Reality check

General Real Estate Investing
18yFollow

Reality check

N/A N/A
Member since 2008 · 5 posts · 0 votes

Hi: I found this forum using Google and have been reading for the past few weeks. Now I would like to ask a question and am hoping I can learn from your experiences.

I would like to invest in and rent out a 1 bedroom apartment in NYC, costing around $300k-350k, for say 5 years. I want to do 100% financing (interest only if possible) but I will pay closing costs. Being a CPA I have done all the numbers and I can't get a positive cash flow. In one example I would have to cover the difference between rent and costs to the tune of $500 per month (which I can afford to do).

That said, if the market goes up even 6% a year I can still make a good return overall in 5 years upon sale of the property, even if I don't have cash flow.

So in essence I would be investing closing costs then $500 a month, in order to get a good overall return in 5 years.

Questions are:
1. Will banks lend money on a property where I am having to make up the rent each month to cover my costs? I can show I have enough income to make up the difference.
2. Do you think 6% growth in NYC is realistic over the next few years?

Look forward to hearing your opinions.

0Reply
27 views

6 Replies

Jump to latestLatest
  • Michael Sokolski
    Homeowner · Stony Brook, NY · Member since 2008 · 69 posts · 5 votes
    18y

    I'm a novice so maybe one of the experts can chime in but I'll take a crack at it to see how much I've learned from the readings I've done.

    1. DO NOT count on appreciation. You've figured out what happens if the the market goes up 6%. Now, figure out what happens if the market goes down... what happens if it stays the same...

    2. If you can't get the numbers to work for positive cash flow, you're paying too much for the property. It sounds like you only want to be in it for a few years and get out.

    3. Do you know if this property is being rented now and how much the rent is? Existing lease? If you could come up with some down payment $$ or maybe split with a partner, the mortgage payments would go down and result on positive cash flow.

    Those are just the thoughts that came to mind as I read your post.

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    Investing assuming appreciation is speculation. That's fine, if that's your plan. IMHO, any growth rate greater than 0% is unrealistic for the next five years. We'll be doing good to avoid price declines. Some places are already seeing that.

    If you want to have rentals that actually make money, you need to buy them right. That means the price you pay has to be low enough that the rent covers all the expenses (assume expenses = 50% of gross rents), and principle and interest payments (well, just interest for you), and give you your desired return. If you've been reading here a while, you must have ran across the numerous "do expenses really equal 50% of gross rent" discussions, so I won't rehash here.

    I would advise you to look at your calculation assuming expenses are 50% of rent and see how much you have to put in. If you $500/month negative cash flow means (mortgage payment-rent=$500) this will be much worse than you think.

    Will banks loan money if you have to make up the rent? Yes, assuming your income and debt meets their criteria with the new purchase. I have heard that banks will count 75% of the rent as income. So they will consider current income, plus part of the rent vs. your current debts and the new debt. If that meets their criteria, you're good. That assumes you have good credit otherwise.

    Not sure you'll find 100% investor financing these days. If you're determined to go down this road, call some banks or brokers and have a chat.

    Jon

    0Reply
  • N/A N/A
    OP
    Member since 2008 · 5 posts · 0 votes
    18y

    Yes the $500 "loss" per month includes expenses as well.

    I understand that investing for equity growth is a form of speculation. I do believe though that it's less risky than the stock market in the long run.

    Great comments and as I do more research will post more questions.

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    Pete, before you start speculating, have a look at Robert Schiller's most recent edition of "Irrational Exuberance". He's added a section on real estate. His analysis is that over the last 100 years, real estate prices have appreciated based only on inflation. Over the last six-eight years they have gone up much, much faster. We are at a historic high in terms of inflation adjusted real estate prices. Just like the NASDAQ in 2000.

    Jon

    0Reply
  • John J.
    Member since 2008 · 26 posts · 2 votes
    18y

    300-350 for a 1 bedroom in nyc seems kinda cheap. Also find out if your looking at condos or co-ops. Co-ops have boards and will rarely let you rent
    the apt for at least 2 years. With condos its do what you please but you pay a premium.

    my 2 cents

    0Reply
  • Manish Patel
    Real Estate Investor · memphis, TN · Member since 2008 · 15 posts · 0 votes
    18y

    I think everyone has given you the same response so I am sure you have taken that to heart. Here is something you should also think about:

    If you can increase the value of the apt. by adding a wall and creating a shared living scenario then you can rent out by the room. I do not know where you are in NY but if you are anywhere near the city you can do this and it will rent...Vacancy in and around NYC is less than 2%, and that is just turnover vacancy

    May not apply, but important to think about in general

    All the best!

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free