(This is not in NYC, by the way, and not even in America: it's in Tokyo. Skip if you're therefore not interested.) Since it looks like I'll be waiting many years before being able to return to NYC and buy there, I'm looking for ways to preserve my wealth. My condo board owns one of the apartments in our building -- room 101, the least desirable unit. They're looking to sell it for quick cash... [more]
(This is not in NYC, by the way, and not even in America: it's in Tokyo. Skip if you're therefore not interested.)
Since it looks like I'll be waiting many years before being able to return to NYC and buy there, I'm looking for ways to preserve my wealth.
My condo board owns one of the apartments in our building -- room 101, the least desirable unit. They're looking to sell it for quick cash rather than continuing to rent it out.
The renter is paying about $650, monthly maintenance is about $250, and the selling price they're looking to get is about $80-90,000. Of course, if I threw my hat in the ring, I'd be looking for a big discount, which they might well give, since they'd be spared the hassle of going to an agent, advertising, having looky-lous come to the building, etc., etc.
I've got about $120,000 in savings that is being ravaged daily be inflation, quantitative easing, and currency devaluation. I'm in the unfortunate situation of not being able to put my money in regular investments like stocks (I work in finance and cannot open an account with any broker but my own; but my company will not allow Americans to trade stocks because of IRS reporting requirements). But there are no restrictions at all on real estate ownership, or on receiving rent from real estate I own.
I'm wondering if the convenience of having multiple investments in the same building outweights the all-your-eggs-in-one-basket risk that comes with that. Years from now, if I move away, won't it be much easier to handle renting out two apartments in the same building than it would if they were far apart? And, having lived in this building for five years, I know its good and bad points.
This unit can't be combined with mine, by the way; I live several floors above it. If an immediate neighbor were looking to sell, I'd *really* be interested.
Ideally (if I bought this), it would earn me a few hundred dollars each month. Its value will probably decline in the coming years, but if inflation (which the Bernanke acolytes running this country are going all-in to kick-start, savers be damned) gets bad it'll be a decent hedge.
So does anyone out there own a second, non-contiguous unit in the same building? How about renting out multiple units from the same building when you move on? Thoughts greatly appreciated!
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Response by front_porch
almost 12 years ago
Posts: 5316
Member since: Mar 2008
I don't, but I believe my boss does. The upside is that you're investing in what you know (and possibly have some control over, if you feel like serving on the board).
I do think you'd be running assessment risk: what if something major happens with your building (need for a substantial repair or the building loses a major lawsuit?) Generally those wallop-type assessments happen over 3-4 years, but it still would be a large hit, and I don't know how you'd handle it if you were essentially hit twice, and all your cash were tied up.
If it were me, I'd probably look in a different building for just that reason.
ali r.
DG Neary Realty
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Response by crescent22
almost 12 years ago
Posts: 953
Member since: Apr 2008
you can't just open separate accounts with mutual fund companies? those wouldn't be brokerage.
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Response by Flutistic
almost 12 years ago
Posts: 516
Member since: Apr 2007
I agree with F_P completely.
I don't like the looks of the cap rate you're describing here. We don't have all the info but it still sounds too low.
You can look up what a cap rate is, but one way to think about it is as a way to compare a real estate investment against a very different investment, such as a stock. You'd be wise to calculate this before moving forward.
Put another way, I think the amount of money you'll make compared with the risk you take and the size of the investment is so poor that I would not do this.
Rent is really low compared with the purchase price. You need at least $1000 in rent. In a good investment market in the USA, you get $750 in rent from a approx $40,000 investment. The tenant pays utilities, you pay taxes and the property manager.
And that's before appreciation. I noted the words "least desirable unit" in your post. Why would you ever want to invest in that? Would you invest in the least desirable stock? What appreciation do you expect from a place that's undesirable?
If I were in your situation I would look at a different building for sure, one with a better cap rate.
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Response by Triple_Zero
almost 12 years ago
Posts: 516
Member since: Apr 2012
@Front Porch - I actually served on the board from 2010 to 2011; the only litigation in the 44-year history of this building is the long-running dispute between us and the second building on the lot, whic split off from us in the mid-1970s, about who owns what percentage of the space leading to the parking lot that my building has. It was settled by drawing a big yellow demarcation line on the pavement... which the cars using our lot drive right over without a worry.
There has *never* been a monetary assessment to individual owners, and our reserves are substantial. The only potential assessment risk is after a natural disaster like an earthquake -- and that's going to affect any building I look at.
@Crescent22 - I have a T. Rowe Price account that I opened up many years ago and have never touched since these rules came in, and could probably just wire money into it without anyone finding out. I hate to be even slightly dishonest with my employer, though. When I started the job, these regulations didn't exist (and things like FBARs and FATCA were unheard of). All it would take would be some form for us employees to sign swearing that we have no such accounts, and I'd have to lie about it. I would much rather keep everything above-board.
@Flutistic - I know what a cap rate is even without googling; I work in finance. ^_^; "Least-desirable", sure, but with my budget -- I cannot borrow money -- I'm looking at weaker units in whatever building I invest in. With my own building, I'm looking to make a lowball offer, play up how smooth it will be for all parties, and get a substantial discount. Rent minus maintenance (including taxes, which are laughably low by NY standards, and will only ever go down) is about $400. What's the most you would pay for a unit like this?
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Response by rb345
almost 12 years ago
Posts: 1273
Member since: Jun 2009
Your posting sounds like its referring to an outer borough property
like the Bronx' Parkchester condominiums. Is that what/where it is?
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Response by Flutistic
almost 12 years ago
Posts: 516
Member since: Apr 2007
Triple zero, run the numbers, then, since you know what I'm talking about.
In my years of experience, a calculated cap rate in the double digits yields single digits in reality. A lot of investors will confirm this.
So what cap rate can you live with?
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Response by reallynow
almost 12 years ago
Posts: 172
Member since: Apr 2010
Flutistic -- leaving aside leverage , where can you get a cap rate in double digits in real estate?? Certainly not in NYC . In your example of. $40,000 investment with 750$ rent what would be the net rent to the investor (and using that , the cap rate)? Cap rates in. NYC are often 4%, sometimes less! rarely above 5% (again, leaving out leverage which can enhance yield but obviously increases risk).
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Response by Flutistic
almost 12 years ago
Posts: 516
Member since: Apr 2007
Yup, that's why I don't invest in NYC.
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Response by AKSEL
almost 12 years ago
Posts: 22
Member since: Nov 2013
I know it doesn't apply in your scenario, but this might become slightly less common when the Coop/Condo Tax Abatement is completely phased out in July 2014.
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Response by Flutistic
almost 12 years ago
Posts: 516
Member since: Apr 2007
Best places I know right now are Atlanta and suburban Detroit. Can't just buy any old thing, though, must know what you're doing by doing the research.
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I don't, but I believe my boss does. The upside is that you're investing in what you know (and possibly have some control over, if you feel like serving on the board).
I do think you'd be running assessment risk: what if something major happens with your building (need for a substantial repair or the building loses a major lawsuit?) Generally those wallop-type assessments happen over 3-4 years, but it still would be a large hit, and I don't know how you'd handle it if you were essentially hit twice, and all your cash were tied up.
If it were me, I'd probably look in a different building for just that reason.
ali r.
DG Neary Realty
you can't just open separate accounts with mutual fund companies? those wouldn't be brokerage.
I agree with F_P completely.
I don't like the looks of the cap rate you're describing here. We don't have all the info but it still sounds too low.
You can look up what a cap rate is, but one way to think about it is as a way to compare a real estate investment against a very different investment, such as a stock. You'd be wise to calculate this before moving forward.
Put another way, I think the amount of money you'll make compared with the risk you take and the size of the investment is so poor that I would not do this.
Rent is really low compared with the purchase price. You need at least $1000 in rent. In a good investment market in the USA, you get $750 in rent from a approx $40,000 investment. The tenant pays utilities, you pay taxes and the property manager.
And that's before appreciation. I noted the words "least desirable unit" in your post. Why would you ever want to invest in that? Would you invest in the least desirable stock? What appreciation do you expect from a place that's undesirable?
If I were in your situation I would look at a different building for sure, one with a better cap rate.
@Front Porch - I actually served on the board from 2010 to 2011; the only litigation in the 44-year history of this building is the long-running dispute between us and the second building on the lot, whic split off from us in the mid-1970s, about who owns what percentage of the space leading to the parking lot that my building has. It was settled by drawing a big yellow demarcation line on the pavement... which the cars using our lot drive right over without a worry.
There has *never* been a monetary assessment to individual owners, and our reserves are substantial. The only potential assessment risk is after a natural disaster like an earthquake -- and that's going to affect any building I look at.
@Crescent22 - I have a T. Rowe Price account that I opened up many years ago and have never touched since these rules came in, and could probably just wire money into it without anyone finding out. I hate to be even slightly dishonest with my employer, though. When I started the job, these regulations didn't exist (and things like FBARs and FATCA were unheard of). All it would take would be some form for us employees to sign swearing that we have no such accounts, and I'd have to lie about it. I would much rather keep everything above-board.
@Flutistic - I know what a cap rate is even without googling; I work in finance. ^_^; "Least-desirable", sure, but with my budget -- I cannot borrow money -- I'm looking at weaker units in whatever building I invest in. With my own building, I'm looking to make a lowball offer, play up how smooth it will be for all parties, and get a substantial discount. Rent minus maintenance (including taxes, which are laughably low by NY standards, and will only ever go down) is about $400. What's the most you would pay for a unit like this?
Your posting sounds like its referring to an outer borough property
like the Bronx' Parkchester condominiums. Is that what/where it is?
Triple zero, run the numbers, then, since you know what I'm talking about.
In my years of experience, a calculated cap rate in the double digits yields single digits in reality. A lot of investors will confirm this.
So what cap rate can you live with?
Flutistic -- leaving aside leverage , where can you get a cap rate in double digits in real estate?? Certainly not in NYC . In your example of. $40,000 investment with 750$ rent what would be the net rent to the investor (and using that , the cap rate)? Cap rates in. NYC are often 4%, sometimes less! rarely above 5% (again, leaving out leverage which can enhance yield but obviously increases risk).
Yup, that's why I don't invest in NYC.
I know it doesn't apply in your scenario, but this might become slightly less common when the Coop/Condo Tax Abatement is completely phased out in July 2014.
Best places I know right now are Atlanta and suburban Detroit. Can't just buy any old thing, though, must know what you're doing by doing the research.