Multi Family
I am in the process of looking at a deal on a multifamily in NYC outside Manhattan. It is a three family home my question is should I bypass this home if the tenants do not pay their own seprate utilities.
The home is worth about 560,000 in the nieghborhood it is in, but he is willing to give it to me for 530,000 for an all cash deal. It has a 3 bedroom over a three bedroom over a one bedromm each having a full bathroom. And it has a basement with two rooms and a bathroom that you could rent out and also they made a garage into a studio apartment. Before he put it on the market he was making 5,050 per month in rent roll. 1,500 for the third floor 3 bedroom, 1, 500 for the second floor three bedroom with bathroom, and 1, 250 for one bedroom with bathroom, and 800.00 for the studio efficiency with bathroom (used to be garage.)
The garage studio was made illegally without permits. That concerns me if I later have to turn it back into a garage. Also what concerns me that the tenants do not pay heat or water they just pay for electricity in their apartments and the gas for stove. Every other utility expense would be paid by me from the rent proceeds.
I did the numbers its seems like a good deal based on what the rent rolls were but as we speak the garage studio is vacant and the first floor is vacant as well. The only rents coming in is the 1,500.00 for the third and second floor. The real estate guy says he can get tenants no problem. and that I could raise rents eventually on the people paying 1,500.00 and raise it eventually to 1,700.00. However, taking into consideration I have to pay the water and heat for the tenants it doesnt seem like a good deal.
The area I am looking at is called Clason Point in the Bronx, NY. I thought it was a good deal because it was close to the one percent rule in terms of rent which is hard to get in NYC. Also, the average cap rate in NYC in this area is 5.0 if the rent comes in at 5,050 then it would be at 7 percent cap rate. The GRM is 8 which is good if the property does go back to making 5,050 a month and I can get it at the price I want at 523,000. However, these are assumptions. Bottom line the fact the apartments do not have separate utilities and the garage studio is illegal has me thinking of not even giving a counter offer. Need some advice from people who have invested in the NYC area, on if I should overlook all these red flags especially about the tenants not paying all of their own utilities within their apartment.