crappy rental yields

Looks like he believes in 111 Murray St. That will be good spectator fodder for the peanut gallery.

I think he must have done okay or be doing okay at 845 UN Plaza because when we told them we were looking to buy, his property manager, like so many others we know, recommended we look at that building (in addition to the the unit we had been renting from him). Unfortunately, DJT's affiliation with 845 UN Plaza was not something I could get past, even before DJT revealed his true colors in their entirety (again, I actually found him likeable on The Apprentice).

We never dealt with Warren Estis directly. At the time, he had a lovely gentleman who managed all of his properties who was always our POC. We very much appreciated the professionalism after our first unpleasant NYC landlord experience. That first landlord was the only bad landlord I have ever encountered, but one experience like that is all you need to really appreciate a good landlord, something I had previously taken for granted.

If an owner of a certain means is dealing with you directly, that is not a good sign IMO. Professional managers tend to be professional. Probably cost him another 5% of purchase price on your place over the years, but seems like a proper way to account for an investment.

The 111 Murray splurge is interesting. I’m a bit flummoxed by the interest rate on the most expensive buy: 5.x% despite ~50% down. Not sure if that is a sign of over-leverage or something else. 30yrs/300, why does something like that happen?

In any case, not looking pretty right now. The rent is only going to cover something half the interest+monthlies despite 50% down, and from the looks of the comparable unit being sold by the sponsor, 50-75% of the equity has vanished at this point in time.

But I do appreciate the doubling-down with another (much smaller) purchase post-COVID.

Right? I noticed the doubling down as well. He did that with 845 UN Plaza, but not with 310 E53rd. Again, great spectator sport fodder.

The Cocoa Exchange investors made their first Acris purchase in 2012, a 3BR in Turtle Bay which they still occupy and seems to have appreciated modestly. Only 3yr ago did they start investing in studios: one in LIC which has churned through 3 tenants already (at nearly 4% cap rate, granted, thanks to tax abatement); one a block from their main home which has never been listed for rent; and now the strange sub-1% rental in FiDi.

I wonder if one or two of those wasn't earmarked for a family member, at least originally. That's the story with the lawyer who owns my current condo: not an investor, just a guy who overpaid at the tippy-top of the early '08 bubble only for his kid to say "nvm, I prefer SoHo". As for the couple investing in Cocoa #502, their story may have started that way, but inadvertent success in LIC seems to have provoked overconfidence.

Just looked at a duplex at 860 UNP. The prices here are unbelievably low. I understand that the maintenance is high (with their “add ons” ) but still, the apartments are huge. They don’t get any revenue from the garage (an early sponsor carve out like a condop?) but even with renovations seem like a steal.
Our negative was no terrace, and to a lesser extent, an underpowered microwave hood for cooking- tho the kitchen does have a window for exhaust .
Tempting to make a change

If I remember correctly woks are banned anyway.

25D has a proper vent hood pictured. Not sure that's worth a $500K premium over 24B/25B, but at least you can wok out.

Main problem is it's a long way from nowhere. (Though maybe that's appealing to the folks whose concept of "transit" is the FDR.)

845 UNP is also “a long way from nowhere “ at 3 times the price. And with the disadvantage of having Trump’s name on it.

Yes, I've been astounded at the square footage that is going for nothing in both 860 and 870 UN Plaza (and have you looked at River House lately - yikes!).

845 UNP attracts completely different buyer because it is a condo.

We didn't understand the coop thing when we got to NY, but once we did and were okay with its drawbacks, we (well, I), could not ignore the price differential. Mr. MCR would have been happy to buy the condo we were renting at 310 E53rd. The drawbacks for me there were location (I wanted to be far from the bustle) and the size of the place (it was bigger than I wanted), and I certainly did not want to pay a premium for something that was bigger than I wanted in a location that did not give me the serenity that our quiet little block does. I love being a long way from nowhere on basically a dead end street.

And it’s only 2 blocks from MCR!

Oh dear, is that a positive or a negative? I fear my proximity has further depressed an already depressed area. :(

RichardBerg,
I'm seeing lately a surprising number of fancy hoods in kitchens which are not connected to any actual ductwork which leads to outside.

That area between the FDR and Third Ave, 42nd to the Queensboro Bridge, is actually surprisingly nice. I visited someone there recently. The subway service is decent, yes there's the FDR, and it lacks the nowhere feeling of equivalent blocks on the west side. The lack of a proper walk along the river sucks. Still, I'd take 50th and 2nd over 50th and 9th any day.

Lack of being a magnet for people has distinct advantages these days. Most of the people I know who live near 23rd St and 8th Ave are practically afraid to leave their buildings.

@George - That’s the spirit!!

@30yrs - I have always considered it a blessing that I have no need to be liked.

I was at 23rd and 9th about a month ago. Three people on one short block begging in wheelchairs.
1) The regular/usual guy
2) Lady asking everyone for a light (Does this qualify as begging?)
3) Another random guy

This was a record for me.

Holy Apostles (22nd & 9th) runs the biggest soup kitchen in Manhattan. Good people. I hear they're busier than ever.

Back when the performing arts were a thing, I would rent their sanctuary a half-dozen times a year.

Couple days ago I posted a downtown loft whose sale+rent listing implied 1.7% yield.

Well, another neighbor just entered the sale+rent market today, identical price, but with twice the projected yield:

https://streeteasy.com/building/74-reade-street-new_york/sale/1498233
https://streeteasy.com/building/74-reade-street-new_york/rental/3262497

Some of that comes from lower maintenance; the rest is (IMO) extreme optimism on the rental front. Note this apartment is 25% smaller than the one at 138 Fulton, in a worse location, while asking 38% more. (I'll grant that the private/keyed elevator is chic, but that's the sort of perk you barely notice after your first 2wk of living there.)

Richard, You are off on the location assuming I read correctly that you are saying Fulton is better. Tribeca one far better. Private key locked elevator does carry a market premium.

I had a private keyed elevator for a few years. The elevator opened to a vestibule, not the apartment itself, so delivery guys wouldn't randomly pop into my living room. It was fabulous. Big selling point for me now.

Sounds cool, just don't watch this video before going to sleep! https://www.youtube.com/watch?v=ZUvGfuLlZus

Speaking of lofts with private elevators, how can the maintenance on a tiny co-op with a bigass elevator in a high-tax neighborhood be this cheap? https://streeteasy.com/sale/1275899

(Confession: I *love* what 2A did with the place. Shame the 4B unit currently for sale is so much less useful, despite the extra sqft...and with the lower ceilings + pipes, it'll never really get fixed up the way a loft deserves to be.)

Some of the savings come from not providing heat or hot water (nor maintenance of those systems).

ESTIMATED MARKET VALUE 230,512 5,847,000
MARKET AV 103,730 2,631,150
MARKET EX 2,390
8-30% limitation - AV 25,525 647,460
EXEMPT VALUE 2,390

Must be nice to get taxed on just 11% of (an already-sandbagged) value.

Building square footage isn't listed on the DOF website, but assuming the rear yard is small, that's a taxable value of about $37/sqft at 47 Walker.

My small downtown co-op has a taxable value of $84/sqft.

I haven't looked into the tax differentials of cond-op vs. co-op but that's amazing.

Looking at the chart for Manhattan I was a bit surprised at the spike at "over $10,000"
https://therealdeal.com/2020/10/23/dead-weight-a-breakdown-of-nycs-rental-listing-glut/

Buy https://streeteasy.com/building/5-beekman-street-new_york/24b

Rent https://streeteasy.com/building/5-beekman-street-new_york/26b

Previous sale recorded at $2m in 2017, now $1.5m. Ouch.

You know I dig the buildings on that block (American Tract, Potter, Morse, etc) but man those monthlies are soul-crushing, both in the co-ops and condos. $4/ft in that B-line.

Sad as the effective yield on $5K rent would be, I don't think they will get it. FiDi shoppers can get a lot more sqft and building amenities at that price point right now.

I'm just not interested in paying ~$5k/mo for an EIK with attached maids room, even if 2 walls of that kitchen are floor to ceiling glass. Particularly as the availability of the building amenities may be in question for the next year.

5B can't get $10,000 for rent
https://streeteasy.com/building/31-west-11-street-new_york/5b?card=1

2B couldn't get $3,895,000 for sale
https://streeteasy.com/sale/1474984

Square footage on 5B is complete B.S. Add up the gross dimensions from the floorplan. I get 1100 square feet, maybe 1200 at most. Advertised as 1500. And they do my personal pet peeve of saying "Miele" not once but twice. Hello, a Miele dishwasher costs $900 at the entry level, same as a decent KitchenAid, Whirlpool, or any other.

Let's assume both properties are actually one and go at ask - it's $10K/month rent on $3.9 million. Even with NO expenses, it's a 3% cap rate. Take out taxes, commons, and some minor expenses and vacancy allowance, and it's a 1.5% cap rate. Financed at 2.5%, and you're losing money each month. This analysis doesn't provide for the amortization of transfer taxes over the life of the investment.

Out in Nowhere, my agent told me about a property that sold at $4 million over the summer and is now rented at $30k/month on a 2-year lease. That's three times the gross rental income of the NY property. Before expenses, the gross rent is 9% of the purchase price. It's in a place with much lower taxes, so even with a generous budget for a property manager and repairs/maintenance, it's still an excellent yield. Once "investors" from the city arrive, they'll look at that yield and pay far more than $4 million for it.

So what should an investor pay for 31 West 11th St?

$1.5m would be a 4% cap rate, which seems about right to me. ($10k rent minus $5k expenses times 12 divided by 0.04 = 1.5m.)

Let me add to the logic above. If I finance $1m at 2.5%, I pay about $2k in interest. So my net is $3k/mo. Round trip closing costs excluding brokerage are $80k plus $90k brokerage. (Assume I don't use Kevin.) That means I have to hold the unit for 56 months just to pay transaction costs. Then I need a return on my $500k down.

The only way this all works is if I assume real price or rent growth of several percent a year. That worked well from the waning years of Ed Koch till March 2020. I'm just not sure what catalyst would cause much higher rents or home prices in NYC relative to all the pressures on prices.

Or I can buy in Nowhere where round-trip closing costs are paid back in a little over a year.

Can I butt in with a question? What do you do with an apartment that's fully paid for (paid off last century) and because of its location, rents like a dream. (No building restrictions on renting.) Rents are down, yes, but demand is relatively bullet-proof. My gut says hold as long as annoyance factor isn't too high.

Same thing you do with a stock whose business you continue to like but is facing temporary headwinds — close your brokerage account window and do something else to distract yourself for a few years

To an investor, price is everything. If you can sell it for 100X the rent, then obviously you sell and put the money somewhere better. If it'll only fetch more like 10X, then hold & refi. In between, ask your crystal ball.

Yep. That's where we keep ending up as well. Nice to have somewhere to check in. Thank you!

I would guess tax consequences would write large in that decision and I'm not qualified to give you advice on the outside of "consult your tax professional." It's a major part of why you didn't see family/"generational" firms in NYC ever selling properties until things got stupid in the last decade or two and they constantly were getting"offers they couldn't refuse" (Ring, Duell, etc).

Yep. The tax consequences are real, and who knows what will happen to 1031 rules. They were on the chopping block in Biden's plan, although I don't imagine him getting much done in that dept given Senate.