Should I rent in NYC

Question

I could use some advice on this.

Originally, I wanted to buy a multi family home in NYC with a FHA loan. I thought I could be a OO and live rent free AKA let my tenants cover the costs.

Thank goodness for BP! I may not have discovered the holes in my strategy until it was too late if it hadn't been for these forums. The numbers simply do not add up here. The market is just ridiculous here.

I thought I could find a fourplex for $600k in Astoria…they're over $1 million. If I apply the 50% rule of thumb…I'll be underwater with one of these million dollar homes.

In addition to that, FHA is changing a lot. The PMI payments are going up. Plus, there are different regulations as far as how long my wife and I would have to live in the house.

So here's my question:

I'm trying to figure out which strategy would be better. What do you guys think?

1. Buy a multi family home just outside of NYC (perhaps New Jersey) and be a OO. The downside: commuting to work might be awful because I do not have a car. RE is also very expensive in the surrounding areas: Upstate NY, Long Island, nearby cities in NJ, ect.

2. Invest much further outside NYC and make it an investment property. The downside: I'll need 20% down instead of 3.5%, I'll have to find a good property management company, and I'll still pay rent to live in NYC.

So what do you guys think would be the best option? Just FYI, my wife loves NYC very, very much. I love it too but I'm much more willing to make sacrifices now (moving away from the city) to build long term wealth. She supports me 100% but I don't think she wants to leave the city. That, obviously, is a big part of the equation as well :p

Salma M. · Answer

Hi Nik Parks,

I currently live in Astoria, NY too. I know this market very very well. This is one of the priciest place in the 5 boroughs. It took me a full 4 years from the time I started looking to actually find and buy a duplex. I am currently NOT renting out the other unit but am using it myself. I might in the very near future.

The reason why it took me so long was because I wanted to do it the conventional way. If I had been more adventurous in seeking hard money or investors it would have worked earlier.

It is doable in Astoria, but you need to know your market.

1. You can find properties lower than what you quote. Prices has gone up in Astoria but you can still find a good sized duplex for 750k. Looking at websites like Realtor, zillow, Trulia, Redfin, etc are great but by the time the houses end up in the MLS listing, the listing broker has already tried to sell the house him/herself for at least a week or two. You need to walk the streets to keep an eye out for the signs in Astoria. If you have a good broker, he will call you too. It takes time to build that relationship but so worth it.

2. Rental in Astoria has always been high. It is mainly due to the proximity to Manhattan as well as the fact the landlords know that demand is high and supply is low. Thanks to the Manhattan market forcing mid-income (75k is mid income in Manhattan!) pple out of Manhattan rental market. I receive phone calls from realtors asking if i want to rent out my property regularly. So I know from an ability to rentout perspective, this place is golden. If you are paying 1400 for a one bedroom, YOU ARE LUCKY! hold on to it. As of today, with 1400 you can mostly get only a studio. So if you do find a duplex, you can live in one and rent out the other.  So if you have a 2 bedroom apartment as part of a 2 over 1 duplex to rent, you can easily get 2.2k. That is a conservative estimate.

3. Please be aware of closing cost. when I first set out to look for a place, I did not take all that into consideration. Usually, in addition to closing cost, you shd have cash ready for small things that may come up.

4. If you want to invest in Astoria and be able to do it in a affordable way, your best bet is to find a fixer upper and take a reno loan. the conventional one is called 203k. That is what i did. Do know this though, most of the houses in Astoria are old houses. which means that when you fix it up you will have to be prepared for lots of things that won't come up in the initial contractor quote... I had to pay almost 10% out of pocket cos the loan contingency fund was not able enough to cover the unexpected.

5. Please also be aware that the Mortgage interests advertised usually do NOT apply to duplex or bigger houses.

6. As your wife loves NYC, you may consider other areas in the boroughs. There are still many places in Brooklyn and Bronx that are coming up. I know of some but not enough to give advise so I will refrain from commenting on that. If you do choose to invest in Astoria, you can build equity at the very least. You are only 25. It is great that you are already thinking of your future!

Personally,I love Astoria.I have lived here for 8 years now. I don't have the time to invest out of town. I am on the hunt for my second investment. This time i hope to be do it faster. Don't be disheartened. The traditional rule of the thumb investment strategy may not work for high cost areas like NYC but it can be done.

I wish you all the best wherever you choose to invest in. If you need any advise specific to Astoria NY do drop me a line.

Luke M. · Answer

Hey Nik,

As much as I hate to say it, take a look at Jersey and Staten Island. In St George, Staten Island (right by the ferry), you can find triplexes for $300,000. Last year you could find them for $220,000. The rents are actually pretty good.  Now, there is some crime, but there are a few little sub markets that may be worth your time.  I just tried to get my hands on a Chase REO out there for $127,000 for a flip, but couldn't lock it up. Now, take these following comments with a grain of salt...

They are putting the US's biggest Ferris wheel along with 350,000sf of outlet mall space in St George to finish in 2016. This should at least cause some more police presence and I've heard from a friend it's already getting cleaned up. Also, they're increasing the ferry service to every 30 min for 24 hours.

The downside, is you have to live in SI for a while. The up side, is your taxes will be way cheaper than jersey which can be as high as 8k a year for a 300k duplex. But, if you're so inclined to live in jersey (shudder), there are parts of Jersey City that may be worth your while.

Also, buying something that hasn't been updated in 20-30 years but still rentable and financeable will benefit you as you can rehab each unit as a tenant moves out, increase your rents, and force some appreciation.

Justin C. · Answer

Hey Nik Parks  I am in a very similar situation to you. Same investment objectives/scenario, cash flow is a priority, considered FHA, would already be doing it if it didn't cost $2-3 mil for a four family around here. I am also in my 20s, I'm renting and working in Manhattan right now. Wondering if you have made any progress with this. I have pretty much written off the idea of buying in Manhattan but am considering the 20% down route for lower stakes properties in other cities

Ankit Duggal · Answer

Nik Parks if your goal is cash flow oriented growth then find something outside of NYC in areas where you can afford the 20% downpayment and rent it out.

If you goal is long term wealth building through asset appreciation and low personal housing expenses then buy a multifamily outside the city and live in it.

That is is my two cents but it really depends on your overall investment and real estate portfolio plan.

Happy Investing

Steve Candor · Answer

it's a safe place to invest but if you're buying something this small the cashflow isn't going to be there for you - especially if you aren't buying ALL CASH or something like 1-2% loans like some of these big players are getting.

Remember the competition is fierce.

What are your thoughts on Bedford Stuyvesant? It has a bad reputation but if you go drive down - there is beautiful brownstones that are SUPER close to Fort Greene and the gentrification there with yuppies is changing fast. Think williamsburg-esque.

Marvin Song · Answer

Hey @Justin C. - I live in Bergen County, NJ and also thought numbers here in NY and NJ do not work as well as other markets like Memphis, Houston and Dallas so I ended up getting rentals through turn-key providers in Indianapolis. Returns are about 15-20% with 20% down conventional lending. Would be happy to share more if you are interested. Also, make sure to listen to the latest podcast where @Ankit Duggal shares amazing stories about tax liens.

Johann Jells · Answer

Nik,

Look across 2 rivers to Jersey City! Prices for equivalently gentrified neighborhoods are much lower. Taxes are higher, but it more than levels out. Commuting is by rail or bus, depending on where in the city you're headed, and some properties in this "JC Heights" area are quite close to Hoboken, which is very upscale at this point if you're not familiar.  I have a friend in Astoria, and we both were astonished to see the tiny brick 1 family-1 bath he inherited from his mom was worth $700K!

Here's 2 example listings, I have no connections other than the 2nd is around the corner from a 4U I bought last year for $295k. 
http://www.zillow.com/homedetails/14-Carlton-Ave-Jersey-City-NJ-07307/38897361_zpid/
http://www.zillow.com/homedetails/12-Webster-Ave-Jersey-City-NJ-07307/38893947_zpid/

Kevin Young · Answer

hi nik,

if cash flow is your goal, you may want to venture out.  if you do invest out of state, i suggest first look for a property mgt company (vs finding a good deal and then hope to find one)  the property mgt company can make or break you with expenses on repairs and such.   for smaller properties, you could expect to pay 10% collected rents to the PM.

if you are looking 'close to home', that may give you additional security if  you have family in that area who could help in a pinch.  not suggesting they plunge a toilet, but if you have a big issue, they could be your eyes and ears ... and a sanity check on the property mgr.

in terms of finding deals, you could go a few routes.  online like you have (i also like trulia a lot).  there's also loopnet, which i've found most postings over priced).  i use loopnet to see which brokers are active then give them a call to see if they have any off market deals).  just did a cursory search on loopnet in astoria and found 4 properties <300k

i also source properties through direct mail.  you could buy a list or get to know someone at a title company who may pull a list of 2-4 units.

my advice is to set your investment parameters (what return do you expect), do your due diligence, and only buy on actuals vs proforma numbers!! if you invest out of state, find a solid property manager (referrals are best and ask for references...and ask for a copy of their contract.)

best of luck.

Nik Parks · Answer

Guys, this is brilliant advice. I really do appreciate it.

There can be a lot of hype in real estate. I'm always hearing, "Yeah, NYC is expensive…but just think about how much you can charge in rent! NYC is ALWAYS a good place to invest."

Phew, thank goodness for BP.

Ed Lee, I had to look up quantitative easing on investopedia LOL. Fascinating stuff—that certainly explains these crazy numbers.

Marci Stein · Answer

there are places in Queens, like Bellerose, where a duplex can be bought for under 300,000. Alternatively, Middletown , NY, 
a triplex costs under 200,00.  
But as long as you know the South well why not buy there?
i sent you a PM since i have a very similar circumstance as you.

Should I rent in NYC

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