Advice on buying mulitfamily in NYC?

Question

Hi Everyone,

My business partner and I are looking to get into real estate investing.  We are in the very beginning stages of researching as much as we can.  After doing some research and speaking with some people already in REI, we think our focus will be on multifamily units.

We have access to about $2M in capital (in the form of loans from friends/family/etc.)  In addition, we imagine we can secure a loan from a bank.  We don't plan to use all our access to capital.  Since we are relatively new, we plan to purchase a multifamily unit around $1M+ through a combination of a bank loan and personal loans. (And if all goes well, use the remainder of our access to capital for additional deals).

Few simple questions - if you had access to about $2M in capital, how would you invest in the NYC market? or would you invest in NYC?  (i.e. Location? What are some factors you would look at? What types of cap rates? etc.) (Note: By NYC I include all five boroughs - we are thinking LIC or Brooklyn right now). And - would you invest with 0% of your own money (i.e. Can you make money using 100% someone else's money taking into account mortgage payments/interest).

Appreciate any advice!

Darren Sager · Answer

My pleasure @Gary Reed .  Yes, we focus primarily upon the NYC metropolitan area.

Gary Reed · Answer

@DarrenSager Thanks for the reply.  Thats definitely makes sense.  We are actually in the beginning stages of our careers, and looking to eventually get into REI full-time (i.e. allow us to quit our jobs).  Is your focus in the NYC market?

Darren Sager · Answer

@Gary Reed Cap rate is only one factor.  The factor that is probably one of my most important that I look at is vacancy rate.  This one aspect to me is important because as a buy and hold investor I want to make sure that I have a good supply of possible tenants and I don't want to have to fight to get them.   There are markets that will have much higher cap rates than NYC however you don't see the desire to live there as great.   I personally see NYC as a more conservative investment when it comes to REI because overall our vacancy rates our lower and our cash on cash ROI is lower.  But overall we seem to do better when it comes to keeping our places rented.    If you're in a later point in your life I would stick with saturated markets like NYC versus other markets that are ever expanding because they can easily overbuild.  In the end understand why  people are living there.  If there's nothing in a city's future to keep people living there its probably not a good long term investment.

Gary Reed · Answer

Our ultimate goal is to expand and build a portfolio of properties - so our goal for this acquisition would be a buy and hold.  Terms haven't been fully negotiated, but it will probably be at about an 8% interest rate.  I've heard a lot of people using cap rate as a determining factor - for a buy and hold in NYC, do you think a high cap rate is as importantant? Especially since cap rates seem to always be lower in NYC compared to the national averages.  In other words, how important is cap rate?

Thanks again for the reply.

Joe Fairless · Answer

@gary

@Gary Reed I personally don't invest in NYC because of my desire for higher cap rates. What is your goal for the acquisition? Since you're using some other people's money I assume you'll need to pay them their cash back at some interest rate. That will help dictate what they of returns you need to get and could rule out some of areas you mentioned.

Gary Reed · Answer

Shawn - thanks for the info.  I will definitely check it out.

Shawn Mcenteer · Answer

@Gary Reed I am not the expert in the NYC market but I may have a great solution for you to help better understand what is best for you  and your partner.  July 15 will be a bigger pockets meet up in NYC.  Last months meet up included tons of people and a special guest that gave us an in-depth analysis of fix and flips.  This month will be just as big with another special guest speaker.

http://www.biggerpockets.com/forums/521/topics/134...

Read over the thread and if you have any questions submit a post.  @Darren Sager organizes the event and he or other bp members will be happy to assist you.