Tough market where sales price not in correlation with rents?

Question

Hi All,

I am new to BiggerPockets and this is my first post! Hope I am not breaking any forum rules or etiquette! I live in Long Island, NY and am looking to purchase my first single family rental property. I am having tremendous difficulty finding properties that have a fair sales price in comparison to the rents I believe I can get. The appreciation and asking prices seem so out of reality.

Specially when considering the 50% and 2% rules! I know these are just frameworks but I cannot seem to come even close.

Has anyone experienced similar? How have you navigated locations like this?

Thanks for taking the time!

Tyler Brown · Answer

Yeah, I have a single family home in Farmingdale that rented out quickly.  I'm fairly new to LI myself, so I'm really only familiar with Nassau at the moment.

With regards to C or D neighborhoods, that references the overall quality of an area.  A really nice area with high income and very low crimes would be an A neighborhood.  An F neighborhood would be a war zone, with lots of poverty, tons of crime, gang activity, etc...

You can buy houses for dirt cheap in an F neighborhood, which is great and all, but you're very likely to get problem tenants that may damage your property and frequently need to be evicted.

I find the best values to be found in C neighborhoods or so.  Property values aren't too high, there's a lot of people looking to rent, and if you're careful with your tenant screening, there are plenty of qualified tenants.

Tyler Brown · Answer

2% can be tough to clear here in Long Island, but 1% is achievable, especially if you get a 2 family home.

Most of the opportunities like these are in C-ish neighborhoods, like Uniondale, Freeport, or Amityville.  I'm not really familiar with further out in Suffolk.  There's lots of inventory in Hempstead which I'm really tempted by, but depending on where exactly it is, you're entering more of a D neighborhood.

There are homes for $300k-$350k that can rent for $3,000 to $3,500.  You can get a 2 family home for $350k-$400k where each side can rent for $2,000 to $2,500.

Jamal Irving · Answer

Also, if anyone is interested in some 6 family homes in hempstead, there are a number of them available for sale on loopnet.com.

I have reviewed the deals and skeptical that I could make it cash flow as I would need financing.

Jamal Irving · Answer

@Tyler Brown I have been looking in Hempstead as well for multifamily homes.  The problem I see with hempstead are the property taxes.  Since Hempstead is an incorporated village, there are village tax, school tax, plus county tax.

For example, there is a duplex being listed for $599,000 in Hempstead (http://www.mlsli.com/homes-for-sale/350-Jerusalem-Ave-Hempstead-NY-11550-197304984). Currently taxes are $10K.  But that is only because the county is assessing the market value at $223,000.  Even if you bought the property for $400,000 after the county and village see the new market price they are going to instantly double your taxes.

Sunny Krishnani · Answer

Thanks for all the responses!

Ali I am interested in out of state too but am so new to this that I figure I should get something local under my belt first!

Ali Boone · Answer

@Tyler Brown Works for me.

Tyler Brown · Answer

You can definitely cash flow in the NY area.  Take a $350,00 duplex in a C area of Long Island that's 3 bed 1 bath on each side, with each side going for $2,200 a month.  20% down with a 4.6% 30 year fixed mortgage, $9,000 annual property taxes, and $2,500 insurance gives you a monthly payment of about $2,400, which is against your monthly income of $4,400.

You can use your own preferred numbers for repairs, vacancy, capex, etc... but you've still got plenty of overhead left for positive cash flow.  You can spend less and get a SFH, which are more plentiful on the market, but the rental income will also be lower.

Ali Boone · Answer

Well definitely ignore both of those rules or they will drive you crazy. That goes for all markets. But to your point, NY isn't going to offer you cash flow so no, you aren't crazy. Most NYers I know buy out-of-state, and I've had to do the same thing living in LA. Philly and Baltimore are both options up there right now for good cash flow. Then some midwestern markets are popular.

Happy to chat more if out-of-state feels like an option. Otherwise, just be very cautious of the numbers up there!

Sunny Krishnani · Answer

Understood! I will take a look at the neighborhoods you mentioned! Thank you very much for your help today!

Sunny Krishnani · Answer

Hi Tyler,

Thank you for your response!! I can't believe how powerful BiggerPockets is that someone is already willing to give me some advice.

Have you had success renting in the Long Island area? I started looking in Hicksville first, but prices have appreciated so much already.

Patchogue seems to be another area I'm interested in so I'm doing some research.

In terms of you mentioning C and D properties- are these technical terms that I should be aware of? Or are you speaking colloquially?

I just want to make sure. As they say, "you don't know what you don't know."

Tough market where sales price not in correlation with rents?

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