2 multi family houses over 100 years old

NY · Member since 2012 · 13 posts · 1 vote

I am looking at 2 properties on that are side by side. They are both 4 unit multi families that are 100 years old. They appear to be well maintained and are fully rented. Together they bring in about $119,000 a year in rents, but expenses are really high. Property taxes for both together are $33,000 yearly. That, along with other expenses like insurance, landscaping (the properties are on 3/4 acre each), maintenance, and property management, and of course the huge down payment and mortgage expenses, have me hesitating.

What would maintenance costs look like in such old properties? What should I be looking for? What about electric and plumbing, is there any way to know whats behind the walls?

I would like to have some cash flow, and run in the black. What would be a good price for these houses? Thanks for any insights.

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Barrington Gallahad
Oshkosh, WI · Member since 2012 · 10 posts · 2 votes
13y
A building over 100 years old could have all sorts of problems that are underneath the walls or in places hard to see that can be impossible to call to your attention without more information such as being present at the property to see it first hand. An inspector could give you a better answer. The things i would be looking for are the following condition of roof and foundation. The next most important issues might be presence of termites in wood through out structure. The lessor but still important issues beyond this could be are the utilities separated, is the heating and ac up to date,are there plumbing repairs or electrical repairs that need to be done. Is there deferred maintenance in the areas of windows,doors,walls,floors,insulation. Outside older building often have challenges with rot near fascia,soffits,window sills, Large trees encroaching on building. Lots to think about. 33k seems ridiculously high for property taxes unless your 4unit buildings are worth 4+ million and sit in the Hamptons on the beach? I have a tendency to run from deals where taxes dominate the expenses like that. from face value no wonder the sellers are wanting out. Taxes 33k on a 120k in rents? Something is crazy in an area that charges that much for property taxes. This is why people in NYC are leaving cold weather and high property taxes.
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Seth WilliamsPro Member
Specialist · Grand Rapids, MI · Member since 2012 · 583 posts · 353 votes
13y
Laura, I just bought a 100+ year old property earlier this year, so I understand your hesitancy. The only way I ever feel comfortable with these kinds of deals is to get a home inspection - I think this will answer about 90% of your questions. My property cash flows like a beast, it's awesome. But this only happened because I bought at the right price.

If you're looking for more info on how to do a thorough cash flow analysis of your property in question, let me know. I've got some helpful tools you could use for this.
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Laura B.
OP
NY · Member since 2012 · 13 posts · 1 vote
13y
I just did a cash flow analysis and came up with a monthly cash flow of $1444.09, so $17,329.08 a year.

Here are the numbers :
Cost $1,000,000 (asking price is (1.3 mil)
Down pmt $250,000
loan 30yrs @ 5.5%
Ins rate .6%
Maint $500 month - is that way too little considering the age of the property?

So PITI $7508.41
Maint $500
rent after vac $9452.50

I don't know, seems like I'll be playing with a lot of money but not making much, if anything. I will have to deal with the insane taxes for any property anywhere near where I live, a shack on a 1/4 acre will pay around $10,000 yearly taxes. Two hours in any direction will still have the same insane taxes. Should I just give up on the idea of real estate investing?
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Barrington Gallahad
Oshkosh, WI · Member since 2012 · 10 posts · 2 votes
13y
This is a big reason people leave NY. I have a friend in New York and she complains of this constantly but seems to put up with it. I could not deal with it myself and left WI for the Ohio river valley and further more I did a large investment in Texas which is lower for taxes then other areas. If you have 250k I would not even consider using on a deal with such high property taxes and low cashflow. You could buy a nice 20 unit building in a lower tax area and probably owe very little money. Your risk would be lower and cashflow over double then NY.
Some people are tied to a geographic area and wont leave and that can be a problem. Having double the cash flow in property located elsewhere could buy a lot of hand off management though;) imagine a trip to a warmer climate once or twice a year to visit your property during Jan when there is 6 inches of snow on the ground. What a good reason to get out of town. 250k should bring you at least 3k a month back to your pocket after expenses. I know guys that bought small pizza joints that made 4k a month and they paid between 100k and 150k cash for there little restaurants. These guys dont even spend but a few hours a week going over spread sheets in there office onsite.
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Uwe S.
Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
13y
Agree with Barrington Gallahad take a look to towns max 2 hours from NY. There plenty of opportunitys there I guess.

-Uwe
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
13y
Hi Laura,

I do triple net and multifamily nationwide for clients as well as I invest myself.

In addition to the high taxes and old building doesn't many parts of New York have rent control and favors the tenant with landlord laws correct ??

If that's the case cash flow will not be realized as much as you will be making an appreciation play buying in the urban core areas.

If you have 250k I think you can land way better opportunities elsewhere.

First question: Do you mind partnering with other investors to land a larger property with more cash flow and upside?? If the answer is no then proceed to the next step.

2nd Question: Do you feel okay leveraging into a larger property??

Current multifamily lenders will go 75% LTV. At 250,000 down we are talking 1,000,000 sales price.

You have have the seller take back a second of 10 to 15% and most lenders will allow this.

So at 10% down you can now afford a 2,500,000 property or a 1,675,000 property putting 15% down. You can also blend the 2nd rate. For instance the bank rate on the first is 6% and then you get the second owner carry back at 4% blending the rate downward. The large loan at the higher rate will only average down some but every little bit helps.
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
13y
Laura taxes and landlord paid utilities are killers for cash flow. If this is a rent control area that makes it worse as you can't raise rents at a pace that helps offset increasing expense costs.

Tenants use more of everything when landlord pays for it (water, sewer, trash, etc.)

Being older building if the landlord pays utility would be worse as the old systems I am sure are inefficient.
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Laura B.
OP
NY · Member since 2012 · 13 posts · 1 vote
13y
Utilities are paid by tenants, and its not in a rent control area. Can't do anything about the taxes. I don't know that I want to leverage into 2,500,000, or get involved with other investors. I'm old already and would like to leave something of value to my kids. These houses are really nice, in a great area of town with amazing views, and they are about 2 blocks from where I live. I was considering living in one of the apts and renting my SFH for more income.

I guess I'm asking if its a really bad risky investment that will be a money pit, and my biggest concern with that is the age of the houses. Inspectors don't look behind the walls at electric or plumbing and you never know what you might find. And would I be better off spliting up that money and investing in multiple less expensive houses? Also, what would be a reasonable price for this property?
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Uwe S.
Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
13y
Is $250k in cash no value for your kids?
If you buy a house with financing your kids must be pay always the rates than, so i see no good value for your kids.
If you want to invest your money in real estate so buy 2 or 3 SFH's in the suburbs without financing so you have cash flow and value.

-Uwe
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Laura B.
OP
NY · Member since 2012 · 13 posts · 1 vote
13y
Where I live, that shack with the $10,000 proprerty tax costs $250,000 and would rent for about $1800 monthly.

I assume that this property would not be a good investment, as no one
has addressed what a reasonable price for this property might be or how much to factor in monthly for maintenence considering the age of the property.
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Uwe S.
Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
13y
So you can get $9,5k montly gross?
In this case my calculation with 60% expenses but I guess with these taxes of about 30% of your rent each year its not an investment.

Calculation :
$114k gross income - 60% expenses = $45,6k NOI = price for me at $456k max but it will be much more (expenses) I think.
Do you have any P&L from the seller? For maintanance you should calculate with min $75 per door better $100.

Allentown PA is only 1 hour from you it has lower taxes and better cashflow (example).

-Uwe
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Marci Stein
Rental Property Investor · New York, NY · Member since 2011 · 956 posts · 510 votes
13y
Laura -I know Monroe NY, and it may be better to invest 40 min away in Sullivan county, or even Ulster...you can buy 4 or 5 houses in these areas for the same money, have low taxes, no debt, and no headache .
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