Rent Control Sale at 328 West 86th Street

the only hope for the investor is real estate appreciating by itself. the CC is 806, but rent income is only 1098. after taxes (tax deduction on the 806 and the taxation on the 1098), you're barely breaking even.

with close to zero underlying cashflow, the investor can imagine it being a (hopefully) growth stock that pays zero dividend...kinda like Berkshire Hathaway. But if history is a good indicator that RE appreciates 5-6% annually (over the LONG term), then this investor is technically better off buying stocks and bonds (heck, even S&P 500 pays 11% annually since inception).

And since it's an investment, I'm doubtful there's the 250K tax-ememption, which makes this even worse than stocks and bonds, because after holding for 1 year, those are taxed at special long term rates of 15%, instead of your marginal rate, which probably will be the case for this property.

My 2 cents.

NY Magazine did an article about this today...

buy the apt, then take out a term life policy on the old bag who lives there. turn off the heat and wait by the phone.

Aren't you amusing, #5. Wouldn't you like someone treating you or someone you love like that.

The return doesn't come only from RE appreciation, but also from the apartment being worth a lot more once the rent-controlled tenant leaves and it can be sold for owner occupancy.

rent *control* tenants stay much longer than rent *stabilized* ones... they tend to live there until death.

with increasing life expectancy, the way to valuate the place is to annualize the difference between the tenant's current age and life expectancy, then add in the loss of investment income of the $549K over those years, compounded at the standard S&P 500 rate of 11% (and those cap-gains are taxed at 15%).

Also, since it's sold at somewhere 400K-500K discount from market price, just that gap itself will cause the investor to pay taxes at the marginal rate when the sale materializes. And since UWS is already an established neighborhood, think of the RE appreciation as much more slower, than say, DUMBO.

An all-cash investor-only rent-control deal with a rent income that BARELY breaks even the monthly maintenance, it's as illiquid an asset as it gets.

takes a LOT of Excel formulating plus patience (think 15+ years at a minimum) for the "worth a lot more" to become reality

oh yea, rent control law possibly exempts people 62+ yo from rent increases if they meet certain criteria, so if this tenant is one of those, the investor is in pretty bad shape :

assuming CC only increases 4% a year (very conservative, given the price of fuel), if the rent-control tenant is exempted, then by the 8th year of ownership, this investor is already paying more in CC than rental income...

good luuuuck !!!

If you bought this unit, you would have to be prepared for the possiblity that the tenant's child/grandchild/neice/nephew/new spouse would move in with them and legally establish succession rights. I have a thirty year old friend with toddlers in a rent-controlled apartment. She moved into her grandmother's RC apartment when she graduated college, established succession rights, and is now fully protected.

It could be generations before this apartment is vacant.

#8, you'd also have to consider the capital gains tax....I believe you have to reside there for at least 2 years before you sell in order to avoid paying cap gains.

I also feel bad for the owner of this apartment. Shame on the government for making individuals personally subsidize these tenants. If tenants need subsidizing then the public at large through taxation should bear the burden. The current law is so stupid, it barely evens takes into account the tenants financial position. Only if the tenant earns more than $175k a year for more than two years in a row and the apartment in question has a rent greater than 2k is it than deregulated. So if you earn say 150k (a decent salary in my opinion) you could possibly be 'entitled' to live in a 3 bedroom apartment that rents for $750. It's true, I know of this example! And for succession rights...could anything be more ridiculous?

Succession rights are not ridiculous. They are what prevents widows and widowers from being evicted with their spouse dies and children from being bounced from their home when a parent dies.

There are no leases on rent controlled apartments. So the only thing that determines who in a familyis protected are succession rights.

By your thinking, my gradmother should have been put on the steets when my grandfather died because succession rights are ridiculous.

So what our saying is that if the tennant who let's say is in her 40's decides to have an affair with some dude and bears a child that child then is entitled to stay there for the rest of his/her natural life? On the other hand, let's say some guy in his 50's decides to pick up a 20 year then eventually married then what.? I mean the scenarios are countless. The owner of this apt is at the mercy of the tennats love life.

#16, you clearly don't understand the details of succession rights. But yes, a rent controlled tenant has every right to start a family, to remarry someone younger, and to have their child/grandchild/neice move in with them. Once someone has legally established succession rights, they are fully protected by rent control.

Rent control only applies to a subsect of apartments that have both been built before 1947 and the current tenant or successors have been living in that apartment continuously since 1971, or earlier. There are two types of owners of rent controlled apartments: Those who bought the units prior to 1947 and have owned the apartment for a very long time, and those who bought after 1947 knowing that the unit was subject to rent control. The later knew what they were buying and chose to wait out the tentnat. For the former, real estate costs were much, much lower when they bought and they did make a healthy profit for many years. The fact that they aren't currently optimizing their investment...well, that's life. Rent control is a product of WWII and a lot of people were forced to make sacrifices for the war.

The fact of the matter is that many of these so called rent controlled tennants are very very wealthy people taking advantage of the system. Of course many others are not.

There is a big difference between "taking advantage" of the system and excersing your rights.

Rent control doesn't limit protections to low income persons/families. So if someone is a multi-millionaire, lives alone, and and has a rent controlled 5 bedroom apartment, they aren't "taking advantage".

No more than I am taking advantage by going to a crowded public beach when I can afford a private beach club.

Rent control wasnt created to help out multimillionaires #19, you're just a moron, greedy, disgusting pig.

A multimillionaire taking advantage of in some cases a landlord who barely can pay the bills. I agree #19 is not only a pig but a blood sucking parasite.

This is a fascinating discussion on the arcana of New York real estate law; must it devolve into name calling? Can we not at least pretend we're adults.

#11--You're WRONG WRONG WRONG. The rent ctonrol law was amended in 1997 to allow succession ONLY ONCE. It also limited the definition of "family member" to whom succession rights could be given.

The way I see it there are a few distinct issues with rent control:
1. What is it for? If it is to provide affordable housing for those in need of it, then it does a poor job, since the limited supply of rent controlled housing is not properly distributed (see comments about wealthy people living in low rent properties).
2. Who should provide the housing subsidy? Rent control puts the financial burden of providing this cheap housing on the landlord, rather than the taxpayer. Doesn't seem like a just arrangement to me. If you did really NEED subsidized housing, shouldn't you just be given low-rent government-owned housing?
3. Should the subsidy be transferable to heirs and spouses? I could see why spouses and children still in education should have succession rights to live in a property until they themselves die or leave education (as long as they meet financial eligibility requirements)- most people don't want to see vulnerable families thrown out of their home. But succession rights are tantamount to ownership, since the landlord is left with no control of the asset. Private landlords have the right to throw underperforming tenants out - why should rent-control lalndlords not have similar, if more restricted rights, to realise a return on their investment? I wouldn't want to see the prior poster's widowed grandmother thrown out on the street when her husband dies, but should her hypothetical niece who might have a high paying job be able to succeed as a tenant? Not in my opinion.
4. There are indirect costs for you and me. Reduced supply of housing in the private market drives rents and prices up for those not lucky enough to find / succeed into a rent-controlled apartment. You and I are indirectly paying the price.

Bottom line: Rent-control laws a mess that distort behaviour and prices, do not achieve their original affordable housing aims , and should be reformed.

#23 - Can you provide more information? Who can succession rights be given to?

http://www.housingnyc.com/html/resources/reform2.html

Well said #24. This is #14 speaking by the way. #15 I never meant to imply that if a spouse dies all bets are off. A rent regulated apartment is not a renters asset to be handled down generation after generation. Thanks #23 for the info on the law change in 1997.

#19 here...how am I "moron, greedy, pig"? For thinking that people who have rent controlled apartments are entitled to remain in them?

I don't have a rent controlled apartment. My parents never had a rent controlled apartment, my grandparents never had rent controlled apartments, and I can honestly say that I don't know anyone who has a rent controlled apartment. But I still think that people protected by rent control are not obligated to give up their apartments just because they can afford market rate rents.

Or...am I a "moron, greedy, pig" for daring to go to Jones Beach when I can afford a cabana at Lido? Then you would HATE me. I borrow books from the library when I can afford to buy them. I take public transportation when I can afford a cab or to drive myself. I even went to public school when my parents could afford private....oh, there I am. Taking advantage of the system.

#29--- #23 here (the guy who knows about the Rent Control Law Change)I agree. Rent control should not be means tested. Would NEVER fly because frankly, with some of the rents out there, they would have to kick everyone off rent control. My stepmother has a 1 BR on UES for $650 a month. A market renter on her floor pays $2800.

btw, you mean Lido as in Venice Lido, no?

No, by Lido I mean Lido Beach on Long Island. It is a town that contains many private beach clubs. I could afford a membership and a cabana. I just don't think its worth the money and prefer to go to public beaches.

I don't feel that it is necessary for me to give up an entitlement just because I can afford to live without it.

I agree that the rent control/stabilized/Mitchell Lama laws are ridiculous. My friend lives in a Mitchell Lama with his mother. She's a doctor and makes 300k+ per year in a 3-bedroom apartment with a parking spot for less than $1000 per month. Most of the people in the building are paying less then that for 5-bedroom apartments. They are mostly older people who moved in in the 70s and all have country homes and cars. They have housing projects where people pay nothing. Then there are working people in their 20's and 30's that pay $2500 a month in rent or $1 million dollars to live in a shoebox studio. There is no middle class in NY. There are very poor people in the projects, rich people taking advantage of the system with their multiple homes and tax-subsidized rent and multimillionaires. If you are an ordinary working person in NY, it is nearly impossible to live well.

I agree that the rent control/stabilized/Mitchell Lama laws are ridiculous. My friend lives in a Mitchell Lama with his mother. She's a doctor and makes 300k+ per year in a 3-bedroom apartment with a parking spot for less than $1000 per month. Most of the people in the building are paying less then that for 5-bedroom apartments. They are mostly older people who moved in in the 70s and all have country homes and cars. They have housing projects where people pay nothing. Then there are working people in their 20's and 30's that pay $2500 a month in rent or $1 million dollars to live in a shoebox studio. There is no middle class in NY. There are very poor people in the projects, rich people taking advantage of the system with their multiple homes and tax-subsidized rent and multimillionaires. If you are an ordinary working person in NY, it is nearly impossible to live well.

#32/33---vote republican and they'll do away with rent control, or, vote democrat and keep subsidizing the liberal elites.

Neither party will do anything. It's one of those situations where a small few who have a lot to lose by a change in the law outweigh the very large number who will gain a little, simply because they hurt more so are better organized.

If rent control was means tested, the shake up in the NY real estate market would make housing more affordable for everyone. But the people who are s**gging the rest of us (the rent controlled tenants) would throw a much louder hissy fit, with protests, and compelling unrepresentative cases (Poor Old Ms. Riccioli! - she'll be homeless!). All of use young professional working people are transient in this city. We don't have enough of a voice. We should form an organisation that will pressure both Republicans AND Democrats. Voting Republican will just mean even more of your income being directed toward subsidizing idiocy in flyover states.

#35-- I should have clarified. I meant voting republican in Citywide and Statewide elections. As you may (or may not) know, national elections will have little effect on New York Rent Control Laws.

Keep electing left wing representatives to the City Council and State Assembly and there will be no change with respect to TRUE middle class concerns. And of course by middle class in this town, we all know that means people who in other states would be considered affluent. I HIGHLY doubt that even Spitzer wants to take on the rent control nazi's even though he's a landlord and should be in sync with our concerns.

I dont think this is as much a partisan thing as you are making it out to be. Clearly you are right of center - ok that's fine. Also NY republicans are not even particularly right-leaning (e.g. Bloomberg). Let's not turn this into soapbox for your political rantings.

Yep. Mr. 35 here. 37 is correct -- it's not a partisan issue. This isn't even much of a political issue period right now (again, because it hurts lots of people, but not enough to make them do anything about it - easier and more intellectually lazy to blame landlords or something).

If Republican's became the party of "eliminate rent control" then your posting would make sense. But they're the party of "a whole lot of other things I won't go into here." The only way to make this happen (or to get Deomocrats to do something abou it) is to make it a political issue: by forming a pressure group of some kind.

ANy landlords of Rent controlled buildings want to sponsor us?? :)

Who gives a rats ass about republicans or democrats. Neither party does crap and they are full of it as well.I think those on rent contol for the most part can afford higher rents and are ripping off hte system and smiling all the way to the bank. However they are not to blame for the high rents in the city. I don't feel like eloborating for I'm tired and want to go to sleep.

#40 - you can start a thread, but you don't own it, so be nice.

rent control IS a political issue. And for the most part, its the liberal democrats in this town who refuse to touch it. You think Quinn the Lesbian Woman wants to repeal rent control, or Shelly Ambualance Chaser Silver?? Get a clue guys. all you free market guys should be appalled they still allow rent control. Its an affront to hard working new yorkers and NOTHING is done about it. the whole system is abused, you can only get rent control apartments by knowing someone or by being related to someone and its taking money out of everyone's pockets.

Does anyone know approximately what percentage of all apts in NYC is rent control?

The stats are out there Spunky -- google 'em.

Agreed. As a free market guy I am appalled that this goes on. And local politics in NY is dominated by entitlement idiots like Quinn and Silver.

BUT AGAIN, the reason no one will touch Rent control with a 10 foot pole is there's no reason to: there's no votes there, only a lot of pain, and accusations of heartlessness. Pity.