All Forum Posts by: Freeman Schultz

What type of property? 

In advance: know what credit score, income, and equity are needed before you purchase to be able to achieve this every five years.

Quote from @Freeman Schultz:

It is not just NYC, but also Albany that needs to figure out how to fix the housing market.

I'm Upstate.  I was talking about the entire state of NY.  In the grievous legislative controls that were adopted in 2019, the entire state is subject to the overregulation that NYC has suffered from for decades.  With regards to housing, there are very few controls that are just specific to NYC these days.  There is statewide rent control now; each municipality need only opt in - as several have over the last few years.

I would always prefer to leave a unit vacant (even for an extended period of time) rather than place a suboptimal tenant, especially here in NY.

In the Socialist Republic of New York, there are very few means left for landlords to use with prospects that are less than perfect with regards to screening criteria.  Since one cannot deny an application based on previous evictions (you're reading that right), nor collect any additional security beyond one month or any advance on rent (such as last month), it's difficult to mitigate that business risk.  Add in NY's historically lengthy and expensive eviction process, and the "just cause eviction" statute that appears imminent, and you have a recipe for being financially disemboweled by placing a bad tenant.

(Side note: I will debunk your theory about refusing to lower the rent.  I've found that I get WORSE qualified prospects when I reduce the rent on a vacant unit, and not a single "highly qualified bargain hunter.")

Sometimes, there is a point where you've been through the pool of current apartment seekers and they are all woefully inadequate, so it's time to take the ads down for a few weeks and let the duds work their way through the apartment hunting process with someone with lower standards / bigger appetite for risk.

You can thank the NYS legislators for passing such draconion, unilateral laws that actually hurt the very constituents they claim to be protecting.  So, warehousing it is, sometimes.  It certainly cuts my top line revenue.  But it certainly beats the alternative.

Based on your experience, I am obviously not alone in coming to this conclusion for my rental business practices.

Quote from @Frank Chin:

Quote from @Freeman Schultz:

In New York City a common practice among some landlords is what referred to as "warehousing" where they take vacant apartments off the market because it is less profitable to rent them out.

Another reason why apartments stay vacant is that landlords refuse to lower the rent.

How do landlords make money with vacant apartments? Rule of thumb is that apartment needs to cash flow in order to make a profit.

Are there any benefits for keeping an apartment vacant?

The only thing that comes to mind is sales. Some buyers want to buy an investment property that is vacant.

Freeman, when I was searching for properties to purchase, I actually ran across rentals that make no sense for the landlords to rent out if it's under rent control, and later rent stabilization. See Vacant Apartment

The best example I ran across was some 30 years back when 2BR apartments rent for $600/month, currently $2,500/month, a 2BR apartment was rented to an old lady, then 92 years old and there for over 30 years, for $90/month. I asked why so low, and I was advised that all controlled apartment rent increases require board approval, every other year or so, and it runs about 3%, with lots of paperwork. So why spend all that time and effort for at most $3.00/month so they never bothered. And tenants cannot be evicted. Yes, water and heat included in rent ran more than the rent. The owner had the property for over 10 years, figure the tenant will die soon, or move to a nursing home, but had no luck. The main selling point is the 92-year-old will die soon, so they hope, and the unit would go under rent stabilization. It's a mixed-use property, but the commercial rents was not the best due to it's location.

While what I saw was a extreme example, owners found it more cost effective to leave apartments vacant, as the article points out if the rent cannot cover expenses. A friend of mine who bought a 32 unit building chose to only rent to illegal immigrants, who doesn't understand their rights, and tells them he would report them to immigration if they gave him any trouble. Investors putting money into these properties hope for changes to rent stabilization laws so it will be profitable.

 Wow, interesting story. If this doesn't speak to how broken the housing market is, I don't know what is. Maybe NYC shoudl focus more on these landlords who are warehousing available housing, look carefully at their rent control rules and focus less on short term rentals if they really want to fix the affordable housing crisis.

Quote from @Freeman Schultz:

In New York City a common practice among some landlords is what referred to as "warehousing" where they take vacant apartments off the market because it is less profitable to rent them out.

Another reason why apartments stay vacant is that landlords refuse to lower the rent.

How do landlords make money with vacant apartments? Rule of thumb is that apartment needs to cash flow in order to make a profit.

Are there any benefits for keeping an apartment vacant?

The only thing that comes to mind is sales. Some buyers want to buy an investment property that is vacant.

Freeman, when I was searching for properties to purchase, I actually ran across rentals that make no sense for the landlords to rent out if it's under rent control, and later rent stabilization. See Vacant Apartment

The best example I ran across was some 30 years back when 2BR apartments rent for $600/month, currently $2,500/month, a 2BR apartment was rented to an old lady, then 92 years old and there for over 30 years, for $90/month. I asked why so low, and I was advised that all controlled apartment rent increases require board approval, every other year or so, and it runs about 3%, with lots of paperwork. So why spend all that time and effort for at most $3.00/month so they never bothered. And tenants cannot be evicted. Yes, water and heat included in rent ran more than the rent. The owner had the property for over 10 years, figure the tenant will die soon, or move to a nursing home, but had no luck. The main selling point is the 92-year-old will die soon, so they hope, and the unit would go under rent stabilization. It's a mixed-use property, but the commercial rents was not the best due to it's location.

While what I saw was a extreme example, owners found it more cost effective to leave apartments vacant, as the article points out if the rent cannot cover expenses. A friend of mine who bought a 32 unit building chose to only rent to illegal immigrants, who doesn't understand their rights, and tells them he would report them to immigration if they gave him any trouble. Investors putting money into these properties hope for changes to rent stabilization laws so it will be profitable.

You can make money in different ways. Cashflow, appreciation and depreciation. Appreciation often will exceed cash flow. Some people, perhaps foreigner buyers, will buy condos and just let them sit.

@Freeman Schultz

• Process of purchasing a property
• Preliminarily review a deal
• Submit an LOI (letter of intent)
• Negotiate the price and terms with the seller
• Start reaching out to lenders
• (If you are raising money and this is the first time doing so – start putting the bug in your potential investor’s ear now)
• Finalize the LOI with the seller and have it signed
• Send executed LOI to your attorney to start drafting the PSA (purchase and sale agreement)
• If you are doing a syndication; prepare the offering memorandum and send it to potential investors
• Reach out to your property manager and inform them of the acquisition
• Start preparing for inspections and due diligence – reach out to inspectors
• If you are doing a syndication; reach out to your SEC attorney
• Start your due diligence over the next 2-4 weeks
• Reviewing; leases, utility bills, bank statements, financials, etc. – review everything
• Perform on-site inspections – walk every unit – w/ inspectors and property manager
• Prepare the loan package for your lender
• If you are doing a syndication; reach out to investors to start confirming equity commitments
• Finalize the loan documentation for your lender
• If you are doing a syndication; start taking backup commitments in case investors pull out
• Setup your property-specific LLC
• Setup property specific bank account
• If you are doing a syndication; send the final PPM to your investors – have them execute and wire funds to escrow – preferably 1-2 weeks before closing
• Close