Advice please! $1MM to buy and rent out.

I think they'll be guaranteeing themselves negative cash flow for a long long time. See neato widget at http://visulate.com/cgi-bin/invest.cgi

"Not sure if it's at all realistic but they would like to have $2500-$3000 rental income per month after taxes/maint. Thanks!!"

First you have to determine what will be the actual full rent received, a daunting task in today's market.
Second, you'll need to find a property that sells substancially below 200 times monthly rent. This is a very rough figure that works out to 16/17 times rent roll and will only bring you to the vicinity of a neighborhood of break even after taxes/maint.

You may have better luck in harlem,but then they'll be bugging you to go collect the overdue rent. :)

Suggestion; a short sale in miami beach instead.

Unless your parents can deal with the headaches of finding someone to fix a boiler in the middle of the night, or calling out contractors after a thunderstorm to check out a roof leak, or figuring out who's mixing in the recycling with the regular trash and accruing fines, or hiring an exterminator to ascertain what type of mammal is nesting in the attic, or harassing the city to replace the broken sidewalk out front before someone falls, I'd advise them to skip the house and go for a condo.

they won't necessarily have a neg cash flow if they will be paying cash. Whether it is a good investment long or short term is another question. I have though long and hard about the same issue...'is it the right time?'... 'are prices going to drop further?'...'is it worth the hassle of the renter with the rental market not that much better than the sales market?...'are the rules in NYS against the owner and for the renter worth the return on investment with a single property?...'or should you just invest in a reit now that prices of reits are down?'...just some thoughts

You'll have a negative cash flow if your renter decides to stop paying. Happened to a friend of mine who rented his place out to a lawyer. It's even more fun if they reck the place.

^^^wreck. And he was in court for months, had to spend money on an attorney, etc.

Buy and renting out math still does not work. You have a strong positive view of the real estate prices or rents in order for this to make economic sense. Do not forget to factor in apartment renovation every 10-20 years, painting every 2 years and cost of vacant apartment (at least 1 month out of 12 months). Not to mention the potential increase in taxes and maintenance which will eat into increased rent.

What is the most optimistic yield on this investment -- like 2%? Even if prices don't fall any further, they should never do this deal to get a 2% return.

youngun, Read this: http://therealdeal.com/newyork/articles/new-manhattan-condos-see-rise-in-foreclosures

I think the previous posters have got it right--the math does not work. Don't forget to account for vacancy, which you should have because if you don't, your rents are too low.

I own 5 small investment properties for cash flow, and am on the verge of buying number 6. I've done quite well until the last couple of months, when a fire in the town house next door, a wayward property manager and tenant job losses started to take their toll. We're pulling out of all these problems one by one, it's just taken a lot of my time. And we have lost some cash flow, no question about it, but diversity has helped us keep bringing in money.

I also have a real estate IRA, a multi-family property that has done terrifically well during this downturn.

I think y'all better be honest: Do you want to invest to make money, or do you want to invest to have a place you can brag to your friends about? It's hard to do both, because good cash-flow investment properties are rarely dazzling. Donald Trump not withstanding.

If you want to invest to make money, start out small and diversify your investment, just as you would for mutual funds.

I would never spend that whole amount of money on one place, even if I were worth $10 mil, and I certainly am not. I'm just too conservative with money. I have properties in 3 states for a reason. If one area suffers a decline, probably another area won't suffer in the same way.

If you really want to invest for cash flow in New York City, I would suggest you investigate two-family houses in Queens--odds are at least one side will be rented at any time--or fixer-uppers in Brooklyn or Staten Island. Also bank-owned properties and short sales might be of interest, both have their own problems but they are definitely doable.

I also believe in professional property management, worth every penny. All you do is cash the checks.

Even if the numbers work--and the previous posters are right, usually they don't work--in New York City you still have the risk of non-paying tenants. It doesn't matter how well off or well educated they are, tenants can stiff you on rent and get away with it here.

I had a musician friend who was completing his PhD and just stopped paying rent for 8 months in Ridgewood, Queens. We were meeting at his place and playing jazz the whole time. He felt slightly bad about it, but not too much. No kids involved. But he staying there for free for a long time.

Thank you all for your help. 2% return seems low, though it's better than what the banks are paying for savings... My dad is not looking to make a lot of money. Just have a bit of cash flow and when the property rises in value in 10 -15 yrs, sell it. $1MM is not huge amount of money, in NYC anyway, and they're not thinking about bragging rights at all.

perhaps you may want to direct him to this site:

http://newyork.municipalbonds.com/bonds/recent/

Use the force luke.

Funny you should mention the 0% savings rate to make you hop onto the lemming train. I want you to really focus, cause this is important. See that 0% is unnaturally low and IS not permanent. Given my expectations of rents, your 2% return is fleeeting at best and a road to ruins at worst.

What happens when CDs pay 4% in a year, howz them mangos for your parents?

If they want something tangible buy a mclaren f1. Only car that continues to appreciate in value.

I truly can not believe that columbiacounty got banned, came back under the name Hugh_G, and then as soon as Hugh_G gets found out and banned, he returns as columbiacounty. Like streeteasy needs this.

Malthus, that was eye opening. So foreclosures do happen in Manhattan.

My advice to youngfamily, tell your parents not to do it. Rents are not high enough to make $2500-3000 monthly profit on a $1mm property at this time.

what a good idea. Buy 2/3 families house in Brooklyn or Queens. Put down 500K and get the rest as a mortgage (use credit line on another property and pay the balance on the house you bought so interest is fully deductble against investment). Rent the three units. You will get between 3500 to 4500 a month. Annual expenses are taxes and heat water etc. in Summarry, annual income of mid 50's, annual expenses including interest of 20k. net profit of 30k on 500k investment before taxes. Your risk- rising interest rates and vacancies. your reward- much better than any bank for the last 3 years for sure. P.S if you calculate it correctly, your depriciation will equal your income therefore 0 (no) tax. pure and simple!

"Folks are old fashioned and don't trust the stock market. They like tangible assets like a home."

Yeah, this makes very little sense.

Thanks, 007, that nicely summarizes the idea. One wouldn't have to put down $500,000, however, it could be done for less.

I personally do not have mortgages because as I said, I am too conservative with money, so I only buy what I can afford with cash. I have been told this is foolish (although, actually, I haven't been told that lately....)

youngfamily, if you really aren't looking for a show-off property than you might want to start off by finding a good property manager in Queens or Brooklyn who will then refer you to good investment properties for sale. Property managers must have real estate licenses; you want to ask for and check three references. You can find these people by looking for multi-family properties for sale on the usual real estate sites. The best PMs manage approximately 100-150 units; if they are much smaller than that, they usually don't have the resources to do a good job. Over 200 units they had better have a happening operation!

I will just add that in my experience with this so far, just a few years, I am frankly surprised how the money has a way of coming in no matter what--big repairs, the fire next door (aggghhh! but thankfully no one was hurt), and the tenants who come and go too fast. Gotta have a good PM, though.

First, every week a variance of this question is posted. This is most likely a real estate agent trying to justify "NYC Real Estate is a Great Alternative to Savings/Stocks".

They ask for advice, then continue to justify their position with "still better than the savings rates now", which is not true.

OP Dad will sell in 10-15 years? He must be only 45-50, otherwise he will be a 70 year old trying to unload an apt. when he needs the cash for other reasons.

The last I checked, there are no 6% commissions when a CD matures, or NYC/NYS transfer taxes when you open one up.

They do not trust the stock market, give me a break.

You can buy a 15 year "AA" NY muni yielding 5% triple tax free and be MUCH better off.

The holes in the post are numerous.

"Folks are old fashioned and don't trust the stock market. They like tangible assets like a home."

Are they like this? http://www.youtube.com/watch?v=Ny-hYMO6Ssk

Apt_Boy, where do you get the AA NY muni for 5%? Please give us your broker's name. Please don't tell me that you mean a closed end muni bond fund or some muni bond mutual fund, because that is not the same investment as a (more conservative direct) bond investment that matures and pays par with no cost to exit. Closed end funds are leveraged to enhance yield, and market prices / liquidity to get in an out are highly volatile (and therefore, expensive). Bond mutual funds don't mature, so rising rates means permanent investment loss.

PMG - Rather than being nasty, why don't you just ask the question nicely. You obviously have no knowledge of the space.

Here is 1 of 43 bonds available for purchase today fit the criteria:

Maturity of 2020-2030
Yield greater than 4.5%
Coupon greater than 4.5%
All "A" or higher

New York New York City Transitional Future Tax Secured Series C National Ibc
"AA"
CUSIP: 649716D95
Coupon/Interest Rate: 5.000%
Maturity Date: 2022-02-01
Average yield: 5.033
Trades today: 2
Dollar volume: $40,000
Million dollar trades: 0

Apt_Boy. I wasn't being "nasty". I honestly was asking for your broker's name or their firm name not a cusip number. Guess I can ask my broker for a price on this particular bond, and believe me I will since you accuse me of being offensive. I'm no muni bond analyst so outside of a general obligation security, I would have trouble understanding what a "transitional future tax" obligation is. But if you feel that is a secure guarantee: Buy it.

Just checked my broker at Charles Schwab for that Cusip, he said, "I'm not seeing any being offered". So, just name your broker please.

you really are a douche

http://newyork.municipalbonds.com/bonds/recent/m_min:2020/m_max:2030/y_min:4.5/y_max:6/c_min:4.5/c_max:6/a_min:/a_max:

On the contrary, I'm an investor looking for a good return, and your pricing "source" doesn't seem to be an broker selling a retail customer a bond at 5%. I have a problem with that. I'm just keeping the discussion relevant and honest. The fact is that virtually all attractive municipal offerings go to funds and very high net worth individuals. As a retail investor, it's not easy buying a decent quality bond with a 5% NYC triple tax free yield.

First...all of those bonds were sold today in small lots

Second...DASNY Sets $634M of PIT Bonds TODAY which you could by TODAY as a retail investor

The Dormitory Authority of the State of New York plans to market $634.4 million of personal income tax bonds this week as the state reels from Gov. David Paterson’s decision Friday not to run for election in November.

It was unclear last week whether Paterson’s announcement would throw another wrench into an already strained budget battle or smooth things out. Despite a torrent of negative economic news, New York’s ratings have held up, with the three major rating agencies affirming the state’s general obligation rating ahead of a $448.5 million general obligation deal last week.

DASNY plans to market the PIT bonds to institutional buyers on Wednesday following a retail order period tomorrow. The deal is structured as three series — a $374 million tax-exempt Series 2010A, a $46.7 million federally taxable Series 2010B, and a $213.8 million Series 2010C that will be taxable Build America Bonds. Par amounts are preliminary and subject to change.

RBC Capital Markets is book-running senior manager and Loop Capital Markets LLC is co-senior manager. Hawkins Delafield & Wood LLP is bond counsel. The bonds will be marketed as serials and terms with maturities out to 20 years. The state plans to use the bond ­proceeds to finance capital grants for health-care related projects, environmental and energy infrastructure projects, and to refund mental health bonds.

LOL, Apt_Boy. get back to me when you get that 5% with your broker's name.

Corinne Smith
212-697-3289

NY NYC TRANS FIN AUTH 500 5 1/15/2026 4 4.34 107.400 A1 AA- 1/15/2019@100

Wouldn't put you in touch with anyone I know, but try them:

Contact Us

Buying Municipals and Managing
Your Own Portfolio:
Corinne Smith, Senior Managing Director
Lebenthal & Co., LLC, 521 5th Ave., NY NY 10175
877-425-6006 toll free
212-697-3289 direct
212-867-1787 fax
csmith@lebenthal.com

Apt_boy, PMG was hardly being nasty.
You seem to have a habit of overreactively reading things to be combative and respond in kind.
In fact, you will probably consider this post nasty.

Apt_Boy, your contact number proved my point. Their "bond of the day" was priced at a premium (106%) to yield 3.3%, not exactly meeting the 5% target by a long shot, as well as delivering guaranteed market price DEPRECIATION to maturity of close to 6%--not very attractive I'd say. Apt_Boy, I realize now that you are not really an experienced investor with practical insights about realistic bond returns. I thought that you might steer me in more enlightened direction, but I was wrong.

Wow, what a nasty thread. And columbiacounty didn't even have to show up.

Oh, wait, there he was. And there I was. Shooting my mouth off too quickly.

But that was earlier, so nasty at the end of the thread, and all without columbiacounty.

operative idea--shooting your mouth off.

What? All I can see is something small and light gray. Can you type louder?

nope...you're gonna have to struggle and see if you can read it.

I'm really having trouble reading what you are writing. Maybe try another posting name again. Hugh_H?