petty but....

do they let you know which tenent calls

Jazzman, maybe you should make sure your tenants are aware of rules/law, and let them know you make every attempt to follow those rules. Perhaps some just aren't adequately informed, or are just used to having to raise hell to get basic services from previous landlords. Sure, some people will complain no matter what/have nothing better to do, etc., but maybe its worth trying to engage/inform them...

Jazzman, this is a positive, and take it as such. Send a letter to your tenant (all tenants for that matter), explain to them that you are collecting Carbon Credits for each day the temperature falls below 60 degrees yet you don't turn on the heat. Remind tenants that the law requires heat at 55 degrees and not 56. But thank them for keeping you aware of the temperature. Explain that we are all doing our part to reduce carbon emissions and help the planet. And once you accumulate enough credits you intend to offer them to a local popular charity for resale in the carbon markets.

Finally, if they challenge you on this line of bullshit, then they clearly should be in market rate apts and not be subsidized by you and me.

Jazzman, I need an apartment and I promise to never complain about heat, or anything else..today's my birthday and if you have an apartment in manhattan that's rent stablized i'll be the best tenant...this would be the best birthday present i'll ever receive.

nina15 -"do they let you know which tenent calls" - yes - and I know as well. Tenants can call with a general no heat complaint but generally they have to give their apartment number so the city inspector knows where to check the temperature.

Abe - agreed - our standard procedure when someone calls about a heat complaint is to explain the heating rules - then we send the super to their unit. He is required by me to carry a thermometer on him during heating season. He will check the temp in the apartment and if above 70 degrees (our internal cutoff point) he will remind them of the law and that we are above the legal limits. If below 70 degrees then the super is to check the windows to ensure they're completely shut and sealed, check radiator valves etc etc. Further, he then checks a couple of apartments hearby and if all of them are below 70 degrees then we'll adjust our heat computers settings. (last week we had a tenant complain about heat - she was sitting in her kitchen with her stove on full blast -her bedroom windows were WIDE OPEN - when the super asked her what she was doing she said that if we didn't give her more heat the city was going to get her - the temps in her neighbors apartments averaged 74 degrees). Also last week in a new building I just bought he discovered the boiler wasn't going to make it through the winter so we had to replace it. Fortunately we had warm weather. We mailed a letter to each tenant and put signs around the building giving notice that for two days there would be no heat and no hot water while we replaced the boiler. 4 tenants called the city and we got 4 "no hot water" violations. We didn't get no heat fines because the outdoor temp was above 55 degrees. What did the tenants expect from us. I've owned the building 2 months. I'm giving them a new boiler that will last decades. They will have constant heat all winter for the first time in 10 years.

In the city, as a landlord, you just don't mess with heat - fines are $500 per day. - personally I think the heating rules are asinine. My parents never kept our home above 66 when I grew up. Plus I've got to heat an entire building all day even though 3/4 ths of the apartments are empty all day. It's such a waste of oil and money. If landlords didn't have to spend so much on oil then the rent increases each year wouldn't have to be so large.

If you don't like your job, maybe you should find a different one.

I'm with Steve on this.

Don't complain to us if you didn't do your diligence on the economics and the realities. If you didn't talk to a dozen other landlords with small buildings with rent stabilized tenants before making a purchase, then you were a fool.

Its pretty weird when you think about it that you dont need heat from 55-65, but below 55 you need to heat to 68. Why isnt the rule that you need to ensure 65 as the indoor temp. The rule is the rule...but at 56 external temp, is the indoor temp 56, higher or lower?

Patient - "Finally, if they challenge you on this line of bullshit, then they clearly should be in market rate apts and not be subsidized by you and me."

I'd say about 1/3 of my tenants have no business being in a subsidized unit -in a normal world they would buy a place in the neighborhood and in 30 years they would have zero mortgage payments. Instead when they are 70 years old they'll have a rent that has gone up a little each year for the last 50 years and when they are 90 years old they'll have a rent that's gone up a little for 70 years in a row - it's dumb financial management by them (and by all of us). If you're going to live in an apartment for your entire life in NYC why not buy the second you can afford it.

(FYI-my buildings are uptown and in the Bronx.)

so...you bought this building...why?

Obviously everyone who had the down payment in the 1990s should have bought and everyone who bought after 2003 was caught up in the hype and/or was counting on a greater fool or easy money forever.

Jazzman: The way I see it, being a landlord is much like any other job, or owning any other business. There are rewards and frustrations. There are good customers who appreciate the services you provide, and there are entitled jerks who will never be satisfied. There are absurd workplace rules that create structural inefficiencies. None of these features are unique to real estate, but the high stakes and extra emotional baggage do lead to extreme behavior on the part of providers and consumers of shelter.

Right, this is definitely 'what you signed up for'. I mean if you've ever heard anyone say - I don't want to be a landlord - you have it right there. I didn't buy a small apartment in 1999 because I was heading to business school...and 'I didnt want to be a landlord'...that and because vacancy could put me out on a limb at that point in time.

Rhino86 - when it's 55 outside it's always warmer inside apartments. When people cook, use hot water, their own body heat, the heat from light bulbs etc really make a difference. It's unusual for someone's apartment temp to fall below 68 degrees when it's 55 outside (unless they open their windows for a long time).

steve and robgaon -I knew this was brain damage (although the way RS is run today is different from when I started). I'm buying more properties now so clearly I understand what I'm getting into with these properties (until the rules change again). But do you really think it's reasonable that the city will even take a heat complaint from a tenant when it's 60 degrees outside? Do you think it's reasonable that a tenant can make more than say 5 unsubstantiated heat complaints in one heating season?

Because being an RS landlord is such brain damage it's drives the nice landlords out of the business. Leaving only dicks and people with the thickest of skins. Every now and then I ask myself "I'm I a dick or a guy with thick skin" - for now I can still honestly answer that I've got thick skin - I hope that doesn't change.

By the way, chances are that most of your tenants are reasonable, mature adults. Try to work with them to address issues of mutual concern - including the economical delivery of basic services like heat - in mutually-beneficial, environmentally responsible ways.

If most of your tenants (not just the lunatic fringe) regard you with a high degree of suspicion, maybe you should examine your own conduct to see whether you have given them reason to consider you an enemy, rather than as a valued partner and service provider.

so..RS has changed since you just bought a new building?

"But do you really think it's reasonable that the city will even take a heat complaint from a tenant when it's 60 degrees outside?"

There are a lot of things wrong with many laws in the United Stated. But these laws were on the books when you made your purchase. Reasonableness doesn't factor here. The only error is yours. Sorry to be blunt.

"Do you think it's reasonable that a tenant can make more than say 5 unsubstantiated heat complaints in one heating season?"

Landlord/tenant is war. This is known going in. Don't whine.

"Because being an RS landlord is such brain damage it's drives the nice landlords out of the business. Leaving only dicks and people with the thickest of skins. Every now and then I ask myself "I'm I a dick or a guy with thick skin" - for now I can still honestly answer that I've got thick skin - I hope that doesn't change."

We hope that doesn't change too. But there's a third one: Moron.
Don't whine to us you didn't understand how the system worked because you didn't do your homework. That only works if you are a moron.

cc "so...you bought this building...why?"

Being a landlord is a get rich slowly game. Assuming that NYC remains an economic force in the world then over time real estate prices will go up here. Eventually it will provide a lifestyle where I can work 3 or 4 days a week and still make decent money. Over time, as the rent rolls go up the buildings will become more valuable and that value will fund my retirement (if the income from the buildings won't).

But it's torture. Complete daily torture. 10 months to evict people arrested dealing drugs from their apartment (place was raided, drugs everywhere, kids everywhere, guns everywhere) --yet it took me 10 months to get them evicted etc etc etc. Someday I'll write a book.

"But do you really think it's reasonable that the city will even take a heat complaint from a tenant when it's 60 degrees outside?"

I lived in a co-op where there was a problem and no heat in my line towards the top floors - at 60 degrees outside, it was 60 degrees inside, and freezing. I also never got hot water. But the Board members were satisfied with their situation, and nothing was done for a year until ... you guessed it! ... I got on the Board and had the situation changed.

"Do you think it's reasonable that a tenant can make more than say 5 unsubstantiated heat complaints in one heating season?"

No complaint is "unsubstantiated" until it is proved such. My advice is that you do what I did to get my heat problem fixed: give each of your tenants a thermometer, and a simple, easy-to-read explanation of what the heat rules are, with a note saying, "If it's 68 degrees in here, it's not too cold."

So is it fair to say that you dont believe they are cold? I am not being sarcastic. I accept the premise that they may just like to be pains in the ass. All this said, in the transition months it gets cold sometimes in our apartment on those edgy days. When its on the edge, you should probably turn the boiler on at night, and shut it off during the day.

PS: May I ask the question that should be on everyones mind (hehe)...what was the cap rate?

cc -"so..RS has changed since you just bought a new building?"

It's changed since I bought my first buildings. For instance, just 4 or 5 years ago it took 4 months to evict a non-paying tenant. (a length of time that would be considered unheard of in most of the world). Now it takes 10 months to evict a non-paying tenant. No change in the law, just a change in judges. These additional 6 months the tenant gets cost me a couple grand in legal fees and obviously 6 more months of lost rent. If you have 2 evictions a year (very common in the Bronx) these two evictions will cost you an extra $15,000 per year that wasn't in the pro forma. Who cares that sinks now cost $10 less when your eviction expense just went up by $15,000 per year.

Steve, I think the issue isnt whether or not its 68 degrees....its whether or not its 55 degrees both outside and inside. I think we can understand whether the tenant is coming from in that case. However, I guess thats tough titty on the rules. As well, its tough titty for Jazzman when its 54 outside and 65 inside without heat because he should technically be running the boiler regardless.

Jazzman, maybe instead of focusing on the rules, you should monitor whether or not its it 65 in the apartments, and if its much less, you should run the boiler regardless of what temp it is outside.

you're missing the point. why did you recently buy yet another building if its so problematic?

steve "No complaint is "unsubstantiated" until it is proved such.

From my original post - "Last year (a different) tenant called 311 eighty-seven times to complain about no heat (that's nearly every working day of the week). The city is required to send an inspector each time there is a complaint - yet not once was the temperature ever below the 68 degrees."
To clarify. Not once did the city inspector ever read the temperature below 68 degrees. Thus this tenant had 87 unsubstantiated heat claims (assuming the city did their job which we know they didn't but to give the lead guys credit they are VERY diligent compared to other city employees) but let's assume they got in there at least 60 of the 87 times to check the heat so let's call it 60 unsubstantiated claims.
Reasonable?

why did you buy another building under these circumstances? so you could complain more?

There are systems that let you install thermometers in each apartment that are set to activate the boiler under a preprogrammed set of circumstances. They're not expensive. Instead of relying so much on complying with the letter of the law - because if you do you will be setting your boiler to go on and off constantly, whenever the temperature changes by 1 degree - just make sure it's 68 degrees inside the majority of apartments at one time.

The purpose of the rule is not to follow it precisely - what the temperature is will depend on where you put the thermometer, and it can vary several degrees just within feet - but rather to ensure that heat is provided under minimum set of conditions. Install the system, explain the situation to the tenants. These systems constantly record the temperature - they save you from potential fines.

Problem solved. Next!

cc "you're missing the point. why did you recently buy yet another building if its so problematic?"

It's not so problematic that it discourages me from buying. At this point I've got enough units that I don't have time to spend on other financial ventures. So I buy more units to increase my economies of scale and write letters to try and change the way the system "works."

I don't want the system to go away. I just want to take away the things that cause so much animosity between landlords and tenants. Even in market rate units all over the country the landlord tenant relationship can be strained - RS only magnifies it.

Do people really think it makes sense to require me to paint everyone's apartment every 3 years? My parents paint their walls every 15 years or so. Do any of you here who own paint your walls every 3 years? It's rules like this that I try and correct. They just add anger to an already tense situation. The landlord tenant relationship need not be so strained and the regulators/politicians just fail to see it. They are so paranoid that they create more problems than they solve.

Come on...Jazzy has a right to vent if somebody complained hundreds of times and not once did they substantiate a temp below 68. That said, people consider being a landlord a job for a reason.

That said Jazzy dont complain about pre-existing rules...You remind me of when my father in law complains about the property taxes of his summer house. He assumed a share of the cities bills when he bought the place.

steve - "They're not expensive." These things cost 10,000 to 15,000 each then 1,000 year to run. I know because every one of my buildings have them. I set the target temperature to 72 degrees. But still we constantly get heat complaints. You would think these computers would solve my problems but without question they don't.

stevejhx - as long as those thermometers are locked (pick proof) - so tenant can't fiddle with them.
Jazzman may be whining a little, but come on, he sounds as if he is trying to comply with the laws (and how many landlords in those neighborhoods blithely ignore them).
Love Rhino's post "you should monitor whether or not its it 65 in the apartments, and if its much less, you should run the boiler regardless of what temp it is outside." Spoken like a true renter (one, who, however is totally focussed on the cap rates for his own prospective real estate purchase, and one who, when he finally buys an apartment will be the one moaning about maintenance increases due partially to oil price increases to heat the apartments.

Spoken like a true renter? Spoken like a person who thinks a room temperature apartment is a reasonable expectation. I love the hard ons strangers get for me on this board. Dude, who the fuck are you? Falling out of the woodwork to take a completely unrelated pot shot at me. You are spoken like someone who's never been slapped in the mouth for being an obnoxious smart ass.

Jazzman, I think maybe you are string yourself up by being such a sticker for little rules. You might save money by running the boiler all winter regardless of whether it's 54 or 58 degrees outside. Let's face it, RS tenants' interests are at odds with their LL's. You are trying to cut too close to the bone. Sometimes there is a sweet spot in terms of overall costs that is not naturally at 100% efficiency. You might be better to aim for 70 degrees or more inside temp at all times, so you minimize your aggravation. The fines are set high so you are encouraged to avoid them.
Save money by negotiating a retainer agreement with your lawyer instead.

Think about me much? You have reasoned all the way out to my purchase and future complaints about maintenance increases.

well. while we talking about what makes sense....

why should interest be tax deductible for mortgages and nothing else?
why should employer contributions for health care be tax free and yet all other income is taxable?
why should george bush have implied a connection between iraq and al queda when there is clear documentation that this is not true?
why has barack obama not shut guantanamo bay?
why are former government officials allowed to go to work for the people they previously regulated?

and on and on and on.

Rhino - I disagree that I shouldn't complain about preexisting rules - if they don't make sense and can improve the system by eliminating them or tweaking them, then let's get rid of them.
What would be ridiculous would be for me to complain about the system in general - which I don't complain about - certainly it's clear that other markets in the country work better with their quasi-market rate systems - but the fact is we have this system and to get rid of it would cause much more problems than it would solve.

"Being a landlord is a get rich slowly game. Assuming that NYC remains an economic force in the world then over time real estate prices will go up here. Eventually it will provide a lifestyle where I can work 3 or 4 days a week and still make decent money. Over time, as the rent rolls go up the buildings will become more valuable and that value will fund my retirement (if the income from the buildings won't).

But it's torture. Complete daily torture. 10 months to evict people arrested dealing drugs from their apartment (place was raided, drugs everywhere, kids everywhere, guns everywhere) --yet it took me 10 months to get them evicted etc etc etc. Someday I'll write a book."

I'm not sure why it is a get rich at all game. What fool would buy this place from you some day. After all, the work is back breaking ... torture. It takes 10 months to evict drug and gun dealers. People just complain to the city nonstop. Who in their right mind would buy into this situation.

And NYC being an economic force - you are way off. Wall Street, midtown are the economic forces, and the people who are executives and money makers aren't living in the buidings you live in.

Not get rich slowly because no one in their mind would ever buy a building like what you describe.

Oh, except you.

Why are college endowments allowed to invest in the hedge funds and private equity funds of the top alumni contributors?

maly - "might be better to aim for 70 degrees or more inside temp at all times, so you minimize your aggravation. " You're right, per my previous post we sent our target temps at 72 degrees on our heat computers.

"Rhino - I disagree that I shouldn't complain about preexisting rules - if they don't make sense and can improve the system by eliminating them or tweaking them, then let's get rid of them. "

If I were a landlord, I would lobby to change rules that would enhance the value / reduce the aggravation of my property... But I wouldnt pretend that lobbying was God's work. Its just the functional equivalent of getting involved with a coop board to improve your investment and quality of life.

"Falling out of the woodwork to take a completely unrelated pot shot at me. You are spoken like someone who's never been slapped in the mouth for being an obnoxious smart ass."

Yeah that's right RHINO!! Now call him a homosexual and be done with him.
Worked well with Stevejhx in the past, right? Or was that because you said he was homosexual AND an accountant.

[Duck to avoid the slap from the meathead]

I am glad I can be such a mobilizing force for the gay rights movement.

Jazzman, on the other hand, some people are crazy. There is very little you can do about someone calling 311 every day with complaints. At least it costs you nothing. As a taxpayer, I am annoyed by the waste, but it's still cheaper than lock the ass at Bellevue.
As to the boiler replacement, there must be a legal way to do emergency repairs. Have you taken a landlord class? Itmight be cheaper than learning as you go.
Finally, in regards to painting every 3 years, it's an inconvenience to the tenant, so if they accept the service, they must really need it. Some people will decline, but people with kids and pets may indeed need a new paint job every 3 years. I personally would be more worrried about the tenant who doesn't want the super to come in.

I think y'all missing the bigger point is - shelter is an essential service. Yes, there are nonsensical laws and inefficient laws in every area, but rental laws affect the majority of the people in the city.

Jazzman is not protesting RS or cap rates, but when the system makes it difficult for LLs who take their responsibilities seriously, who does that leave in the business? The crooks. Sure, tenants are absolutely under no obligation (legal or moral) to be nice to their LL or to cut them any slack, but when there is absolutely no mechanism to deal with dysfunctional tenants, you have to wonder who is left in the system.

I know personally of one case where the LL has provided a safe, warm, well-maintained environment for RC tenants with no harassment (after all, LL knew what he was getting into), but LL's young family was targeted for verbal abuse. Sure, that's life but there is something wrong with the system (yes, I know there's plenty of other wrongs) when there is no recourse.

Why is it always that the rent stabilized folks are the biggest complainers?

I'm currently living in a market-rate apartment an all-rental building that has a relatively large rent-stabilized community. I cannot count the number of times I see these people yelling at the doormen about some problem or another. Either that, or they're bitching at anyone who happens to be unlucky enough to be riding the elevator with them. Meanwhile, these jerks are paying peanuts and those of us at market rate are subsidizing their rent. It just boggles the mind.

here's a quote from a landlord on an adjacent string:

"I am not the one with unrealistic or irreconcilable leanings. You renters want to take less risk by not buying, take less ownership in a building, but still demand stability and treatment like an owner?

I am not wishing these things on anybody, all I am doing is pointing out the flaws in your logic. As a renter you should not expect to be treated like an owner, you should not expect a landlord to treat you like anything other than a business transaction, and as a renter you should expect to get F'd as soon as the landlord can find someone willing to pay a better deal.

That is the insecurity you get as a renter. If you want to be treated like an owner, or as an equal to an owner, then buy.."

I disagree. When it comes to things like heat, why is the standard lower? You imply renters dont pay for service. Sure, the cons of renting are rent increases, finishes, etc. And rent control may be just, or it may not...but it existed before you bought and was in the price you paid.

"then 1,000 year to run"

2 fines.

Plus it doesn't cost that much to run, or to buy, but the savings in fuel is worth the cost.

I'm not defending rent stabilization - I remember a stabilized tenant in my co-op building who complained about the size of the mailboxes, to which I thought: "You pay for a new mailroom!" - but if you buy a stabilized building you have to recognize the rules and abide by them.

If you have the system and can prove the internal temperature, then you have nothing to worry about but the annoyance.

That's his point - it's damned annoying and given that he is keeping the apts warm enough, a waste of system resources to have to deal with his tenants' complaints when there are bigger fish to fry.

the best way to deal with the people who complain numerous time and proved to be wrong, is to charge them $100 per incident, after the first one, when they are clearly wrong and abusing the system.

in my previous coop, we had an elderly lady who complained about heat. the previous super overheated the building that most of the windows were open. the new super was able to adjust the boiler to work properly. every time this lady called, the super would go up to her apartment and the lowest registered temperature was 72.

i think my current landlord has the right idea. each person having their own boiler and heater. if you take a 2 hr shower, you should pay for it not everyone else. if you want 90 degrees in your apartment, likewise.

AB - you can't impose fines like that. Not legal.

i know it's not legal, but this is the way for the gov't to get their inspectors paid when there are clear abuses of the system.

You can get fined for abusing the 911 system, but I am not aware of any penalty for 311. Maybe I can call 311 and ask? ;)

ab "he best way to deal with the people who complain numerous time and proved to be wrong, is to charge them $100 per incident, after the first one, when they are clearly wrong and abusing the system."

I would be in yet another "harassment" hearing at 25 Beaver St. They don't even pay late fees or washing machine fees. The courts won't enforce them (even though they are legally assessed fees) and most of the tenants know this. If a window is broken you would think the housing court would enforce that, but no - I've got to take them to small claims court to get my money from that. Tenants know the game.

"AB - you can't impose fines like that. Not legal."

Sure it is legal. For instance, if my house alarm generates more than 2 or 3 false alarms in a year (requiring the fire/police departments to respond) there is a charge, something like $300 and it goes up for more infractions.

NYC will never implement it for 311 because politicians don't give a flying f*ck about landlords, but they could.

Didn't know what ab meant - but LL can't impose fines like that on tenants. And I would think that even legally assessable fines are impossible to collect. The system is broken, so that LLs who can derive the greatest economic benefits are those who would put the least possible amount of $ & effort into maintaining their apts.

Reminds me of an (apocryphal) comment that I heard about redevelopment of some arch./cult. significant buildings on Bk waterfront - if you make it impossible or onerous for law-abiding developers to develop, then you leave it to the crooks. But hey, this is the eternal tension between too much and too little regulation; free society vs. dictatorship.

It sure sounds annoying, but in the end is it really worth it? Care to talk about your profit? After all these complaints and issues, what kind of a return are you making on your $? I know you said this is a "get rich slowly" scheme, but assuming that the value of the buildings do not increase, can you live off of the rent rolls after expenses? If you could, for me, that might be enough.

Positivecarry: this is why I could never become a LL of any RS/RC building long-term. Maybe if there was only 1 tenant left in the building, paying $100/month or if the RS/RC rent roll was so insignificant as to not affect cap rate.

Assign a dollar amt to your hassle and calc your return with and without a paid super.

Hah, exactly. No return would be great enough to have to deal with the situation JM describes. Maybe one crotchety single RC tenant in a 10-unit building I could deal with.

Rhino: but this doesn't answer the fundamental issue - if the system makes it so onerous for LLs to deal, then think about the type of LL who would take over. What sort of profit margin would one have to have, for instance, to take over ownership/management of HPD housing?

>>Last year (a different) tenant called 311 eighty-seven times to complain about no heat (that's nearly every working day of the week). The city is required to send an inspector each time there is a complaint - yet not once was the temperature ever below the 68 degrees.

>> Is it absurd that I have no relief here? Is it absurd that there are 11 laws against landlords harassing tenants yet it is not against the law for tenants to harass landlords?

Maybe you can speak to your congressman. This sounds like an abuse to the system that is costing a broke city/taxpayers a lot of money to keep sending an inspector on a daily basis.

Jazzman, this truly sucks. You are definitely entitled to empathy.

What I wanna know is, who is your property manager?

I own rental props and I wouldn't do it without pro management.

But maybe with rent stabilization, you don't make enough $ to afford pro management....? I only own market rent props.

With a good prop manager you never hear about this stuff unless a big decision has to be made.

For those who don't know, you need a real estate license to be a property manager. For good reason!

{Manhattan real estate agent. And jazz flute player.}

on a humorous note, maybe the tenant is a city inspector. Talk about job security :)

Fluter - I can't afford a property manager so I hire my own staff and we manage together.

Positive - right now none of my buildings are cash flow positive. Over the last 3 or 4 years the buildings were gaining value as cap rates declined, but now that cap rates are back up my buildings are worth much less than they were at the top (but still worth more than what I paid).
All in my returns are positive (which in real estate in today's world isn't terrible). The success ranges from building to building. The real profitability really comes in vacancies. If you have a building where no one moves out you'll lose your shirt. You need people to get evicted, just move out for personal reasons, or pass away (sad but true). But that's how it works and that's why this is a get rich slowly business. You don't know when you'll get a vacancy, but over a 30 year hold you'll know you'll get a few. When they happen they can be profitable and account for all of your profits. So the business model is that you hope to only lose a little on your stabilized apartments and hope to make big money on vacancies/market rate units.

For me I hope we're near (a year or so away) a bottom on valuations and market rate rents. If we are then I've successfully ridden out the down cycle and as cap rates head back down and market rate rents go back up then I'll be fine. Personally I don't expect the market to get better soon, but again I'm in it for the long haul.

aifamm "on a humorous note, maybe the tenant is a city inspector. Talk about job security :)"
on that same "humorous" note we had a tenant who called the city - the city inspector who inspected her apartment kept claiming that our repairs weren't good enough and we needed to do more and better improvements. It wasn't until a week later when our super saw the city inspector in street clothes at our building on a Sat night that we realized he was sleeping with our tenant. We found out that they hit it off and for a couple of weeks he was around all of the time.

None of your buildings are cash flow positive? Thats not exactly Carelton Sheets math!

What are multi-family cap rates right now? When did real estate become an appreciation game rather than a cash flow game? Can you really count on cap rates going down when interest rates have little place to go other than up?

I'm highly highly pro-RS/RC, and pro-tenant, but I'm with Jazzman on this one. There should be a deterrent to heat-complaint abuse. There should also be an education campaign to distinguish between meanings of "it's cold" ... either it means "I'm cold" (put on a sweater, pajamas, slippers, a robe, a nightcap) OR it means "the temperature is below number x". Elderly people are particularly likely to feel cold when it's not (and there's no health risk to them in that case, btw).

I also like the idea that the City create a "Green" initiative to encourage conversion to truly individual heat/hot water systems, and to submeter water altogether. My current (coop) building is heated to over 90 degrees all winter because of complainers [the resulting 3% humidity is a considerable health hazard for people of all ages]; it also has electricity included in the maintenance, so there's no incentive to cut back on usage, including supplemental electrical heaters.

Steve, my last building (new gut-rehabbed condo) had the indoor/outdoor sensor system that you described, and was also heated to over 90 degrees ... at least in my apartment, not in others. Nonstop tweaking was no help at all. It's adjusted by changing a "heat curve", which is the stupidest thing I've ever heard of for something as straight-forward as "what temperature is it inside?"

Unnamed management company sez 2010 NYC heating fuel prices projected to jump 38% yoy; 2010 NYC RE taxes projected to jump 18%: http://jubakpicks.com/2009/11/10/will-rising-state-taxes-sink-the-recovery-in-2010-and-then-there-are-coming-federal-tax-increases-in-2011-and-beyond/

Rhino86 - I'll rephrase - none are cash flow positive yet. It's a long race.

And agreed that you can't "count" on cap rate compression but I model for appreciation. As my rent rolls go up so do the building's value (although that doesn't mean cap rates went down). Plus, in NYC there is always the possibility of a condo conversion. When condo values go up so do the value of mutli-family buildings. Perhaps I buy an apartment building in Harlem for $100/sf and then 20 years later sell it to someone for $500/ft because he wants to sell "renovated" units for say $1,000/ft. The buyer doesn't have to sell a lot of the units to make some money.

As my portfolio gets bigger I get greater economies of scale. My oil gets cheaper, my supplies get cheaper, I can share super's between buildings etc. So the model is that my revenue growth will continue to outpace my expense growth and over time the buildings will cashflow. In the meantime, I get the benefits of depreciation and the amortization of my loans.

Right, you use an equity model so to speak. I am much more comfortable with a fixed income model. I just assumed you were cash flow positive now. I thought perhaps the upside of the gradual elimination of rent control tenants might have had you paying a price that means a slim cap rate. Wait sorry, I am confusing the issue. You are obv not a cash buyer. Are you covering principal payments in your actual cash flow. That is something I can wrap my head around. If you are only interest basis breakeven, that scares me a little. But I'm a scaredy cat.

The landlords I know generally use all the excess cash they get to pay down their mortgages as fast as they can. Goal is to own the building free and clear in 5-10 years. Very conservative way to manage investment property.

Rhino - when I buy these buildings they are "cash flow negative" - which is a term I use to mean my collected rents are less than my cash outlays (all cash outlays but for major capital improvements like a boiler and apartment renovations). My cash outlays do include interest expense (a below the line item) and they also include principal payments on my mortgages.

As my revenue growth continues to outpace my expense growth (this only happens if you can get some vacancies so for landlords who don't get vacancies they bleed a slow death) and each year I become less and less "cash flow negative." I will eventually be cash flow positive and my buildings will be worth more because my rents will be higher and my loans will be smaller. The hope is that in 20 years the buildings will be so cash flow positive that I won't have to work too much.

One tenant called 311 87 times and they had to send out an inspector each time? That must cost the city (ie the taxpayer) a nice chunk of change -- for erroneous complaints? What BS.

I know I'm having a architecture conversation in a punk rock club here, but I just don't see the reason to be "stuck" in a negative cash flow position...especially in something that can be highly illiquid at times. Jazzman, do you do this because the leverage affords you to take a biggers position than you would normally be able to swallow?

I support you Jazzman as long as you are covering principal. I dont view that as negative carry. Although you probably are not including a charge for your trouble, are you?

positive - the leverage is great for sure. But you do it because it's safe. It is low income housing after all. My rents will go up every year. I'm buying buildings where the average rent is $850/month and the average apartment is a 1.5 bedroom. Market rate would be about $1,400/month. So even in years like this my rent rolls will go up. And if I don't make money that means other landlords aren't making money either. Because I know I run my buildings better than others I know they'll go bankrupt first and when they do they'll turn the keys over to the city and all the landlords will scream that we need bigger rent increases and we'll get them. If our expenses go up then the city has to allow our revenues to go up to compensate -they must give annual rent increases that allow me to make money. If the rent increases aren't enough then people go bankrupt and we can't pay our property taxes. If landlords don't pay their property taxes then we're all screwed.

An example.
Let's say a building has $200,000 of rent collections, $180K of expenses including principal payments, and $50K of interest expense. Then let's say my revenues go up by 8%/yr and my expenses go up 5%/yr - do the math and see that in year 30 this is a good investment. It's brain damage and takes a lot of work, but in year 30 when the loan is paid off and there's a huge gap between revenues and expenses then I'll be glad I did this.
The real hope though is that you can get a lot of vacancy (say someone has another kid and needs to move or their kids just get too big for their small apartment, or they got a better job or they lost their job or they are on the 5th floor of a walk-up and just turned 80 and can't make the stairs anymore - lots of reasons for people to move out and if they do then my $850 rent can go to $1,400 and that year my revenues will be up over 10%.

JM: just make sure you're not receiving J-51.

PS - the huge risk in my business is that expenses go up faster than revenues. That the city council listens to their constituents and doesn't believe us when we say we're losing money.
If people don't move out and the city continues to take these asinine real estate tax and water and sewer increases then I'll be doing all of this work to bleed a slow death. What a terrible way to go bankrupt. If you're going to bk you might as well do it having some fun via riotous and irresponsible living no???

I dont think traditionally people were buying rentals and running at break even and factoring appreciation into their models. That's the risk. Risk is a function of what you pay.

You couldnt get a mortgage in the old days big enough to come close to break even.

Jazzman,

So you're shooting for a 3% return after expenses for 30 years? Just trying to understand your logic.

I mean 3% annual of course....

positivecarry - where do you get the 3% number by subtracting 5% from 8%?
If so remember you've got to compound the 8% annual increase in revenues and compound the 5% increase in expenses -

Yes. I'm compounding a 3% return. That kinda sucks, when you have to factor in dealing with low income housing tenants IMHO. I'm sure the equation would work better in other parts of the country where the property is cheaper. I'm sure if you compared a roth IRA and annual contributions, the return would be far better, but you know my bias. Much less stress, that's for sure. Even if you just put the funds in a bond etf...

And I'm sure someone can come up with a argument where I'm wrong and it's better to own a building over investing in the markets, but I would rather be locked in a prison like Madoff than deal with some low income tenant who calls 311 87 times about the heat.

positivecarry - don't forget that I'm also paying off the loan, getting the benefits of depreciation, and the buildings are appreciating. Also if more tenants move out my returns can be better. Over the long term I'm expecting to yield double digit IRRs.

By benefit of depreciation, you mean the timing difference? You will pay gain on your sale price minus cost plus accumulated depreciatio, correct? What is your pure cap rate out of curiousity? What appreciation assumption do you need to get your double digit IRR? The key here appears to be your cap rate and whether or not its too low already to yield meaningful appreciation vis a vis multiple expansion. The flip side is rents over time do rise...and rents right now are cyclically low. My guess is you'll get decent rent inflation from these levels, but you might exit at a low cap rate during a period of higher inflation/interest rates.

Like I said, I'm sure there are arguments to be made. You could hold a gun to my head and I wouldn't deal with tenants like that. There are far easier ways to get rich...

When you consider how much leverage you can use, and if you time it right...there are actually few ways to get rich that are better. Ignoring leverage and tax benefits is what has a lot of people hopping up and down that stocks are better in the long run. Maybe pre-leverage they are, but return on equity, not a chance. Nor are there any margin calls unless you cant make your payments.

Rhino,

The long term return (lets say 40 years) of stocks far outweighs the return on property. Would you make more money if you bought a west side townhouse in 1965, or a williamsburg house in 1990? Maybe. But those are not the average. Please don't debate me on this. I really have no interest in being in a pissing match. I was just responding to Jazzman complain about the crazy tenant.

My strategy also includes buying more of the portfolio on a regular basis. Of course, the more apartments you have, the better chance you have of someone calling 311 87 times.

I am happy to see the levered case of real estate equity vs the unlevered equity as it happens in actual practice. I have never seen it laid out. Real estate wins on return on equity. Please don't talk to me like you are beyond question. I do concede that it is riskier and more entry point dependent. Then again so are stocks. If you buy rental property at a high enough cap rate with a 20 percent down payment it
seems to me you will generate a better return on equity than the average stock market entry point. Call it
15x normalized eps.

Ps you seem like a douchebag. Try buying stocks on 10 to 1 leverage without margin calls and then talk to me.

Why am I a douchebag? Because I don't want to be a landlord to poor people? Equities win out over real estate without leverage. Who's talking about leverage?

I'm talking about leverage because if you want to talk about getting rich real estate is better than stocks. Unlevered real estate analysis can inform your entry point but it's not the only way nor is it the most common way. You seem like a douchebag because I hate when people who "don't want to get into it" throw it out there. If you really don't want to get into it, then don't throw opinion at me as fact. As a matter of fact if you don't want to get into it don't address me.

I wasn't "throwing" anything at you. This isn't your post. But, if you like......

I would love to see some statistical evidence as to how the performance over the last 50 years of RE ownership is better than stocks.

My main reasons (other than being right) are:

1. You don't have to mow your brokerage account.
2. If the boiler brakes at Coca-Cola, you don't have to fix it.
3. Reinvestment of dividends in a tax sheltered account far outweighs any crap you are going to throw at me regarding cap rates and rising rents.

In a nutshell, there are so many hidden costs you won't use in your data with real estate that it's a horrible long term investment compared to other options.

What costs do I have, other than a crazy low expense ratio of a ETF? Hell, I could use Coke as a single stock, reinvest the dividends and there would be ZERO expenses if held in a IRA.

How can you possibly beat that?

I didn't compare to inside a retirement account as real estate is not an option. Nor do I think it fair to cherry pick a single stock. My point is of
you had 100k in 1982 when everything was a slam dunk of you bought real estate on leverage you'd be richer today than any other option.

Leverage wins. If you pick an entry with a cap rate lower than your mortgage rate.