Buying Multifamily in Prospect Heights

bked · July 2009

I was thinking about purchasing a multifamily building in Prospect Heights, but I'm a little worried about the declining rents. Can anyone tell me if there has been a large drop in rents?

I was considering leaving the current tenants in place, one is paying 1100 for a studio (~400 sq ft.) and the other is paying 1500 for a 1 BR (725 sq ft.) because I'm not sure if I could replace them for the same rents.

If anyone in the area can give me some guidance on whether I should keep the tenants or knows the possibility of replacing them, it would be greatly appreciated.

MOD · July 2009

Interesting topic.

I say use Rent-O-Meter (google it)
it gives you a good idea on the market rates. From what you've stated, I can certainly see some one renting at those prices. Of course the main thing is amenities and if the place is a dump vs. remodeled. Where exactly in PH, because some areas are better than others.

In general rents are stable. As I've seen from my friends who have been looking. If this is in proper PH then there is still a high demand. Just my 2 cents, but what do I know :-)

bked · July 2009

What exactly is proper PH? It's by Washington, near the Brooklyn Museum. As far as I can tell it's real PH and not Crown Heights, but I may be wrong.

lo kee · July 2009

"by Washington" is a matter of much controversy. Is it east or west of washington?

West of Washngton is generally considered "proper" PH, by many (que endless thread).

popstar0 · July 2009

why would you kick those people out. they live there. thats the problem with greed man. calculating isnt it.

bked · July 2009

It's literally a quarter block east of Washington, so I guess not technically proper PH.

My big concern is the studio, which seems really small. Is that normal for the area?

lo kee · July 2009

Quarter block east of Washington is in the hazy greya area. I think there is no disctinction others don't.

The mere fact that the difference of opinion exists will likely, however, affect the value over time.

As for the small studio, I can't help you.

I live in a small-ish studio on the Parkway right by there and pay $1350. I think I am paying too much, though, and am looking to move to get a better deal.

armchair_warrior · July 2009

i shaved the rents off for my current tenants that was near the market rates just so i don't have to try to get new tenants.

landlord · July 2009

You need to make sure that you will be able to cover all the expenses in the worst case scenario. The worst case scenario is that both tenants leave at the same time and you cant get someone in right away. You will need at least 3 months worth of savings to cover all such expenses. Also you would want to be able to make payements on the building indefinitly with only 1 apartment occupied.

The rents you are currently getting for those 2 apartments is reasonable for the area. you should keep the current tenants. I am sure you will be able to rent the apartments for the same price if they were to leave.

Owning a building is not easy work. You don't just sit at home and collect rent checks in the mail. Its time consuming and expensive to maintain. I hope you are planning to get a possitive cash flow so you will have some profit for all the work that you do. buying a building who's rent just barely covers all the expenses is a really really bad move.

smokin joe · July 2009

if BK is also planning to live there, my assumption from the o.p., that changes the equation. it's not just about making money. but landlord is right about its being time-consuming and expensive. especially if it's an old building there's always something that needs fixing. just bear that in mind when you're working out your budget. and make sure big-ticket items -- like the roof, for instance -- are in good shape.

and, fwiw, the building is in crown heights.

dmiami · July 2009

I agree with everything in the last 2 posts.... Changing tenants is tricky, losing one month of rental income usually negates any potential increase in income from a rental price increase. Also, if you have tenants that are happy in their apts you should keep them, new tenants may not as be as happy leading to a ton of "dear landlord" letters asking to fix x y and z.

Not to mention the idea of "removing" a tenant... not sure how that would work but I can't imagine it's fun for anyone. Bad mojo.

bked · July 2009

I am not set on removing the tenants, but I would be living there so I would be losing out on rental income on one of the units. Without the rent from that unit, I would be responsible for basically the expenses, the mortgage, insurance, and taxes would be covered by the rent.

I was worried because the studio is so small that it might be difficult to rent in the event one of the current tenants left.

jay b · July 2009

I just moved out of a studio on Classon b/w Sterling and St. John's. I was paying $1100 and the landlords are looking for the same amount from the new tenant. Before I moved, about 10 different people came to see the apartment and none of them was willing to pay that price for a studio in that area (and this studio is not small). If you have someone in an $1100 small studio, I'd say that's a very good thing since there's another studio right around the corner that no one wants at that price.

bked · July 2009

Subject: Verifying Expenses when Buying?

Does anyone have methods for verifying the expenses?

I went to an OH this weekend and was given a list of expenses, however, the first thing i checked was the re taxes and they are almost double then what was stated on the flyer.

I'm now highly skeptical about what is listed for heat, hot water, and insurance.

Does anyone know if I can get bills to verify? Is this an accepted method for verifying the expenses of a mf house?

dmiami · July 2009

The current owner should be able to provide you with documentation of expenses from the last year. (if you are in serious negotiation).

Couple of notes on expenses... Heat and hot water can change significantly from year to year based on the price of oil/gas. Water is generally less than $500 for the year. Electric, ideally, is separated by unit. Most oil heat delivery services come with free boiler maintenance.

Any utilities you provide can be deducted during tax time. Some landlords will actually bundle internet/cable/phone etc into the rent to capitalize on the write off. Not too common in the city however.

Keep an emergency fund for that surprise leaky roof or new boiler…

wirenut · July 2009

Don't believe anything they tell you. Ask for proof: ORIGINAL bank deposit receipts and invoices

I went through this several times before I bought my building years ago. They lie, They lie, They lie, and then lie about their lying.

They LOW-ball the expenses, and HIGH-ball the income

Even after my due dilligence, my expenses the first full year after buying were 10-15% higher than what was originally proven.

My advice on the tenants: if the tenants always pay on time, keep them, regardless of the rent

melivingnyc · July 2009

We're currently struggling with something similar. We're advising one of our clients whether they should fix up the place or sell it as is. He has not yet rented out the space because he hasn't committed to fixing up the house. We're running some numbers on to advise him but this discussion is great for us to see what everyone is thinking.

http://www.melivingnyc.com/blog/2009/07/17/sell-as-is-or-fix-it-up/

Buying Multifamily in Prospect Heights

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