Should I Move or Should I stay?

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Hello BP! I have a decision to make come 2016 and need your help deciding.

For 2016 my number 1 goal is to buy my first rental property! I currently live in NYC and plan to buy my first property in Albany, NY which is about 2 and a half hours away. I'm still not sure whether I want to hire a property manager or manage the property myself. I currently have a job but it's a contract job and it ends in May.

I absolutely love NYC, all of my friends and family are here but I want to get started investing in Albany. I have two choices to make:

A.) Stay in NYC, travel every weekend to Albany to check on the property

B.) Move to Albany, manage my own property and potentially get the ball rolling quicker investing in the next few properties.

I'd like to know if you were in my shoes what would you do?! What are the pros and cons to renting out a space 2 and a half hours away versus moving to a new location I have some familiarity with?  

[Ian T.]

HI Nylisha,

Here's my 2 cents, apologies now for the ramble.

I live in NYC and started investing in Albany a year and a half ago. It's definitely doable   with it's challenges. While I'm perfectly fine with investing in Albany for cash flow, moving there isn't an option for me personally. 

The 1st property I purchased was a vacant 4 unit which needed a fair amount of rehab. The second property is a 5 unit that was turn key, fully occupied. 

Albany can be challenging for several reasons:

1.) You need to have ample capital reserves. The majority of the properties are 80+ years old and suffer from severe deferred maintenance so make sure you build this into your capex budget when negotiating the price. I'm in the process of having a new boiler installed this week on the 5 unit- while I knew that it was reaching end of life, I wasn't expecting to replace it for another couple years.

You also need to factor in that some of the properties are zoned historic which increases the costs when rehabbing the exterior. The 1st property I purchased falls into this category and not realizing this, I had to restore the windows instead of replacing with Vinyl. The cost to replace with decent new windows that complied with the historic zoning board, would have lowered my return substantially.

2.) There is a fair amount of competition for properties that are priced right and when a property comes along that seems to good to be true, it almost always is. I've had to back out of several contracts to purchase. One was due to the seller failing to initially disclose lead that was identified a few months prior. While one of the units was vacant, re-mediated, and certified lead free, there was a family with a small child occupying the other unit which my council advised could very possibly open me up to the liability of a lawsuit down the road. I backed out of another purchase that was a complete gut rehab that had serious structural and infrastructure issues that we found upon closer review with an engineer. They cut corners where corners should never be cut.

3.) It's hard to find decent property management. I have a one man shop that takes care all the location specific needs i.e. tenant placement, maintenance, etc.. I handle the majority of the paperwork and billing. He's great with the tenants and being onsite when I need him to, but if I were to grow to 20 or more units I'm not sure he could handle it with his day job. 

4.) Never base your financial analysis on the #'s provided by the seller and question everything they provide you. They may be quoting insurance prices on a discounted rate due to multiple properties within a group policy. They may also be quoting you an ACV policy vs. RCV or they may have owned the property for 20 years and it's not insured at its current value. 

You need to know what value the property tax is currently assessed for at it's current tax rate, and estimate what your new taxes will be at the purchase price. I learned this lesson the hard way with the 1st property where I did my financial analysis based on the tax at the time which was $5,000/yr.  After purchasing, I was reassessed at $8,200/yr. This was a substantial hit to my bottom line. Lesson learned.

5.) If you have rehab work, you need a contractor that does quality work and more importantly, someone that you can trust. It took me a while, but I found a great contractor that's a one stop shop and stands behind his work.

With all this said, I've been very actively looking to expand and purchase up to 40 units in Albany. Given the challenges with inventory, I've started to look out of state and specifically in Ohio, with a trip planned there for next week. Investing remotely in Albany gives me comfort that I can succeed further from home with the right team.

Best of luck! Please feel free to message me directly.

Ian