Schenectady-Albany-Troy-Someone talk me off the ledge

[Joshua Lupo]

I am a long term, buy and hold multi family investor in the upstate NY market and specifically Albany,Schenectady, Troy area. I analyze dozens of deals per day using the following formula. Gross annual rents-25% (vacancy, prop mgmt, repairs, maintenance)- annual taxes- insurance= NOI. If anyone thinks that formula needs tweaking please give me input. Using that formula, I find that around the Troy area I see 8 caps with 1.4 price to rent ratios and in the ball park of 13-15 cash on cash. Albany the numbers are compressed and I see roughly 1-1.2% price to rent, 6-7 caps and around 9-10% cash on cash...And then theres Schenectady...Time and time again I analyze deals and the numbers are cartoonish. For instance, 185k, 5 unit fully rented with 3,600 a month gross rent and $1,470 PIT. We are talking like 34% cash on cash, 13% CAP rate, and literally 3.5% price to rent ratio. I have driven past this place and looked inside and seems overall pretty solid. I am consistently finding 13% cap rates in Schenectady around Union College area and have not come across anything like this in other, NY markets. Yes taxes are egregious thats for sure but when factored into the proformas, deals still pencil out consistently with ludarcis numbers. I get that Schenectady has it's rough patches and not as strong of an economy as Albany but is there something HUGE I am missing or has anyone found the numbers to actually be this good? Anyone actually buy and own in Schenectady?

[Ryan Vienneau]

@Jim D. Is 100% correct, the age of properties around here is the major wild card. I own a couple Schen duplexes and they do in fact produce a cap rate north of 15, and my COCR was well over 50% first year after refi. That being said, I generally over-rehab and replace anything remotely questionable so I don't have to deal with it later and empty out EVERYTHING not nailed down, which includes the attics and basements, which has worked well for us. When we do need a plumbing repair in the basement, I don't want to pay the emergency plumber an extra hour for moving 50 years of old paint cans and extra paneling out of his way.

We also manage properties for clients, and those who go cheap on rehabs around here ending up getting hosed in the long run because they have emergency repair bills constantly, they have higher vacancy, they get less rent along the way, and then they wonder why their numbers don't work as well as they planned.  Then they sell, and get hosed selling because, again, the units aren't nice, and the financials were ugly along the way.  

Generally speaking, I would avoid anything with additions, properties that have been converted (like SF to MF, or duplex to triplex), or anything weird.  Around here, the classic 2 or 3 bed apartment will be built in the 20's to the 50's, it has a living room in the front, dining room in center, kitchen in rear, and bedrooms to the side, all with closets, and hardwoods.  The basements must be dry, foundations sound.  Don't be scare of slate roofs, they're common and not an issue, just always have a slate guy go and inspect and repair any broken/missing tiles and flashing on day 1.  

Cap rates have even compressed a lot in Schen in the past 18 mos though, it's tougher to find deals but WAY easier than Albany or Troy, and frankly I'm more comfortable with the safety of many Schen neighborhoods than I am with Troy, there are shootings daily in Troy lately.