Why buy an apt w/rent controlled tenant?

Plenty of people buy them all the time. There's a broker who does pretty much 100% of his biz doing only that. We recently bought a package of 4 units at a Coop foreclosure sale and got close to half a million dollars from the foreclosed owner to get them back. (and it wasn't the only time We've bought units with statutory tenants)

HOWEVER:

1) Almost all the time that some "regular" broker has a unit like this for sale, they have no concept whatsoever of what these seal are about, how they get priced, etc.
2) Very few people who are buyers of such properties buy single units. That just doesn't work as a business plan unless it's the unit next to yours and you are planning for future expansion. The idea is to buy in large enough numbers that you get a reasonably smooth flow of vacancies, which are what bail you out of your shortfalls.
3) In the past few years, the price of these units got even more ridiculous than the regular market. People used to pay 5 or 10 cents on the dollar (i.e. pay now vs vacant market now). In the instant case, even the broker selling these units (it's not just this one, its really a package of 4 units) admits they want over 50 cents on the dollar.
4) You make money when the tenant dies. As morbid as this is, there's a lot of joking that goes around about different guys who buy these units. one of my investors (the guy I'm always talking about buying all those studios for $10,000 each) bought 2 5 room apartments in 61 West 9th Street from I think the FDIC for like $16,000 each, with mtc of around $1,500 and rents of around $800 - $900. Within a few months the "young" (50's) woman who was inhabiting one called him up and said "I'm moving back to North Carolina" and within a year the older tenant passed away. What are the odds of that? He moved into one and I don't remember what he did with the other, but it was about a 3,000% profit within one year. I have another guy who jokes "you know how to make someone live forever? Have me buy their apartment". He's got an alarming number of 90+ year old tenants and a whole munch of 80+. But don't feel sorry for him: he's got a couple of thousand units and he makes plenty on the one's he gets back.
5) This is not a game for amateurs or anyone who can't put the purchase away and forget about it. If you look at your stock portfolio every week, this is not a game for you. It also helps if you own a management company because if you don't, you'll lose a whole lot more $ paying someone to manage the units you buy, and some of those people have less than savory reputations. See back at the top of the thread where i bought those unit? the person managing the units for the investor group is one of those with the less than stellar reputations (if I remember correctly she had gotten caught before commingling funds and worse) and between me and the guy who bought the other three units at the auction, plus attorney's fees, etc. she must have cost them a million bucks.

Thanx, 30yrs, for sharing all your experience with us; it's much appreciated.

check out 370 east 76th...they ahve a bunch of apartments on the market that come complete with tenants.

But then, of course, there's always the risk of this sort of outcome (please see bottom three lines):

http://www.supercentenarian.com/oldest/jeanne-calment.html

30yrs, that's interesting. In my own building, the sponsor's done much better with the 20+% of apts he kept than he did on the conversion, just due to the timing. It does take a particular mindset, e.g. not pissing money away on holdover proceedings unless you're sure you can win.

What's surprising is how few aged statutory tenants get a relative to move in for the required two years. I guess the young relatives see the danger of a few years turning into twenty.

What about just moving in? If the person is under 60, you can not renew the lease if you move in yourself.

10022: that doesn't work for most of these bldgs bcs they were converted under a non-evict plan. The owner occupancy thing works best for RS apts in brownstones.

30yrs: how do you get into the game? What's the name of the broker who deals with these units exclusively?

Remember that, if someone else (particularly a relative, but not necessarily) moves in with the RC tenant more than 2 years before the death or vacancy, you risk counting the days all over again.

Anyone remember that massive 5th Ave rent controlled apartment on the market for peanuts a few years ago? A mom and daughter living there--mom was in 80s, daughter in late 60s. Wish I could recall the address - would be interesting to see what it ultimately went for (if it sold at all).

Aside from hoping that your rent-controlled tenant would die swiftly (preferably not inside the unit), many landlords are waiting for these tenants to violate the lease temrs and/or the bldg. rules (e.g., moving someone else in, misuse of the common areas, etc.). Such violations can effectively be used at the housing court as a basis for eviction, even under non-evict leases.

In particular, moving your girl/boy friend in is a huge, huge no-no. This is why we see so many older crazy single women living in rent-controlled apartments in NYC, in my opinion. If they wanted to keep the "great deal," they know they can't move anyone in, and they obviusly can't move out. Choosing to take a cheap apartment over your romantic life is just beyond me, but I know too many women who have made this choice...

eskay, the rent controlled leases I have seen/heard about usually grant the right to reside EXCLUSIVELY to the individual(s) named in the original leases. A third party cannot be added, from what I understand. Are there different types of rent control agreements???

30 yrs - Can I ask what you do for a living? You share a lot of interesting information and it seems to come from a bit of a vantage point that is different than almost everyone else (which is a good thing). If you cannot or would rather not say exactly, can you speak in generalities?

nyc212 -- you are absolutely wrong about moving someone else in being a no-no. All rent-regulated tenants are entitle to have one non-relative move in. Whether that person is a lover or a hater (i.e. roommate), the leaseholder can collect up to 50% of his rent from that person. Landlord has no say.

Where it could become an issue is at luxury decontrol ... that person's income gets counted as part of the household.

nyc212, have you ever been in housing court? A tenent could blow-up an apartment and most judges would not evict him. Rent controlled tenants dont have leases. Administering a rent controlled apartment's rent is mind-blowingly complicated. You may never be able to raise the rent if the building has certain violations.

That said, have fun.

Wow, why am I getting beat up!?

flatironj: Yes, I have, as a landlord--as I have posted here before. The court is usually highly tenant-friendly, but when it comes to rent-controlled tenants "behaving badly," from what I have heard from individuals that spend a lot of time there, the justices seem to be offended by tenants "not in need" of affordable housing refusing to move out or refusing to abide by the rules, thinking that they are sitting on (in?) a pot of gold. Oh, also, are you sure about rent-controlled tenants not having leases? I am asking because I had to furnish one to mine--which stated it was infinitely renewable unless the tenant opted to move out or die.

alanhart: Sure, I am ABSOLUTELY wrong, and I have actually been successful at getting a rent-controlled tenant out on that very account. My question was directed to someone who actually knows something, like "eskay," about different rent contorl arrangements people appear to have. Admittedly, I have only dealt w/ rent controlled tenants in a very limited set of situations, and that "moving in one person being Kosher" think didn't ring right. I don't mean to call you a liar, but maybe it depends on what types of rent-control the bldg. owner initially signed (i.e., in the early 80s vs. 20 years later, under different terms)? Or, maybe you are talking about rent-stabilized apts?

"30 yrs - Can I ask what you do for a living? You share a lot of interesting information and it seems to come from a bit of a vantage point that is different than almost everyone else (which is a good thing). If you cannot or would rather not say exactly, can you speak in generalities? "

Actually right now I'm not doing much of anything. But to give a list of the info I think you want of past activities:

1) Regular "broker" - Coop's, Condo's, rentals, commercial rentals (mostly restaurant deals), small building sales.
2) Sales manager of a moderately sized office of a larger firm.
3) Sales training.
4) Expert witness "The Practice of Real Estate in NY"
5) Consultant to lenders (both institutional and private), providing valuation and brokerage services, advice on buying and selling packages of bad loans, workouts/short sales, etc.
6) Buying and selling on my own account (Coop's, Condo's, small residential buildings)
7) Construction management
8) Consultant to Coop's on financial, structural, procedural decisions.
8) Interior design (but not furniture and that type of stuff; more layout, kitchens, baths, etc.)
9) Relocator of tenants.
10) Litigant.
11) Professional magician, card player and dealer.
12) Hard money lender.
13) Statistician, systems analyst, risk analyst, management consultant, systems consultant , systems programmer,etc.
14) collections agents
15) A set of businesses which I'd rather not discuss here.
I'm probably leaving a bunch of stuff out, but it's tough to summarize 30 years of work quickly.

"nyc212, have you ever been in housing court? A tenent could blow-up an apartment and most judges would not evict him. Rent controlled tenants dont have leases. Administering a rent controlled apartment's rent is mind-blowingly complicated. You may never be able to raise the rent if the building has certain violations.

That said, have fun."

That ain't the half of it. L&T is just a ludicrous, horrendous place where you never want to end up because the laws of the United States do not seem to apply there. Although one time I caught a break and got a defrocked priest thrown out at Christmas time (I still wonder how that happened). OTOH, I spent 7 fucking years getting a foreclosed owner out of a unit which he paid not a single fucking cent for and no court was willing to throw him out for 7 years, and at teh same time the building was fining me because he was living like a homeless guy with a dog and the odors were permeating adjacent units. Of course, the Coop did every thing the could not to cooperate in us getting the guy out, either.

Thank you for sharing your experience 30 yrs Your posts are definitely informative and making logging on here worth while. Thank you.

Guys -- this is the original asker of the question. Thanks so much for your comments. Very informative.

nyc212, I certainly didn't mean to beat you up.

A lease begun in the early 80s or 20 years later would in both cases be rent-stabilized, not rent-controlled. I'm referring to both, though, in stating that the primary tenant has the right to a non-related roommate.

The only situations I can think of where this might not be true is for hotel/SRO tenants, or Artist In Residence lofts (if that protection still exists; not sure) -- I simply don't know how those two work.

30 yrs - thanks for responding. So it seems like you've done quite a bit....appreciate the insight.

isnt there a law that says you can purchase and evict a rent controlled tenant as long the owner will be using the property as thier primary residence ?

Yes, if you're talking a regular rental building and not a tenant in a building that converted to co-op or condo: "An owner who seeks to recover possession of a housing accommodation for such owner's personal use and occupancy as his or her primary residence in the City of New York and/or for the use and occupancy of a member of his or her immediate family as his or her primary residence in the City of New York, except that tenants in a noneviction conversion plan pursuant to section 352-eeee of the General Business Law may not be evicted on this ground on or after the date the conversion plan is declared effective."

If not for that exception, sponsors would've unloaded their unsold shares long ago, instead of waiting for the tenants to vacate.

NWT thank you. where can I find that ? That makes perfect sense for my building.

2524.4 (a) (1)
http://www.tenant.net/Rent_Laws/rsc/rsc2524.html

But that's why you never find single unit rent controlled apartments for sale because whoever owns them at the time finds a way to put themself or a family member in for a year to convert it to a freemarket apartment.
So you end up with those 8/12/20 unit apartment buildings that you can buy,with like 60% free market apartment 40% rent controlled or whatever ratio and then pick the best unit (whether largest, or cheapest rent) to use for yourself and remove 1 tenant.
At least that was the game in the 90s.

I found it. thx