Underwriting feedback needed on Ridgewood Queens NYC deal

[Greg Hills]

Hi all!

I’ve lurked up until now but I love the vibe of this community!! <3

I want to buy my first multi-family property. I have a job that provides me a good salary and I want to invest my spare time building wealth through real estate.

I want my first property to be near my home on the Upper West Side of Manhattan or my summer home on Shelter Island on the east end of Long Island.

I’ve drilled deep on Ridgewood Queens. Cool, ahead of the curve people I know live there. I’ve been living in NY 15 years and I’ve seen this type of neighborhood appreciate before with the LES, Chinatown, Williamsburg and Greenpoint. This neighborhood is in the ‘path of progress’ as gentrification moves east. 

I've identified at a property with 4 2br railroad apartments, renovated kitchens, on month to month leases paying $1500/mo each.

Here is what I'm modeling:

- $1.4M price

- 20% down, 3.375% mortgage rate (low, I know, but this broker just wrote me a mortgage at 2.875% on a personal home)

- $2k/mo market rate rent

- Get all 4 units to market rent in 1 year

- 4%/yr increase in market rent (avg based on past 3 years of MNS market reports)

- Avg tenant stays 2 years, at which point new tenant rents at market

- 90% occupancy on average (as implied by 3 months of vacancy after each tenant’s 2 year stay)

- Building value appreciation at 2%/yr

Over 5 years, my model generates:

- only $12k of cashflow cumulative

- $25k/year of tax savings from deducting depreciation & interest payments, assuming 35% marginal rate

- $38k/yr on avg in accumulated equity from amortization & appreciation (this ramps nicely through compounding, starting at $33k and ending at $43k)

So almost all the benefit comes from equity accumulation & tax savings. Is this standard for NYC?

[Syed H.]

Originally posted by @Jaysen Medhurst:

@Greg Hills, 

• I think your vacancy is low. I'd figure 8%. 
• You're forgetting CapEx, I usually use 7.5%.
• What are the $70k of closing costs?
• You should budget some money for initial repairs. There's always something.
• I don't think you'll get that good a rate unless you owner occupy. 
• Why do you think the ARV will be $1.4MM, you're not adding any value. If you pay $1.2MM, that is, by definition, the property's value.

I reran the numbers on my end and you're still ($142) each month. I think there are much better ways to invest $300k. Have you looked at any areas outside NYC?

8% vacancy is way too high for NYC. If you have above 5%, you are doing something wrong. Most people I know are between 2-3%.

CapEx needs to be properly done, no percentage. A roof in NYC costs a lot more than 7.5% lol. Make an excel sheet of capex segregated by line items.

Rate sounds fine. NYC lending is a whole different world. 3.25-3.75% is normal for multis here.