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

[Bryan Balducki]

@Dan Ashley you could consider a partnership to afford the down payment or getting a personal loan from a close friend or family member. House hacking is definitely the way to go but even a condo purchase could make sense over renting, depending on if you can rent it after a year to cover the mortgage. You could look for a property that would work for a short term rental, which could increase cash flow allowing you to quickly put more money in reserves and for your vacation home, or to pay back a money partner. Just my thoughts, hope you the best!

[Eric Hajdu]

Dan, I think Bryan gave you great advice about partnering up with another investor to buy a multifamily.  There are so many real estate investors that are cash rich, but don't show much income on their taxes, so you having a great salary could be a real asset to someone like that to obtain traditional financing.

I certainly wouldn't look at the 1 bed condo as waste, I bought two one beds in North Brooklyn years ago and am not selling them to roll into multi families, you could do the same thing with some patience.  I'm not sure what neighborhoods your looking in, but from the sounds of your post, your thinking Park Slope, Ft. Greene, etc.  Your not touching a multi unit in these areas for under 2 million, and even that will need work.  Consider looking a little further out, Greenwood, Bushwick, Sunset Park, I believe there is some real value/appreciation there.  Best of luck in your journey!

[Dan Ashley]

Thank you both for replying, definitely easing my worries!

When you both say find a partner, what exactly does that mean? I'd imagine having a roommate who also gains equity would turn into a legal nightmare when either of us decide to move. Not sure I fully understand the cash investor situation you mentioned, Eric.

@Bryan Balducki a short term rental isn't a bad idea, tho I believe there's many laws in my area that prevent me from listing anything for less than 30 days unless I'm in the unit & available. Maybe there's a workaround I'm unaware of?

@Eric Hajdu yes those neighborhoods are definitely on my mind, but I'm particularly interested in the Williamsburg, Greenpoint, Bedstuy, Ft Greene, and Clinton Hill areas. Some of the further out areas seem like a good investment and appreciation play but I personally don't want to live out there yet. 

Thanks again :)

[Jason G.]

Originally posted by @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

That will be a big mortgage. If you had the down payment, have you done the math for the expected rent, PITI and reserves to see if it would even be a viable investment strategy?

[Ian Plocky]

No, @Dan Ashley you're not crazy. 

The truth is, the only thing that WOULD make you crazy is if you decided that Real Estate investing wasn't worth your time and/or wasn't a long term generational wealth builder. 

My two thoughts are:

1. If you saying you want to do this in NY is only a result of you wanting to live in NY - then consider the option that you could purchase an out of state rental, cash flow, and use that cash flow to help payoff a nice rent in NY. Renting where you live and owning elsewhere may not be traditional, but it makes more intuitive sense to cash flow 10k a year off of a 500k investment oppose to racking up a 3k/month liability off of a 500k investment (primary home). 

2. If you want to do this investment because you think investing in NY has long term profit margins that out of state rentals don't have, then I would open your mind to purchasing an even BIGGER building. For instance, 20% down on a duplex may seem a lot less scary than taking that money and puttign 5% down on a NICE 4-plex, but sometimes the latter option is a lot easier to manage (with regards to differed maintenance) and will cash flow more. 

[Dan Ashley]

Thanks everybody,

@Ian Plocky great advice. Having a larger building does seem like a better investment option if paired with partners. 
@Jason G. what would you consider a viable investment strategy? 

I feel like NY has the appreciation factor locked down. Though I know it's possible for rent and prices to go down, I'm willing to bet this city is here to stay. I'd be happy breaking even just to get the equity on a building, especially since I'm currently renting - aka giving my landlord wads of cash every month to buy new sports cars. Please chime in if you think there's another way to look at it.

Thanks!

[Jason G.]

Originally posted by @Dan Ashley:

Thanks everybody,

@Ian Plocky great advice. Having a larger building does seem like a better investment option if paired with partners. 
@Jason G. what would you consider a viable investment strategy? 

I feel like NY has the appreciation factor locked down. Though I know it's possible for rent and prices to go down, I'm willing to bet this city is here to stay. I'd be happy breaking even just to get the equity on a building, especially since I'm currently renting - aka giving my landlord wads of cash every month to buy new sports cars. Please chime in if you think there's another way to look at it.

Thanks!

I'm not really sure what you are trying to say. I wouldn't buy an investment property that I was just breaking even on. Yes, in recent memory, aside from the sub prime mortgage crises which caused prices to drop, over time housing prices in New York City has increased substantially. But I'm not sure what that has to do with carrying a large mortgage where you are just breaking even and speculating that property will continue to appreciate. Even if it does appreciate, the only way you realize those gains is if you sell. Yes as you pay down the mortgage you will gain equity that way, but the interest is front loaded so it takes time to build that equity from principal paydown. When you've looked at potential properties, how are you computing the break even point. Are you factoring in regular maintenance, CapEx, turnover costs, or paying the PITI when you have vacancies or a tenant isn't paying? And even if you are, if you are just breaking even, how are you planning on expand the portfolio beyond that first property? I live in Long Island, NY. I chose to invest out of state because of the cost of real estate in NYC/Long Island. I'm not saying you can't be successful in Brooklyn or any other borough. I have ownership interest in two properties on Staten Island, but they were purchased at a point in time where the numbers worked. Just make sure you have a real investment plan laid out because it doesn't benefit you to pull the trigger just to end up losing money every month or losing the property because the numbers don't work.

[Dan Ashley]

@Jason G. Great points, and appreciate the local perspective – thank you. Amassing a lot of debt and being only able to make lateral moves if I sell is certainly a huge concern of mine. 

Breaking even definitely isn't a good investment strategy, if you could even consider it one.

What this post really comes down to, is I want to purchase a home in NY but also want to have enough money to grow my investments for my future. Was curious if having a multi-family I could live in and house-hack as a starting point is actually a smart idea or just one that's going to set me back financially? Out of state seems harder to break into simply because I'm not there - maybe Hoboken /Jersey city or further like @Eric Hajdu mentioned are better places to start.

[Jason G.]

Originally posted by @Dan Ashley:

@Jason G. Great points, and appreciate the local perspective – thank you. Amassing a lot of debt and being only able to make lateral moves if I sell is certainly a huge concern of mine. 

Breaking even definitely isn't a good investment strategy, if you could even consider it one.

What this post really comes down to, is I want to purchase a home in NY but also want to have enough money to grow my investments for my future. Was curious if having a multi-family I could live in and house-hack as a starting point is actually a smart idea or just one that's going to set me back financially? Out of state seems harder to break into simply because I'm not there - maybe Hoboken /Jersey city or further like @Eric Hajdu mentioned are better places to start.

Out of state is not difficult to get into.  There are turnkey companies or platforms like Roofstock that assist investors in doing so or you can contact property management companies or look for investor friendly real estate agents in that market to assist you.  I have never been to any of the properties I own in Atlanta and closed on all of them from my dining room table in Long Island. I have a property management company manage all of them. The same will be the case when I close on the Ohio property.  House hacking a multi-family is a very viable idea, but in the end is all about the numbers and if they work.  That is why I keep going back to whether or not you analyzed the numbers.  And you have to remember too, NYC is not the norm in the country when you are reading through Bigger Pockets.  You want a duplex in a lot of places and you are looking at between 150-400k.  You want a multi family in Brooklyn and you see the numbers, you would be lucky if you could get a closet for those prices.  It is like you might as well be on a different planet.  

[Remo F.]

Use "NACA" they allow you to use low downpayment and pay for closing as well. I'm an investor and realtor and sold a multi family to a naca buyer last year. The person who purchased actually got all of her downpayment paid by the naca program. They purchased a 2 family just under $900k in East NY/Cypress Hill area

[Michael Standish]

@Dan Ashley

You’re wise to be looking for ways to turn rent into your own equity. I was just visiting extended family in Brooklyn last week and recommended that they get a few family members to invest the down payment with them on a 2BR condo. Proceeds when sold would be split in the same ratio.

The math for them was:

Rent for the next 5 years: $228,000

Equity gained: $0

Mortgage payments for 5 years: $219,000

Equity gained: $185,000

^assuming a modest 3% annual appreciation

Getting started will take you further than waiting for the *ideal* property.

[Frank Pulice]

@Dan Ashley

I’m a native Brooklynite and love seeing how far Brooklyn has come since growing up there in the 70’s but I was very frustrated when, after living in Manhattan for 20 years, I wanted to move back. I too wanted a small multi where I could house hack but the asset prices were way too high. I kept looking further and further out to find an affordable place where the commute to the city was an hour +.

Out of frustration one day I expanded my search to include Hudson County NJ and found that there were great neighborhoods with multi family buildings perfect for house hacking. Jersey City, Weehawken, Union City, West New York all offer great commutes into Manhattan with a wide variety of properties that are priced below anything you’ll find in Brooklyn. And the rental market is very healthy.

We ended up with a beautiful three unit building That's ten minutes to midtown where the rental income covers our entire PITI allowing us to save our income for a future investment property.

I’d encourage you to check it out. Take the Path the Jersey City or a bus to Weehawken or Union City one weekend and walk around. These neighborhoods remind me of Greenpoint and Williamsburg 10-15 years ago before they became super gentrified.

[Drew Sygit]

why do you need 20% down for an owner-occupied mortgage?

You should be able to do 5% down, or even 3% down on an FHA loan.

[Alexander Szikla]

Definitely house hack via FHA in NYC right now. If you can get a 4 unit and a basement, that would be ideal and create major cash flow and equity creation, plus you can not worry about a property manager and boost your yield.

You can get a whole bunch of cheap debt which your tenants will pay down over time, massive appreciation and potential cash flow if you buy right. 

DM me and we can chat

[Rolando Pi]

HI @Dan Ashley,

I agree that partnering with someone would be beneficial for both parties. Have you thought about investing out of State? I know you mentioned house hacking, so not sure if this option is feasible.

[Max Vishnev]

Dan, you've gotten some great feedback here.  And as a former long-time Brooklynite, I have to wholeheartedly agree with @Frank Pulice -- there is a whole world out there across the Hudson.  It took me way too long to realize it.  My wife and I rented for nearly 9 years near Prospect Park, helping an absentee landlord build wealth, with zero benefit on our end (from a financial standpoint at least).  

It took a big "aha" moment for me about 3 years ago to realize that I don't HAVE to stay in that part of Brooklyn (or NYC in general).  That mental switch allowed us to find a great 2-family house-hack opportunity in Bayonne, NJ, and also led me to an amazing career change -- I've been a full-time NJ Realtor for 2.5 years now and have helped many BiggerPockets folks find their first house-hacks -- a good % coming from NYC.  

My quality of life is far better than it was living in a 1 br rental in Windsor Terrace, where crappy and old 2-family properties sold for well over 1mm.  And I don't feel like I'm "missing out" on anything, because (a) I'm still close to BK and NYC by car or public transport and (b) there are plenty of things to do and places to eat and drink across the river.  In fact, the views are a LOT better and there are hardly any tourists -- just walk along the Jersey City or Hoboken waterfront or take the bus to the cliffs of Weehawken.

Feel free to check out my post about my journey from Brooklyn to Bayonne...

My Long Journey to House-Hacking (biggerpockets.com)

[Dan Ashley]

Thanks all for the great replies,
To try to sum up what everybody has said so far:

• Seems like the majority here recommend looking outside my general area since the prices are so high and I could get a better deal. My mind is blown that some of you, such as @Jason G. are able to purchase investment properties out-of-state that you've never seen in person. Very impressive. Is that common?

• Others are recommending finding a partner, potentially somebody to help purchase a bigger multi-unit building. I still don't fully understand how this process works if it's not somebody you personally know well (friend, family, significant other). Anybody want to chime in?

• Some are saying a condo isn't a bad purchase as well - it would require more patience but through appreciation I could net some profit or at the very least gain equity instead of paying rent. Still in my mind it seems like less of an investment and more of a lateral move.

• Then there's a few mentioning loan assistance programs such as FHA, NACA, etc. I assumed because of my salary / savings I wouldn't be eligible but haven't dug into what qualifications are. I'll have to do my dd on this one, but getting assistance sounds great if there's no catch.

Thanks everybody

[Jason G.]

Originally posted by @Dan Ashley:

Thanks all for the great replies,
To try to sum up what everybody has said so far:

• Seems like the majority here recommend looking outside my general area since the prices are so high and I could get a better deal. My mind is blown that some of you, such as @Jason G. are able to purchase investment properties out-of-state that you've never seen in person. Very impressive. Is that common?

• Others are recommending finding a partner, potentially somebody to help purchase a bigger multi-unit building. I still don't fully understand how this process works if it's not somebody you personally know well (friend, family, significant other). Anybody want to chime in?

• Some are saying a condo isn't a bad purchase as well - it would require more patience but through appreciation I could net some profit or at the very least gain equity instead of paying rent. Still in my mind it seems like less of an investment and more of a lateral move.

• Then there's a few mentioning loan assistance programs such as FHA, NACA, etc. I assumed because of my salary / savings I wouldn't be eligible but haven't dug into what qualifications are. I'll have to do my dd on this one, but getting assistance sounds great if there's no catch.

Thanks everybody

Out of state investing is very common, though I have no idea how common it is to not have actually visited any of the properties.  I figured at some point I would visit them, but I just never have.

With respect to partnering, my wife is my partner. Our combined income vs just one of our incomes definitely made it much easier to expand our portfolio.  You could network through sites like bigger pockets or go to local real estate investor group meetings to make connections with people who could potentially be viable partners.  

I personally wouldn't purchase a condo as an investment and I haven't used an FHA or NACA loan so I cannot comment on them and will defer to others that have experience with those areas.

[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.

[James Wise]

Originally posted by @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

You can always hit the turnkey markets. In many areas of the country you can grab duplexes for about $100k.

[William Kwong]

I guess you'll have to ask yourself, do you want to be a return on equity, or a return on cash flow investor. - Ideally you want both but with a lower down payment, the less cash flow you have due to high mortgage. If you're looking to do 10% down and renovate out of pocket, you might be able to keep a decent monthly payment and maximize rental income. Then do a HELOC with a bank that offers 100% LTV. That way you can tap into your down payment and whatever equity you built to continue onto the next one.

If you're going for a 2 family for 600K with 10% down in lets say jersey city heights and not doing much reno, you're most likely breaking even when you move out of your house hack and rent it fully. (case by case basis depending on rents). But you're buying in a high appreciating area so it may be worth having renters water down your principle while you appreciate. I don't know much about NY to really chime in on that market but someone made some good points in Hudson county that were always building out here and things are always changing for the better. The barrier of entry out here may be lower but of course you have to cross the hudson to get here. Always a Give for every Take. Good luck!!

[David Nathanson]

This is a great question.  I myself started by buying a 3-fam, and living in one of the units, before the term house-hacking became known.  I am now looking to sell (NOT list) one of the 3-fam in Brooklyn (Windsor Terrace).  How do I educate and reach the young(ish) professionals on the value proposition of these kind of "starter homes" to build equity, learn property management and save a ton of money relative to single unit purchases?

[Abel Curiel]

Quote from @David Nathanson:

This is a great question.  I myself started by buying a 3-fam, and living in one of the units, before the term house-hacking became known.  I am now looking to sell (NOT list) one of the 3-fam in Brooklyn (Windsor Terrace).  How do I educate and reach the young(ish) professionals on the value proposition of these kind of "starter homes" to build equity, learn property management and save a ton of money relative to single unit purchases?

 Hey @David Nathanson!

If you're looking to educate young professionals on the benefits of house-hacking in Brooklyn, I'd do 2 things:

1. Show a breakdown of how it helped you. Your testimonial can be the most powerful evidence/message/value proposition.
How much were you able to save monthly by househacking vs. renting or owning a single family property?
How much equity did you build, on average, each year you've held onto it?
How much money did you save by self managing and how did the experience make you a better landlord?
Share other lessons, anecdotes, and challenges that would be helpful with this audience.

2. Share info that already exists on BP and Youtube. Tons of videos, blogs, and forums related to house hacking. 
@Jon Schwartz also has an awesome calculator you and your target audience can download. The calculator breaks down the differences between house-hacking a multi-fam, occupying a single-fam, AND renting.