,500 sq.ft. of living space. You'd need to have your team perform their due diligence to confirm this is possible.

    To determine, how and when separate units (and if its possible on this property) I'd recommend speaking with and investor-friendly architect or engineer. Some are even willing to look into this for you at no cost. 

    Quick note on the analysis you linked above- there were $0 in expenses (aside from vacancy) included in the calculation. I'd revisit this to account for utilities, cap ex, maintenance, etc.

    Regarding Section 8 - you should certainly use the Search feature here on BP to read what others have experienced with Section 8.

    Personally, I am a fan of the program. Once the property passes inspection, you can have your new tenant onboarded within a week.
    From my clients' experience- as long as we screen tenants effectively, interview to ask the right questions, set tenant expectations clearly & early, you can land a great tenant for your unit. The benefit with Section 8 is having gov't guaranteed income each month.
    There are success stories and horror stories with any kind of tenant, effective tenant screening will help identify a potential 'bad situation' as early as possible.

    That said, househacking a multifamily like THIS (with ADU & value-add potential) is a great way to get started in NY RE investing.

    All the best to you on your journey!

    Abel

    REbuild Team - eXp Realty5239 Reviews
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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    2y

    I see incomplete expense estimates.  There is no maintenance/cap ex estimates.  The vacancy is very low for small unit count properties. 

    The property has a 1% rent ratio which prior to the rates hike was the threshold for cash flow. With the increased rates, 1% has negative cash flow at high LTV market rate loans.

    The 50% rule shows this to have negative $556 cash flow.  I highly suspect this is more accurate than any positive cash flow.  Are you prepared for -$500/month cash flow?  Do you have the reserves for this large negative cash flow?  What is the purpose of the purchase?  Are you hoping the basement conversion is a good value add that justifies the negative cash flow?  Are you expecting the appreciation to provide returns? 

    If you are buying this for the cash flow as the rent is depicted in the calculator, do not!  It will not work out well.  

    Good luck

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