Rental property not meeting 1% rule

[Mary Schr]

Hi,

Three years ago I bought a two family home in an up and coming part of queens, ny.  The original plan was to live in the two bedroom unit and rent out the one bedroom but circumstances prevailed and I had to rent out both units.  The rents from the units is about .5% of the purchase price; cash flow is almost nothing: the rents cover the mortgage and tax and insurance and that’s about it.  I’ve had to dip into my own funds to do repairs.  

I didn’t know anything about investing in real estate so the fact that the numbers aren’t good is a rookie mistake.  I’m tempted to sell it off but everyone is always telling me that real estate in this part of queens (east Elmhurst/Jackson heights) will get more valuable and I should just hold onto it...I don’t have capital to make improvements or make it bigger.  The only thing that might make the numbers nice is if I somehow constructed a third story apartment but that just sounds insane...

I dunno what to do...

The numbers are:

Purchase: 870,000

Two bedroom apt rent: $2325

One bedroom apt rent: $1835

[Jason Lee]

The downside to East Elmhurst and northern Jackson Heights is lack of transportation. This puts a cap on appreciation and rents. I've sold listings there recently and the buyers aren't hipsters priced out of other nabes (which is what you want to see if you're looking for appreciation). It's still a lot of blue collar folks who commute by car. East Elmhurst in particular is a bedroom community with few amenities.

Yes, prices have shot up over the past few years but that's slowed down dramatically. There are a bunch of reasons: new tax laws, more inventory as prices have risen, prices just aren't affordable, etc. Here's recent sales data for 1-3 family homes in western Queens. The median sales price increased 2.7% year over year in Q2 2019. The average price was up 1.1%. That's less than inflation? The number of sales is down -16.2%. That's the 3rd strait year that the number of sales is down so there are fewer buyers now. If we look back a year to Q2 2018 the median sales price was up 14.7% year over year and the average was up 14.4%. Q2 2017 median was up 16.1% and the average was up 17%. So we can see appreciation has ground to a halt. The good news is it sounds like your property should have appreciated pretty nicely over the short period you've owned it.