Harlem Townhouse Purchase Checklist....

Cap rate.

Cap rate - agreed.

If you are buying on lenox, I would be concerned with the empty retail space. If you are asuming you get rental income from retail, you are probably overpaying. Retail in Lenox is basically worthless, since 3/5 potential locations are vacant.

More broadly, the purchase of harlem townhouses comes with a huge number of potentially hidden issues, including CofO, illegal construction, SRO / rent stabilization, nearby projects, nearby section 8 units, leaky basements, maint that has been put off, tenant who don't want to pay rent, owners getting their friends into units at above markets rents, unrealistic asking prices, broken building systems, massive increases in taxes when you change the CofO, the amount of time you need to dedicate to the property, etc.

If you can get your arms around these things and get a good price, I think it's a great investment.

What are you looking at?

As an investment:

#1 - Cap rate.
#2 - Cap rate.
#3 - Cap rate.

Unless you know something about the nabe or building that no-one else does.

oh yea, people also lie about expenditure on insurance, sewer and water, tax, gas and electric and other operating costs...

You should also be concerned about structural issues - after 100 years, many of the joists can disintegrate, especially around the bathrooms, kitchens and roof.

Be wary of any vacant lot (e.g., the one on the corner of 125 and Lenox) or vacant building. For instance, there were some owners selling in 2010-11 on 123rd across the street from an innocent-looking parking lot. These sellers were not disclosing the planned (and currently under construction) massive section 8 building. There was not too much press about the construction, but the block association was fighting to stop the ground breaking. The sellers were aware of this value destroying development. Too bad for the buyers.

It's a war zone. Your starting assumption should be everything you are told is inaccurate unless it's in the contract.

You need to understand the things I have highlighted to calc the cap rate.

Have you ever seen the movie Money Pit? They can film the sequel in Harlem with any person who asks a public board for a check list... This is not kiddie stuff.

Fair enough, Pawn_Harvester...
Appreciate your efforts and thoughts.....

Care to give the '5 year old' explanation of Cap Rate? And, what are some of those other Operating Costs you refer to....

cap rate = operating income / total cost to purchase.

Operating costs are everything you will need to spend to manage a house and renters.

also, you need to be mindful of environmental issues. I looked at something 10 years ago but decided against since we were concerned with spilt oil

also, you need to be mindful of environmental issues. I looked at something 10 years ago but decided against since we were concerned with spilt oil

also, you need to be mindful of environmental issues. I looked at something 10 years ago but decided against since we were concerned with spilt oil

Pawn Harvester: OK--Thanks, didnt know thats what the tem meant, but was of course well taking Operating Costs into consideration vs Purchase Price and Monthly Obligations.

Was concerned with whether or not I was leaving out any of those Operating Costs.
Include:

Mortgage+MI
HomeOwners Insurance
Property Taxes
Electric/Gas Usage
Water/Sewer [This Information I am uncertain as to how to estimate, though]
Reserve Fund

Additional personal Time/Labor: Property Maintenance [Owner Occupation...]

Did not know of environmental issues in Harlem regarding spilled oil....

Any more about that Tommy2tone?

Lenox- repairs, refurbishment as needed (might not be able to do some of those yourself)

hope that new mass section 8 building breaks the insane sellers' bones

Experienced multifamily landlady here.

You will do pretty well if you estimate your revenues from the property and then only plan to actually receive three-quarters of that figure -- even if there is a tenant in place now who is paying regularly, you might eventually have to evict, so plan as though you will have a 25% vacancy rate.

And on your list of operating costs you'll need landscaping (you may do your own mowing/snow removal, but if a tree branch breaks near your house you are probably not going to cut it down), pest control, chimney/fireplace maintenance, sidewalk maintenance, and liability insurance. Also possibly for a house you might want to tip your sanitation guys to remove large amounts of trash, and also donate to the police/fire benevolent organizations in your community.

For Harlem specifically, you need to look at the number of units. Taxes jump when you move from a three-family to a four-.

ali r.
DG Neary Realty

THANKS people...keep it coming....

PH41: Reserve Fund is accounted for, though generally speaking, pretty good all around condition....

And, caonima, already a harlem Resident and pretty familiar with the micro-neighborhood and its quirks....Though I cant believe that there is a section 8 Building coming up on w 123 where Windows/123 is commanding those skyhigh Condo prices.....

hey Ali! [Read "Diary" maybe 3 times so far, and it sits on my desk awaiting the 4th review--that Good!!]
Scary as it seems I must keep that vacancy rate in mind....Lenders will not allow full Rental amounts into the equation, using a fraction, just like you have mentioned! Chimney/Fireplace is not an issue, and neither is pest control just by eyeballing grounds and basement...
And I'll adopt a feline or 2 from Animal Care and Control on 110 if need be!
Sidewalk Maintenance, Trash, Basic repairs, and the like I am prepared to handle.
This is an investment but more importantly Resident!
Fire/Police Donations??--I really thought that was like a Mayberry RFD kinda thing!
Property Taxes have been factored in...though WHY in Harlem specifically is there a Property Tax jump when going from 3 to 4 family??

These are the reasons I asked a public board...I have some ideas myself, but the Street Easy Crew is pretty knowledgeable with some great ideas so I listen.....
I know its not Kiddie stuff, but I also feel nothing ventured nothing gained!

Lenox, thanks for the kind words! I'll take an amazon review if you haven't already written one -- it will help when time comes to sell Book Two (which is progressing, though not very quickly!)

ali

Tax rules are city-wide.

Lenox, historically you have written about buying in an income restricted HDFC building. If your income is less than $100,000 you should not be buying multi-family property. Unless you are sitting on $1 million in cash, which based on your prior posts is not the case, I do not think you will qualify for financing for a house.

Are you just dreaming or is there a real opportunity?

Tax rules may be city-wide, PH, but it's Harlem where the rising market values have kept bulldozing inexperienced owners.

Here's an NYT piece from 2006.

http://www.nytimes.com/2005/02/20/realestate/20cov.html?_r=2&scp=4&sq=taxes+four-family&st=nyt&oref=slogin

And remember that to the city, "market values" are still rising.

ali

frontporch that is a great article thank you for sharing I have bookmarked. Has anything changed since it was published in 2006? It does not seem in the public's interest to charge so much between a three and four unit house.

Also can someone speak to their experience what kind of cap rates are considered mediocre vs. excellent?

I will have to take you up on that suggestion of posting a review of Diary of A Real Estate Rookie, Ali!
I'm guessing then that the next book will be all of the chapters POST RenoFlipping in Newark and more stories from the 'lean' years...

These days, it sure seems like you have moved on! [Congrats, and its actually Inspiring!]

THAT having been said, Pawn_Harvester, I'll only say that things change, more to the point, they EVOLVE!!--Thankfully!

Back to the Dream Opportunity, what do ya'll think of using a [previously worked-with] General Contractor as a Home Inspector, along with Licensed TradesPeople also willing to take a look? [[Is there such a thing as a NYC Licensed Home Inspector?]]

Congrats on winning the lotto. It sounds like you may give it all back with this "investment".

Using a contractor does not make sense, as their incentive will be for you to buy the place so they can get the business.

You can call Scott Bray, he is a professional home inspector I have used in the past. He is very good. Google "scott bray home inspector" - his number / company name (JSB Home Inspections) will pop up.

You should get a broker than knows what they are talking about. There are a number of harlem specialists that understand that market.