Pros and cons of owning rent stabalized apartments.

[Julio Velazquez]

Hello BP,

What are the pros and cons to owning rent stabilized apartments as an investor ? I’m looking at a property that is rent stabilized. Curious to know if it’s beneficial as an investor.

[Bjorn Ahlblad]

@Julio Velazquez a stabilized property will provide more income, cost more and be less work if the tenants were properly screened and everything is documented. Tenants are only an asset if they behave and pay rent on time.

[Julio Velazquez]

@Bjorn Ahlblad understood. So why wouldn’t an investor want such property?

[Erik W.]

@Julio Velazquez, "So why wouldn’t an investor want such property?"

I can tell you why: because the Govt via the cities of the community/state you are in have made it clear that they have both the capacity (i.e. votes) and willingness (i.e. political ideology) to say that the free market doesn't apply and your rights and an owner will be limited in at least one major way.

Any guesses how that's going to play out down the road?  Me neither.  The Govt is getting broker, people are getting nuttier, and to me that suggests that some day not only will you have your rent increases CAPPED, your current rents might also get CUT.  Because...you know..."fairness."  Even with "rent stabilization", rents are still increasing faster than wages in these markets; ergo, the voters will eventually require their lap dogs....err, I mean representatives to pass new laws to make housing "affordable".  How do you do that?  Cut rents.

If you decide to invest in a market where Govt forces are already meddling with the free market substantially, be prepared to get skinned alive is all I can suggest.  If it doesn't happen, hey, great!  But if it does happen, then you'll have no one to blame but yourself because the signs and actions are already there.  Rent control (I prefer to use accurate words vs. the make up social justice malarkey "rent stabilized") is the first step in crushing property owner rights.  I could see you being required to rent to violent felons, people with multiple evictions, terrible credit, etc.  That has already happened to a limited degree in some markets where you can no longer deny based on background checks or eviction records.   

Don't believe me?  https://www.marketwatch.com/story/a-new-seattle-housing-law-forbids-landlords-from-checking-into-tenants-criminal-history-but-does-it-go-too-far-2018-12-26

The ideology in these markets says that people deserve housing as a basic human right.  If you deny people for any reason, you are violating their human rights.  You really want to own an apartment in a place like that?

The handwriting is on the wall.   Proceed with full knowledge of what you're getting into.

[Bjorn Ahlblad]

@Julio Velazquez it depends on your plans for the property. Existing tenants and leases become a liability if you want to raise rents and/or remodel. Hope that helps.

[Julio Velazquez]

@Erik Whiting very interesting, thank you for your response. I can see how this can be a liability. I had some of those same questions.

[Julio Velazquez]

@Bjorn Ahlblad sure does thanks. Just seems like it can be more of an liability than an asset.

[Peter Nikic]

@Erik W. your explanation is very good, unfortunately in Elmhurst (Queens) NY it already happened. Everything you mentioned already happened in June 2019.

@Julio Velazquez what are you looking to buy? the rent regulations in the city are making it impossible for landlords to make money, especially the smaller landlords. are you looking at a multifamily 6+ units? if so, you'll be very restricted in raising rents but taxes and other expenses will be less restricted. Which means less ablity to profit over longer period of time.

As of June 2019, there are no more pros of owning rent regulated properties in NY. Let me know if you have any specific questions, I'll try to help you out.  

[Julio Velazquez]

@Peter Nikic yes I was looking for 6+ units. I spoke to a broker and he asked if I’d be interested in looking at one just wasn’t sure of the pros and cons. I was concerned for that very reason the limitations one would have.

What park of New York do you invest it?

[Peter Nikic]

My investments are in Westchester, in towns with NO rent regulations. So my investments are not affected at this time. 

[Julio Velazquez]

@Peter Nikic very smart, I ask strictly because I'm in New York too. Do you do MF or SFH?

[Peter Nikic]

I own multifamilies. 

[Julio Velazquez]

@Peter Nikic nice maybe we can have coffee one day and I can ask a few questions.

[Seth Borman]

The advantage is that the price of a rent stabilized building is somewhere in between what it is work now and what it is worth if you can replace the existing tenants with ones that pay more.

If you are successful in doing that you can run a successful business. If you can't, then... that's the con.

[Peter Nikic]

@Julio Velazquez sure that would be great. I'm on the UES (92nd & 3rd). 

[Julio Velazquez]

@Peter Nikic perfect, I’m in queens but I Can make it there no problem. Are you available on weekends or strictly week days ?

[Michael Dang]

This is a reason why to invest in landlord friendly states.  Small landlords will be affected and tax payers get to front the bill again.

NYC To Hire 'Secret Shoppers' To Weed Out Discriminatory Brokers, Landlords

[Peter Nikic]

@Michael Dang is right. small landlords will suffer. the big ones, well, I've never known a big landlord who suffered. 

@Julio Velazquez flexible 

[Julio Velazquez]

@Seth Borman seems more like the latter..

[Julio Velazquez]

@Michael Dang interesting read thank you for that, Now if I purchase a non rent controlled apartment complex one could raise the rent as the area allows correct not to what the city demands.. discrimination should be removed in all aspects of life.

[Julio Velazquez]

@Peter Nikic sounds good I’ll send you a message so we can set something up.

[Joe Jor]

Tangentially, a great freakonomics listen on Rent Control:

http://freakonomics.com/podcas...

Joe