% discount for apt with tenant

just curious...with so much supply, why are you looking at this property? I've passed on situations like this and wondering what your angle is. thx.

v65

It could be more than 100%, depending on the age of the tenant, presence/likelihood/age of a spouse or successor, chance of $2K/$175K destabilization, and on and on. If all of that looked good (from your perspective) the sponsor wouldn't be trying to sell. Generally anyone who owns these owns a bunch of them, so things even out. Owning just one is quite a gamble, especially given the superstition that buying one automatically confers longevity on the tenant.

On the other hand, you could find another owner in the same boat and play Strangers on a Train.

I own the apt next door - so it would be a possible combination opportunity. Much cheaper than buying something else of the same size as the combo. No chance of destabilization, rent is too low, tenant's income is way too low. It is very possible the tenant would be interested in a buy-out offer, but I am not 100% sure. And I understand the protections afforded to the tenant - would only make a deal if it was in our mutual best interest.

I would not touch it unless you were break even monthly at the moment of purchase-- of course the calculation should take into account any tax benefit you derive from your loss for the next few decades until you get use of your own property.
You actually might be in a greater position than other buyers if you know the tenant well enough to predict their exit, and maybe can negotiate a deal before you go through with the purchase--but that deal has to be rock solid and of course wouldn't be done without a good lawyer on your side.

"What would be a reasonable discount for an apartment with a long-term rent-stabilized tenant living in it? The current rent does not cover the monthly maintenance."

I think the current owner should PAY YOU to take it. I mean, it's a money-losing proposition. If the tenant is 60 years old, he/she could live another 40 years.

NWT: It's called criss-cross, and that's just sick.

veggiefleur: The market discount for the scenario you describe, with no buyout in place, could be anywhere from 50 to 90%. It's hard to be more precise without knowing specifics. The obvious advice is to negotiate the buyout with the tenant BEFORE going to contract on the purchase of the apartment.

Alternatively, the tenant could negotiate the purchase with the right to assign the contract to you - or anyone else who's willing to pay more.

But - in a case where the buyer is trying to purchase an adjacent stabilized/controlled unit to combine with his current apartment, he should expect to pay a premium, correct? Or should he expect a discount in this scenario as well?

"He should expect to pay a premium, correct?"

Squid: Only in the general sense that, in any market, an end-user will generally tend to outbid other market participants, because the middlemen/market-makers have to leave room in their pricing to mark the item up for sale to an end-user. There's no law that says it has to turn out that way - especially in a market where the product can be priced in very different ways.

Based strictly on current cash flow, NWT and pier45 are right: the value of the apartment is negative. On the other hand, if an investor were to apply aggressive assumptions regarding mortality, legislative changes, and/or the DHCR deregulation process, the IRR could look quite attractive, even at a relatively high price.

Historically, aggressive assumptions with regard to decontrol have led most players to ruin. But if everyone took investment advice from Santayana, there would be fewer casinos in the world.

And in case anyone was planning to buy a controlled apartment with an elderly tenant, please read the following story (see the bottom few lines):

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