To sell now or later in an upcoming area in Bklyn

The market is indeed narrowing as it has been on a more macro sense between Brooklyn and Manhattan, and now that's starting to happen to outer areas of Brooklyn where you're in. I'd sell now before this long bull market matures.

By the way, interesting that you chose the FSBO route. Believe you mean Hauseit right? How did you hear about them by the way?

In terms of new construction condos, the extra supply won't be a great thing for you if you also have a comparable condo. However, new builds generally bring gentrification to the neighborhood. More starbucks etc. so that'd a net positive for the neighborhood overall.

Thanks, Captain of the Gate. I heard about Hauseit through streeteasy a few months ago when I posted about selling the apt.

We are concerned about the inventory going up with new condos. It def would bring gentrification and that is why it is a hard call whether to sell now or wait a couple of years. Also, the coops appear to be on the market for a while and avg time seems to be at least 60 days or even longer where apts dont have views, dark or need work.

Few things to consider.

One -- have you owned the co-op long enough to qualify to sublet it? Keep in mind some co-ops require not just ownership but a certain amount of time of occupancy before shareholders are allowed to sublet. Check your proprietary lease on this. If you cannot sublet once you've moved away, you will be out maintenance and insurance while the unit sits fallow.

Two -- If you CAN sublet, but are living in another state or far from the city, you might find this option to be a big nuisance. Yes, a super can handle the occasional problems your tenant is bound to have in the unit, but it is still not ideal to be a remote landlord.

On the same topic, you mention the unit needs work - unless you are planning to offer a significant discount to a prospective tenant, you may have a hard time finding someone who will want to rent in a co-op (requiring board approval and having a hard-out lease) that also happens to be shabby (crummy appliances, etc). On the flip side, if you want to make the apartment more appealing to renters, you'll have to spend some money to spruce it up, especially kitchen/bathroom.

Third -- your concern about inventory flood is valid. It is very likely that sparkling new condo buildings with all the bells and whistles will depreciate your co-op value (unless there is something very special about your building - it's historic, it's beautiful, it has gracious, traditional layouts that many people prefer over cookie-cutter condos).

Not knowing any of these variables it is hard for any of us to really weigh in. That said, if it were me, and this is only my opinion based on very sketchy facts, I would likely want to be done with this apartment and fully focus on moving on and enjoying a new place.

Oh and by the way, if you break even or make only a small profit from an apartment purchased last fall you've done quite well IMO. Don't let 'greediness' over the prospect of higher profit cloud your judgement. Holding longer than necessary will be a mind-suck and could also become a money-suck.

If anything I think the new condos should be a help not a hindrance. They will bring people to look in the neighborhood as a potential "buy" and I am quite certain that you will price your unit at a fairly big discount relative to those units so it will appear like a bargain to people newly interested in the area.

Squid, Thank you for your thoughtful suggestions. We are allowed to sublet and we had informed the board during the interview that we chose the bldg because of the subletting flexibility if needed. They were fine with it.

But, you hit our nerves with all you said - being a long distance landlord & market getting flooded with condos and competing with coops if we wait longer to sell. The realtor with whom we consulted thinks this is the last bit of Flatbush which is still affordable (1bd in 300k range) and would only appreciate and it confused us whether we should hold on or sell now. But, I see the apts sitting on the market for months and increasing inventory. The buyers are on the fence in this part of Brooklyn since gentrification has just started to happen.

30yrs_Re_in_REO, Thank you for responding. You gave me such good suggestions a while ago when we had just closed on the coop and we were so concerned.

That is an interesting observation that you don't see new condos as an hindrance. As I mentioned there are early signs of gentrification and there is significant price gap between prospect leffert gardens (475k upwards for a 1bd) and (675k for a 1bd condo) and the prewar coops in our area and in some post wars r going for 300k - 330k now.

I just found a very new construction small 2bd condo bldg in our area which they have listed on the market for 565k range just now. The location is certainly not very appealing due to a major housing complex across the street. The bldg is not finished but I guess they have put it on the market. One bd condos will most likely be 450k range in the near future.

So what's your game plan? You gonna pull the trigger?

By the way, I've found this forum to be pretty helpful if you have tough questions like this: https://www.hauseit.com/forum/

Maybe you can get views from some appraisers, mortgage bankers etc. as well on what you should do

Smart that you got a free CMA out of your broker friend heh :-)

Captain of the Gate, thanks for the link. I checked it out and I guess it is a good resource to ask questions.

We are considering our options. I did extensive searches in next door area of Ditmas park which runs parallel to our area on B, Q lines. The 1br apts near B, Q r priced at 499k and on the Flatbush side near 3/5 are 300-325k range. Granted Q is faster then 2/5 with 22 mins commute to lower Manhattan but from Flatbush it also only takes 27 mins to get to the wall street. I would think that this price gap between this two areas would further close as Flatbush become more gentrified. It just doesn't make sense with almost 200k diff in pricing. This is where we are a bit stuck and debating whether its worth waiting or not.

I would approach this from a different angle because you are making an asset allocation decision at this point.

Figure out what % of your total assets is in this house in terms of equity:

1- If over 10-20% - sell, it's way too much to risk in an asset that likely has a cap rate of 3-6% (based on what is going on in the general market) and is trading primarily on future speculative value.

2- If less than 10-20% - keep it only if you are willing to be a landlord, have run basic cash flow analysis on the worst case scenario in terms of financials and logistics (including ability to service debt if necessary), and are comfortable with a long hold in case you need to keep this for a while.

Thank you, Anonyousbk, for providing another angle to look at our situation. Isn't cap rate applicable to all cash sales only? We financed this apt with 33 percent down.

Is there another way to calculate the return by just simply using the downpayment/closing costs? We would make 7.8 percent return on what we invested in the apt in rental income after deducting mortgage/maint/insurance but it comes with the headache of being a landlord and most importantly, risk of a non paying tenant.

People very rarely properly account for vacancy, renting costs, non-paying tenants, etc. when calculating the return on their RE investment. For example, very few tenants are paying broker's fees any more (they are being paid by landlords) and lots of landlords are offering "free rent". Are you including the cost of having to do one or both of these to compete with the other landlords?

Re_30yrs Thanks for pointing the rental costs like broker's fees etc. We can deal with broker's fees and vacancy rate but biggest concern is a non paying tenant and potential litigation costs. This is a risk of renting and we are trying to weigh it against hope (greed) of prices moving up as further gentrification happens in the area.

You can use a cash-on-cash model. Of course, again, calculating returns is only one part of the equation. You also need to calculate the % of your assets in this one asset.

If you have $9.5m scattered in stocks, bonds, real estate, etc, all earning income and then you put $500k in a house to live in as a 20% downpayment, you can hold for a long time. If you have $1m of which half is the downpayment, you need to really plan to run this as a value-add business otherwise you are just speculating with a large % of your net worth, generally not a good idea.

Renting isn't as bad as it seems, I rented out 2 condos on the Upper Westside for 15 years and had minimal problems with tenants. Just make sure to do an exhaustive pre-rental investigation prior to renting out the property. Also go with your instincts and if a prospective tenant doesn't seem right don't rent to him/her. Good luck.

Except if those instincts are racists.

This is where owners of a large number of properties have an advantage: risk diversification. If you own 100 Apartments and the risk of a non-paying tenant is 2% (NB that's not an actual statistic, just a number I pulled out of my ass for this example) then there is a pretty good chance that you will have 98 good tenants and two bad ones. But if you have one apartment and you end up with a bad tenant, then 100% of your tenants are bad.

The problem is NYC housing courts which rewards non paying tenants. The whole NYC housing market is screwed up. We rented for 15 years. We never harassed our landlord or were ever late on rent and left on excellent terms. If you can't afford to live in an area then move. The courts have ruined even free market apts. Why it takes almost 20 months to evict a non paying tenant?

We wont be calculating this risk of renting our apt for just a couple of years if we were in any other market.

chess3434, I am not sure if most landlords intentionally engage in racism as long as the potential tenant is qualified and has income. In our last bldg in village which was pre dominantly white, the management did rent to a few ppl of color who had six figure salaries.

Over the last two decades L&T has become much less Pro tenant than they used to be.

ok..here's a question regarding sale since we r leaning towards selling rather then renting it out..the broker we consulted did a comps and looked at our apt and she suggested list price which is 56 percent more then our purchase price (we closed in early Aug). I contacted this broker because she recently sold a unit in similar bldg to ours in next block and they have another one in contract in the same bldg. The broker advised not to do any renovations at all (kitchen does need an update) and just sell as is. The broker brought in a folder of comps (a few sold and some in contract or active) all above our list price that she suggested. Ours will be the cheapest 1br in the area if we list it now. The broker says they never had an issue with appraisals. This is one of the top brokerages in NYC.

Is it possible to get an appraisal this high with in 8 months of the purchase without any renovations? Wouldn't buyer's lender object to such high valuation in such a short frame of time? Ofcourse if we get a cash buyer appraisal wont' matter. The bldg has sound financials with plenty in reserves and renovations r going on in the lobby etc.

One thing is that since it's over 6 months if you can come up with true very recent comps you may be able to convince the appraiser that they are more relevant. Also try to justify your purchase as a "distress sale."

30yrs_RE thanks for your suggestions. I did find online how certain rules regarding price apply to flippers (selling with in 90 day or 180 days) when buyers have FHA financing. Those rules don't apply to conventional mortgages but Banks do put overlays for flips.

Do you think it would be better to speak to a lender like Freedom Mortgage ahead of time to clarify this issue? I saw one listing where they made it mandatory for buyers to get financing only from Freedom because bldg was approved only by Freedom due to financing issues. The listing agent even had a mortgage broker info to get buyers pre approved.

Thanks!

I can't speak to current practices as much, but back in the day most of my business was buying co-ops and condos at foreclosure auctions and reselling them. We really didn't have much problem with Buyers getting financing. However, in most cases we did a renovation - between that and that all of the purchases could clearly be explained as distress sales, it was extremely easy to argue that using our purchase as a comp was not appropriate (BTW this is an argument for you doing some sort of renovation, even a minor one, if you can't explain how your purchase was a distress sale. I don't remember if in the previous thread you had said it was an estate sale, but that would certainly count).

As far as proscribing which bank to go to, I think this could cause some blow back from buyers. Our work around for this was not to proscribe our Preferred Bank, but to word the financing contingency such that the purchaser could get financing from whatever bank they wanted, but could only trigger the financing contingency with a rejection from our Preferred Bank. So they could put in an application wherever they so choose, get a loan from wherever they so chose, but only get out of the deal if they applied to the bank listed and got rejected. We found we got much less pushback from this because it was easier to explain to potential purchasers that it wasn't some grand scheme to get them to take a mortgage from some slimy place that we had some personal interest in.

30yrs, RE Thanks for excellent suggestions!

Yes, it was an estate sale and that is clearly documented.

We will have to do some repairs to the walls, moldings etc which I am documenting. I would now also consider renovating the kitchen on a small budget to demonstrate renovations if that would help.

With regards to financing, your suggestion is excellent with contingency based on preferred lender as a last resort. As a buyer we were uncomfortable with any deal where the seller made it mandatory to use their chosen lender so you are right on the money on this issue.