Posted by rdance3 on May 10, 2006 at 16:16:05:
Chyna where in NYC are you? I am in contract on a 6-family in Brooklyn. If the building is at market rents why do you want to evict? If it is at market rates then most likely the renovating removed the “stabilized” tag.
rent stabilized in NYC - Posted by Chyna
Posted by Chyna on May 10, 2006 at 14:01:18:
Does anyone have experience with six family rent stabilized properties in NYC? I’m considering purchasing one…all apartments are renovated and they’re at market rents but the building, I think, is still considered “stabilized.”
I heard that it’s impossible to evict from a stabilized building. Is this true? Any other reason not to purchase a six family? It cash flows well.
Thanks,
Chyna
Re: rent stabilized in NYC - Posted by Frank Chin
Posted by Frank Chin on May 11, 2006 at 08:04:04:
Chyna:
Why don’t you check this out:
http://www.dhcr.state.ny.us/ora/ora.htm#faqs
As to your questions:
Q: I heard that it’s impossible to evict from a stabilized building.
A: Yes, to a degree. Exceptions are if you or an immediate member of the family plan to move in. There was an article in the NY Times a few weeks ago regarding another loophole involving “gut rehabs”.
Note also that the law also allows immediate family members of the tenant to stay continue renting after the tenant vacates, either at death, or a relocation.
Q: Any other reason not to purchase a six family? It cash flows well.
Normally rent stabilzed buildings do not cash flow well because increases are regulated, and expenses are not, and rises faster than increases “allowed”. The dramatic increase in the cost of fuel is one recent example.
It may cash well currently because they was a “turnover” in tenancy, resulting in rents going to market, due probably to the rehab. But, you have to gamble and hope you have quick turnover going forward, or else in the long haul, expenses may rise faster than approved increase.
Other Reasons
I’ve looked into older stablized buildings, and I’ve chose not to for these additonal reasons
One would have to finance with “commercial loans”, where the amortizations is a lot shorter, 20 years, and interest rates higher. If you check this angle out, you’ll find most of your cash flow eaten up here, and unexpected capital costs coming out of YOUR POCKETS.
These buildings are more management intensive, and usually, one of the tenant receive rent concessions of up to 50% to act as the “manager”. Because these units are often in “ethnic enclaves”, the manager is the only one speaking English, and he’s the interface with your tenants. Figure spending some of that cash flow here.
Without the building manager, it’s difficult to have the sidewalks swept daily, garbage taken out twice a week, and separated correcty for recycling.
A sanitation inspector was in the midst of checking the and complaining to my wife about mess made of the recycling by my tenants at a 3 family early one morning, when the tenant came out the door on the way to work, told the inspector that “the whole thing is bewildering”.
When the inspector heard this, he was wonderful enough to help my wife resort the garbage, and avoid the ticket. Tickets for these, and dirty sidewalks, if you’re close to stores or schools, can add up.
Try explaining recycling in an “ethnic enclave”.
One of several reasons that my brother in law, a doctor, sold a multi in San Francisco is because “one” of the "“three” units is controlled, and he had to make up his mind whether he’s a doctor tending to his patients needs, or whether he’s this tenant’s baby sitter. I can imagine the nurse telling the patients, "Doctor L has to cancel his appointment because his tenant has a problem AGAIN.
In fact, when he tried to sell it, the listing for the first two realtors expired without the property being sold because this tenant was so uncooperative.
It was finally sold when somehow the third realtor hit it off with this tenant, and a little bribe, finally did the trick.
Remember
With these “6 families”, your name is on the deed, but “the tenants own the rights to the place”.
They are the masters, and you the servant.
ON the OTHER HAND
If you wait long enough, apartments over $2,000 are taken off stabilization, and the politicians hope that in the distant future, as rents rise to that level, eventually, rent stabilization will go away.
Many investors bought “rent controlled” apartment building in the early 1970’s correctly figuring many of these tenants will either move to nursing homes, or die, and rents will then move to market under “rent stabilization”, and a few fortunes were made as a result.
The question is “how long is your time horizon”, and can you take all the abuse in the meantime.
Frank Chin