Brooklyn, NY – am I crazy to start here?

[Dan Ashley]

Hey all,

First time home buyer and my dream is to purchase a multi-family, reno and house hack in North Brooklyn. I want to live in one unit and rent out the other unit to help pay off the mortgage, then buy another spot when I have enough saved up as a vacation home.

I'm pretty set on where I live, been here 12 years and tired of paying rent.. but purchasing even a condo is 600k+ and multi-family in north brooklyn is easily 1mil. I have great credit, killer salary, and a bunch saved up but still can't afford a 20% down payment on anything over 600k. Buying a condo seems like a huge waste, whereas multi-family gives some cash flow to neutralize my monthly payments. Mostly worried that even if I find a place and the money, that I'll be making a big financial mistake and have little left to cover unexpected costs. Don't want to burn my money on the first go. 

Anybody have any advice? Am I totally priced out?

Thanks,
Dan

[Llewelyn A.]

@Dan Ashley

Hi Dan!

I'll chime in on the multi-family investing in Brooklyn, NYC.

A tiny bit about myself. My Partners and I have been buying Brooklyn small multi's (2 to 4 Unit buildings) since 1998.

We currently own 9 of these buildings in various neighborhoods including Clinton Hill, Bed-Stuy, Windsor Terrace and Ditmas Park.

Total Assets would be somewhere between $15 and $20 Million in the portfolio.

Every since we bought the first property, which was in Ditmas Park for $340k in 1998, everyone told me it was crazy.

I continue to hear how crazy I am to continue to buy every one or two years since 1998.

That $340k Property in Ditmas Park is worth $2 Million today. What started out as a break-even house hack (yes, I was house hacking before BiggerPockets was invented and started to coin the word Househack) cash flows very well as Rents move much much more. For instance, we now charge $2800 for a 2 Bedroom Apt that used to be $1k in 1998. And the $2,800 is still below Market.

Virtually all the properties in this portfolio did similarly. For instance, a property in Windsor Terrace purchased in the year 2000 for $140k is now worth $1.2 Million, conservatively.

A more recent purchase, a Brownstone I purchased in 2015 for $900k and renovated for $300k, so all in for $1.2k is worth $2 Million now.

Do keep in mind that past performance does not indicate future performance.

However, these kinds of numbers are very typical from 1998 to now.

When I was teaching, I used to ask my Investor Students, "What is a Bargain?"

Most believe that a Bargain is a discount on the price of something at the time it was purchased.

For instance, if a pair of shoes is selling for $50 when another store is selling it for $100.. yes! That's a bargain!

BUT, in Investing, every one of my properties are a "Bargain." When I tell someone I bought my 1st property for only $340k... they always tell me that's a great Bargain!

However, I never got a discount on the 1st Property. Every property like it was selling for around the same price. So it wasn't a Bargain in the traditional sense.

So, for Investments, a Bargain is not how much of a discount you get from similar investments. Instead, the Bargain is the discount on the Future Value of the Investment as compared to what you purchased it!

It didn't matter so much that I got 10% off ($34k) on the 1st property in 1998 when I am making $1.66 Million above the purchase. That's small potatoes.

The bargain is the FV compared to the Purchase Price.

Anyway, I'm not advising to buy in Brooklyn. I'm just chiming in to give you a different perspective.