Posted by Jon H. on March 12, 2002 at 01:44:39:
Wow…I could never figure out NY real estate…sounds like the money is in renting…not buying…by the way is the building in question on leased land, I heard 1/4 of Trump Tower is on leased land…Best Wishes to New York you guys had a bad last year and all the country is behind you.
A good question for the pros! - Posted by Izzy
Posted by Izzy on March 06, 2002 at 16:47:44:
Hello!
I am looking at a condo that is for sale in new york city for about $500,000.(half a million dollars)
here’s the catch:
there is a rent controlled tenant inside, paying $200 or so in rent. my negative cash flow per year will be about $10,000.
the comps in the building sold recently are for $1,500,000!!! (yes one and a half million!)
heres the brainer:
can I Refinance the property for a million dollars if the appraised value is 1.5 million? or do they check the tenants rent? it’s a single condo, not a a building…
This should turn into an interesing discussion!
Izzy
Re: A good question for the pros! - Posted by Greg
Posted by Greg on March 08, 2002 at 07:50:27:
Izzy, I have owned units like this before. You can buy them all day long for a fraction of the price you mentioned. We bought them in the $10,000-$30,000 range. That is all they are worth because of the negative cashflow. Yes they will be worth a ton if the tenant dies or moves out (good luck). But until then they are sold at HUGE discounts from the market value. These deals are only for seasoned investors with deep pockets. Greg
Rent Control Units in NYC -Some thoughts - Posted by Frank Chin
Posted by Frank Chin on March 07, 2002 at 06:50:59:
Hi Izzy:
The rent of $200.00/month you mentioned sounds like a rent controlled apartment. I still see them from time to time, and a few months ago, I saw one where the tenant is still paying about $132/month. This is due to the fact that the rents were frozen at the WWII levels, with minor increases allowed from time to time which never caught up with inflation.
There’s a few angles to this.
Under the rent controlled laws, anyone who lived there since 1945, is entitled to continue living there. BUT in addition, children or anyone else that lived with the lessee is entilted to continued living there as well. This was a law passed in WWII to control prices that still exists today.
A friend of mine, grew up in the Village as a small boy where his dad had a rent controlled apartment since WWII. But years ago, they bought a 3 family house in Queens, but still call the Village home. While his dad passed away some 10 to 15 years ago, my friend’s younger brother still has the rent controlled apartment. He’s entitled to it because the original lease was for his parents, and the children. While he has a house in the outer boroughs, as a NYC police officer working the 1st precient (Chinatown), he could uses the place to sleep over without commuting all the way back to Queens for the night.
Technically, if he actually lived there, and had children, rent control can continue for another generation.
BUT technically, he could be evicted if the landlord cares to check. Because, under the Rent control, and even rent stabilization laws, it must be a primary residence 100% of the time. So if a tenant had a place in Florida to stay 6 months of the year, he or she could be evicted. Landlords have been known to hire private detectives to check out where their tenants actually work, vacation, and sleep, as the answer may be worth ONE MILLION DOLLARS.
This may be an interesting project for an investor with a bit of spare cash and patience. Back in the 1970’s, investors whould buy up large lots of units like these and wait for the tenant to move to a nursing home or die. Fortunes were made.
In this case, you may want to find out if this person is VERY OLD, or the decendent of someone under rent control.
I have heard of investors buying NEW HOMES for these people to move to. For instance, this tenant may be stuck here, but rather move to Florida to be with her children. Three BR new homes in FL goes 140K. If you can talk her into moving to a brand new home in Florida that you just bought (for NO MONEY DOWN?), you may have a deal here.
So, you’ll have to really sit down here and figure out MOTIVATION, in the same way as you deal with motivated sellers. If I live in a 1.5 miilion apartment, and under the law, only had to pay $200/month, it’ll take more than 100K, or even 200K, to make me think about moving.
Then again, who OWNS this unit. He or she may have only paid 10K for this many years ago and now wants 500K instead of 1.5 million. Can a deal be made with the guy and what is his motivation? Remember, carrying charges alone may run $1,000/month or more for a doorman building, certainly with 1.5 million asking prices, and you have negative cash flow here even owning it free and clear!!
Then, without more details about the tenant, such as age, health, motivation, children and their location if any, its hard to come up with a detailed game plan.
Frank Chin
Re: A good question for the pros! - Posted by Ed Garcia
Posted by Ed Garcia on March 07, 2002 at 24:08:02:
Izzy,
JohnBoy asked you some good questions. Your scenario doesn’t make sense. How could anybody in a New York condo, only pay $200 per month. He is also right about the property value. If you can’t shake the tenant, the property is worth nothing.
Izzy, I would like to tell you that if you purchased the property for $500,000 and financed it 100% at 7.50%, you payments would be $3494 per month, not counting taxes and insurance. $3494 X 12 months = $41,928.again I would like to say not counting tax and insurance. I don’t know the taxes in New York, but I know they have to at least match California. Your income of $200 per month X 12 months = $2400.
The way I see it, conservatively you’re upside down or negative cash flow is at least $39,528 per year, not $10,000 as you’ve suggest.
As far as your question as to how a lender would view this deal. They wouldn’t touch it.
The reason being is if they should ever have to foreclose, they would never be able to find a buyer who would pay the price. The income couldn’t support or justify the price.
Think about it, what dummy would pay $500,000 for a place that only makes $200 per month.
I like Stanglin’s suggestion of buying out the tenant. That’s the only thing that makes sense, if not PASS.
Ed Garcia
Re: A good question for the pros! - Posted by JoeS
Posted by JoeS on March 06, 2002 at 20:34:19:
A couple of thoughts; how long is the current tenant’s lease for? Can you charge more for a new tenant? Can YOU afford the negative cash flow? The bank would do a refi, but only if you have the financial where-with-all to support it. A lease stays with the building, but you can PAY them to move out. The question is, will a tenant want to move out of a 500K apt that they pay only $200 a month for? A lot to consider on this one.
Re: A good question for the pros! - Posted by Don (Fl)
Posted by Don (Fl) on March 06, 2002 at 19:36:52:
Izzy,
I’m not familiiar with NYC rent control laws. If you buy the property do you still have to let the tenant live there or can you give them reasonable notice to move out? If you can, remove the tenant and flip it!!! If not, that is why it is selling for $500,000.
Don (Fl)
Where caould I find such deals? - Posted by IZZY ny
Posted by IZZY ny on March 08, 2002 at 09:54:26:
Preferably in NYC, 5 boros…
I sthere a broker or what youl’d recommend? and do you think I could refi for, say, 75% of the “APPRAISED” vale, which is like 4x purchase price?
Re: A good question for the pros! - Posted by JohnBoy
Posted by JohnBoy on March 07, 2002 at 02:21:27:
Hey Ed,
What do you mean the taxes in NY have to at least match CA.??? CA has some great tax rates on property!
I don’t know what the taxes are in NY either, but here in IL. they are HIGH! We pay about 2.6%. That’s $4k on a $150k property! I WISH we had the property taxes CA had!!! LOL
What would the taxes in CA be on a $150k property? About $1,500? You guys are spoiled! 
Tenant can stay forever… - Posted by Izzy NY
Posted by Izzy NY on March 06, 2002 at 20:25:49:
The question has not been answered… Will the bank allow the LTV mortgage because they go by appraised value, or do they ask the tenant what they are paying? I don’t think they do…
Re: A good question for the pros! - Posted by G. S. Stanglin DCFS
Posted by G. S. Stanglin DCFS on March 06, 2002 at 20:15:16:
maybe the tennant will move out with $100,000 in thier pocket when the deal is done.
Re: Where caould I find such deals? - Posted by g
Posted by g on March 08, 2002 at 13:12:59:
I HAVE BEEN AWAY FROM THOSE DEALS FOR SEVERAL YEARS NOW SO I DON’T HAVE ANY GOOD CONTACTS LEFT. THE BANKS WILL NOT TOUCH THEM UNLESS YOU ARE “VERY” STRONG, AND THE “VALUE” IS NOT THERE UNTIL THE TENANT MOVES OUT OR DIES. i WOULD STEER CLEAR UNLESS YOU HAVE SOME INSIDE SCOOP ON THE TENANTS. GREG
Re: A good question for the pros! - Posted by Mark (WV)
Posted by Mark (WV) on March 07, 2002 at 10:01:23:
No Johnboy tell ya what spoiled is , mine on 104 are 285 per year and the next county over on 55k are 230 per year now thats spoiled :)LOL
Re: A good question for the pros! - Posted by JoeS
Posted by JoeS on March 07, 2002 at 07:19:17:
Here in central NY, we pay $42.95 per $1000 of the full value assessed price! 100K home pays $4,295 per year in total property taxes. The average wage here is $8.00/hr! Tough place to do business (for some!)
I love it here!
More thoughts, If I was the Banker - Posted by Frank Chin
Posted by Frank Chin on March 07, 2002 at 13:44:47:
Hi Izzy:
If I was the Banker in this case, and all I’m told is that comparable units sell for 1.5 million, and you requested a NO DOC loan for 60% of LTV, I might be tempted to give you 900K. That is if you didn’t tell me that there’s a rent controlled tenant paying 200/month, and I didn’t bother to check.
But they usually send an appraiser to check out the place, and he’ll want to know who lives there and how much the rent is.
Putting my Banker cap on, I’d say that if I have to foreclose, chances are I cannot sell it for 60% LTV, or anything close to it. I probably get nothing as the carrying charges will far exceed the $200.00.
Years back, when conversion was all the rage, I looked at packages of rent controlled occupied units consisting 20 units and up. There you can get some financing since the assumption is that statistically some will die or move to warmer climates or the nursing home. Then, the investor would have made his money on most and be stuck with one or two at the end.
Looks like the end has arrived and the owner is stuck with the one or two.
Frank Chin
Re: Tenant can stay forever… - Posted by JohnBoy
Posted by JohnBoy on March 06, 2002 at 22:43:22:
How old is this building? Has the tenant been living there since 1960 or something as to why rent would only be $200??? This makes no sense.
Why can the tenant stay forever? Do they have some type of a lifetime lease?? Again, makes no sense.
If the tenant could stay forever at that rent then to me the building would be worthless! No one could ever buy it where it would be of any benefit with someone only paying $200 in rent. Heck, I would think the taxes were more than that! Makes no sense.
Then you say comps IN the building sold for $1.5 million, but then you say this is a single condo, not a building. How can there be comps in the building when this is the only building with just the one condo??? Makes no sense.
Is your post for real or are you just trying to start something over something that isn’t valid and makes no sense?
Ed, When YOU do a loan on a invest-condo, - Posted by Izzy NY
Posted by Izzy NY on March 12, 2002 at 12:42:21:
do you ask what the rent in the condo is? is it on the lender checklist?
Rent Control is for Real - Posted by Frank Chin
Posted by Frank Chin on March 07, 2002 at 13:26:10:
Hi JohnBoy:
For your info, there still exists Rent Controlled apartments going for $200/month or below, as I seen one recently for as low as $132/month.
To be under the Rent Control law, rather than the newer Rent Stabilzation law, the tenant would have to be there since during WWII, or the children of someone living there since 1945 who inherited the lease from his or her parent. I have a friend’s younger brother who actually occupies such a unit.
Frank Chin
Re: Tenant can stay forever… - Posted by Mike (NYC)
Posted by Mike (NYC) on March 07, 2002 at 11:57:12:
I think what Izzy is refering is a single unit condo that is in an apartment building. These are very common in NYC. Many apartment buildings in NYC are actually condos. A 30 story building could have 4 or 5 condo units on each floor. In nice sections of the city these condo unit can range from half a million to 3 or 4 million. The unit in question here must be in a building where simular units are going for 1 to 1.5 million. The higher up you are the higher the price. The apartment in question was most likely rented under NY rent control laws before the building converted to condos.
Question For ED GARCIA and other LENDERS - Posted by Izzy NY
Posted by Izzy NY on March 13, 2002 at 12:30:56:
do you ask what the rent in the investment condo is when you lend?