Question: My landlord is turning the apartments in my building into condos. My rent-stabilized, one-bedroom apartment is on the top floor (fourth) and comes with roof rights. He’s going to ask $800,000 for it. I need to know how much money I should ask for in a buyout. Help me please!
— Seeing dollar signs in Brooklyn
Dear Seeing:
Nothing. Don’t ask for a thing.
If the landlord is offering buyouts, the landlord should be coming to you with a figure. Then play very hard to get. Very.
Even in a walkup, a top floor with roof rights is a plum apartment, and your building isn’t so tall that four floors up is onerous. You’re a rent-stabilized tenant; no one can make you move. And (wink, wink) you are perfectly happy where you are and have no intention of moving. Ever.
It’s Negotiations 101: You need to find out how much your apartment is worth to him. That’s because when you name a figure, you’re setting a ceiling on the transaction. When the landlord comes to you with a figure, that’s the floor.
Do some sleuthing. Find out what he’s asking for other apartments and what he’s offered other renters. And figure out what it will cost you to rent a comparable apartment in the same neighborhood. (Comparable is important. Not just any one-bedroom. Remember those roof rights.)
Put all of those numbers together. What he’s asking for other one-bedrooms tells you the premium that he places on the roof, so if the apartment directly below you is going for $600,000, then your roof is worth $200,000 — one-third more. If your friend on the second floor said she wanted $150,000, and the landlord agreed on the spot, then you know should be thinking much higher. Finally, if a new place costs you $2,500 a month, and you’re paying $1,000, then you will need enough money to generate the additional $1,500 income.
With all of that in mind, what’s my best guess? I’d pencil in a buyout figure of $430,000 but be willing to settle for anything over $350,000.
Here’s how I came up with that: He was clearly prepared to pay your friend more, so double it. Next: The roof is worth one-third more to him, so there’s another $100,000. You will need $430,000 in a tax-free municipal bond fund to generate $1,500 a month of new income.
Repeat after me: “I really love this place. I can’t imagine ever moving.”
Figure the landlord is going to spend $50,000 to $75,000 renovating the place before putting it on the market, but even with your buyout his profit margin is still quite generous, $300,000 or more.
Now, here’s the kicker. If you can afford the higher monthly payments, make your deal and then counter with an offer to buy the place, using the landlord’s buyout concession as a down payment. Live in the place for a year, or as long as you wish, then sell it for $800,000, or whatever the market says it’s worth by then.
David Crook is a veteran journalist and author of The Complete Wall Street Journal Real-Estate Investing and Homeowner’s Guidebooks. Do you have a question about anything real estate-related in NYC? Write him at askus@streeteasy.com. For verification purposes, please include your name and a phone number; neither will be published. Note: Nothing in this column should be considered professional legal advice. If you have a legal issue, consult an attorney.
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