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Updated about 4 years ago, 10/10/2020
Can I house hack in Brooklyn with only $25k down?
Alyssa Kruger have you run the numbers on any 2-4 unit buildings in the area . I know that Brooklyn property is generally expensive but I know it's also a large area . You would likely have to look into less popular neighborhoods for the numbers to make sense but even then hard to say.
I know in L.A housing hacking can be tough too just because multi family is valued so high .
You can technically sublet under the roommate rule. Under a coop you have a lease so it will apply, I am unsure whether it would apply to a condo, but you should look into it. Also, if you have a 2-4 unit building for 300k here then it probably needs a $1000000 worth of work or there is some else drastically wrong, even if you are in the worst parts of the outer boroughs.
Just curious, is the move to Brooklyn something personal like to move closer to family, etc?
I'm always curious when I see people moving to our Expensive and yet exciting City, and of course, the best Borough in NYC (I'm just a little biased)!
Like @Gregory B. mentioned, 2-4 unit buildings in any decent neighborhood in any decent shape will probably start very close to $1 Million, and that would be an off market bargain!
If one opens up the possibility to Partner on a multi-family, then you can also expand the target investments and the areas of Investments. Have you ever considered it?
I also want to mention that I've been buying multi-family buildings with Partners here in Brooklyn for the last 20 years, currently have 7 multi-family, in Contract for a 3-Family Building in Prospect Heights for $1.890 Million.
I know there may be others that might suggest you live in NYC and buy cash flow properties outside. That can be a strategy.
However, if you look at the way rents move here in NYC, if you buy a cash flow property that does not move up in cash flow the way your NYC rents will, you might find yourself in a losing position over the years.
As an example, a building I bought in the year 2000 had 2 studios that rented for $500. Today, those Studios rent for $1,900 each.
So each apts moved from $500 to $1,900 in 17 years for a increase in rent of $1,400.
If you bought a cash flow property outside NYC that was cash flowing $500 per month, but only doubled in the 17 years to $1k per month, you would still be short $400 per month because your rent increased $1,400 versus your outside cash flow property which only increased $1k.
I can't emphasize that if you instead bought our place to live here rather than rent, you should think of it as hey, I'm actually doing better than the above scenario of buying outside cash flowing properties!
This scenario played out with a lot of my family who moved to Florida and wanted to come back because of the fear of future weather disasters and other issues. They are now priced out of this market. For instance, one of my relatives owned a home next to the one I gave as an example. Almost an exact duplicate. They can't move back because they can't afford to buy the building back after selling it for $230k in 2003. They also can't afford to rent it because the rent for their family would require at least both studios and will be at least $4k per month.
Anyway, just some food for thought.
@Llewelyn A. , good points.
It's interesting to hear about your experiences buying in NYC over the years.
I think that is something that some oftentimes don't consider . Rents going up significantly in cities like NYC. The same thing has happened in Los Angeles too. I know NYC has strong rent control like L.A perhaps even stronger..but I guess eventually people move out and then when you do it's a big increase in your cash flow.
I remember listening to one of the recent podcasts (can't remember which episode in particular) but the investor was invested in a more rural area and said rents can basically stay flat for years and years. Like in 5 years or more the rents might not actually move.
It's so funny (and actually sad) when I keep seeing postings about investing Out of State when there is no consideration to the future rent appreciation in the location where you are planning on living for the long term.
I had a friend who purchased 3 multi-family buildings in Bristol, CT in 2004 but lived in Manhattan renting at the time an apt for $2k a month.
The 3 buildings he bought gave him a total cash flow of around $1k per month.
Today, 13 years after he bought those buildings, I think there was some rent appreciation but it was very minimal. Let's just say his Cash Flow moved up from $1k to $1,300 per month.
HOWEVER.... his Manhattan Rental Apt, which was a Condo that was owned by someone else, moved up in Rent from $2k per month to $4,600 per month during the same time!
What's worse is that the value of the apt moved up from approximately $1 Million at the time to about $2.5 Million.
The reality is that my friend was not only losing in Cash Flow when taking into account his living situation in NYC but he also lost opportunity cost because he had the chance to buy a Condo that was very similar to the one he rented. He lost $1.5 Million of Opportunity Cost.
He wound up moving to NJ to save money........... how Ironic.
BTW, in 2004, I bought a 4 Family building in Brooklyn for $590k plus $250k for renovations. It's worth $2.5 Million and it cashflows around $4k per month.
That could have been him. He could have retired on just my one purchase.
I don't understand why there is so little contrast to the "Buy Cash Flow Properties Out of State" except for my own postings. There seems to be only one side of the real story that's being told.
I won't even mention the difference in how many evictions he did while I had ZERO evictions during this time. I can screen tenants because in NYC, you can get 700 and 800 FICO scores from prospective tenants. In his location, 600 is normal and above is lucky.
The problem is if only the OOS Cash Flow story gets told, a lot of people who want to live in these great Metro areas will eventually find themselves priced out or moving to the very same location they are buying their Cash Flowing Properties, but not by choice.
@Llewelyn A. Hi......Can you speak briefly and what changes you have seen in the Brooklyn area since your purchases? The growth has been exponential and I wonder what signaled the strong growth... Major employers moved in?
@Llewelyn A. another interesting story and good points.
It's pretty amazing how as you mentioned in an area like NYC or in L.A people have been able to become wealthy/millionaires off of just a single property.
I know some family friends that inherited one small multi family and commercial building about 4000sq ft..but they were able to live off those properties without really having to work. They are in their 60s now and have adult kids , but just those two smallish buildings were able to create generational wealth. I sometimes wondered why they didn't bother trying to expand over the years , but I guess they just didn't have to.
I have a relative that purchased a modest home (3 bedroom) to live in which was $300,000 in about 1998. Similar houses in the area are now about $1.4 million. Some more examples of course.
More stories of course. Of course we don't know for sure what will happen in the future but I imagine these cities will continue to remain desirable.
Simon:
I'm sure you must have heard a lot about Brooklyn!! haha... think Barclay's Center, which hosts the MTV awards, Williamsburg which is the Mecca of Hipsters before much of other Cities became well known as Hipster havens, tons of Celeberties live here, etc.
Basically, Brooklyn had benefitted from the Maturing of Manhattan which became a place of the super wealthy. It's a glass and concrete Jungle that the .1% can afford but hardly anyone else.
What Brooklyn had was proximitry to Manhattan and a hip and trendy vibe along with some very famous people, including Spike Lee, Biggie, etc. here is a List: https://en.wikipedia.org/wiki/List_of_people_from_Brooklyn
There is a huge spill over to Brooklyn from Manhattan and that created a huge demand and spurred development which then made Brooklyn into a destination that has become Internationally known.
The writing was on the wall for anyone that was paying attention and can say to themselves.... YES, I can use my intellect to calculate the probability of Brooklyn, in certain areas, doing well in the next 10 years! Obviously, I don't subscribe to the mantra that you can't predict price appreciation. I have to ask, knowing all things that were happening to Brooklyn, how did you NOT anticipate it?
Joseph:
As many great stories as I have of myself and my Partners making $ Millions, I unfortunately have much more stories of friends and relatives that have lost out on owning their own hugely appreciating properties in Brooklyn, even when they had owned their own at a great price in the past!
As I mentioned above, you would have to fall into the category of NO MATTER HOW HARD I GET HIT BY THE WRITING ON THE WALL that Brooklyn was going to do well.... I just don't believe it. Therefore, I will NOT buy and in some cases, move to another City and lose out on the phenomenon known as Brooklyn.
Now that I have done incredibly well from taking advantage of the obvious signs, even despite major downturns like the Great Recession, my friends and Family put me onto a pedastel as if I am somehow different than they are. They could have done exactly what I had done and I encouraged them strongly to do so. However, all they could say was that they weren't cut out for it, that somehow I'm different than the average person.
Maybe I am. All I did was stopped believing that the future was unpredictable. That most professionals who are Entrepreneurs understand that building your business means you need to Drive it like a Car. You need to look through the Wind Shield in order to anticipate if the road ahead is clear or if there are obstacles that you need to avoid.
Once you understand how to Drive your Business (or Investment), you start to do calculations based on the future, such as 10 year projections with Annualized Rental Increases, Expenses Increases, Rates of Return, Discounted Cash Flows, Internal Rates of Returns, etc.
The people who think you can't calculate the future somehow missed the education which clearly has financial formulas that are designed for that.
I am hoping the readers of this post really try to think about why there are formulas like FUTURE VALUE (FV)....... is that just something in someone's imagination?! Anyway, just food for thought!
Llewelyn A. These stories are fantastic thank you!
So what brings me to Brooklyn, well I have always wanted to live in NY and experience city living since I grew up on the beach. I visit often and have always loved the personality of BK.
That being said, I don't plan on living in NY my whole life, but want to find a way to househack so I can lower my living expenses while I'm there.
Considering I will only have 25k I do not see buying a multi family as possible unless I live in a very undesirable area. Do you think a 2/1 is possible if I go with a conventional loan? I have found a few coops that I could afford in great areas however, I would want to ensure could sublease or do Airbnb (I know that tends to be a lot trickier).
I am also considering buying a duplex in West Palm Beach because it would CF pretty well after the first year of using FHA. This would then cut my savings in half and I would have to rent while living in NY...
FYI You can’t rent on Airbnb in nyc in a multiple dwelling which is a building with 3+ residential units unless you are staying there as well. Further just advertising on Airbnb May subject the coop/condo to fines if the advertisement is for an entire apartment and you aren’t staying there as well.
I think people would love to buy assets in hot markets, but I think it comes down to the initial cost of investment and people's goals.
It is fair to say that most people who are new to REI are doing it because they see it as a great opportunity to make some money and quit their full time job (which it is, and it worked for me). FV as you call it, doesn't allow you to quit your job in the present, and appreciation is only good when you want to leverage or sell it. In other words, it's a long term play, and doesn't cater to the short term goals of some buyers.
In reality though, I think it's the initial cost to purchase. I am working with a couple of Seattle based buyers that are closing on a 4 plex tomorrow, and will yield them returns they are comfortable with. A 4 plex in their neck of the woods would easily cost 2 million, while the one they are purchasing in CT will cost around a 10th of that. For folks who want returns in the present, out of state purchases that are managed by a quality property manager are worth their weight in gold.
Congrats on your success!
FP
Hi Filipe,
You are correct, most people see REI as an opportunity to quit their full time jobs.
I really can't understand why though. If you have built up a skillset to a high level, then you can earn a good amount of Seed Money for your future Investments and your qualifications will be excellent!
I actually don't encourage people to quit their jobs, but use it as a spring board to become wealthy.
Now, if you haven't done well at the job that you have been trying to be successful at for a while, it makes me ask the question..... WHY?!
It's incorrect to think that REI is such an easy way to automatically become successful. There is a lot of hard work, disapline and studying that can propel you into a great future.
What minimizes the risk of losing it all is to continue building up your current profession until your Real Estate Investments make you financially free. It's at that point I say you now have the choice of quitting your job.
NOTICE, I said you have the CHOICE of quitting your job, not that you should!
Imagine you are a Medical Doctor, a Dentist, etc. Just because you are now Financially free from REI doesn't mean you should stop being a Doctor, Dentist, etc.
What it means is that you have the CHOICE of stopping or even scaling back your current profession.
What it also means is that because you don't NEED the job, the stress from your job melts from your shoulders and you can now enjoy what you spent most of your life trying to do.
You will even be healthier because of the lack of stress!
That's what Financially free means to me and REI was just the way I decided to achieve it.
The other issue is "people would love to buy assets in hot markets, but I think it comes down to the initial cost of investment and people's goals."
I can't agree with that more, except I believe if people were really educated to understand how Markets work, they would see how important it is to think more in terms of Partners instead of thinking that they should go it alone. The Stock Market, for example, allows millions of people to participate as Shareholder Partners, enjoying the benefits of the Assets they are buying.
Where the Education comes in has to do with the understanding that it's not about the PRICE of the Asset. It's more about the performance of the Asset itself and the number of partners you need to buy it.
As an example, let's say Buyer A can buy a property for $100k. He know that it will return 100% in a few years which means he can sell it at $200k.
Fantastic! That's a great return!
HOWEVER, Buyer A doesn't have $100k... but he has $50k. He calls his friend Buyer B and shows him the 2 year pro-forma business Plan which gives Buyer B the calculations needed to show Buyer B that it's a well thought out plan that will work!
Buyer B then comes in with his $50k. So, both Buyer A and Buyer B buys the $100k property as 50% owners.
Here is where the trick comes in.
When the Property is sold for $200k, Buyer A and Buyer B splits the proceeds of the sale, $100k each! GREAT! What kind of return is that? Well.... for Buyer A, he put in $50k and got back $100k!! So did Buyer B! They both made a 100% RETURN!
Hey, wait a minute....... isn't that the same return as the Property itself? YES IT IS!!!
The trick is that you don't bother with the price... you bother with the RETURN of the INVESTMENT. If the Return is 100%, 200%, whatever, it will be the same for all Partners in the deal.
The problem with most people is that they are asked to network to increase their ability to be successful but they don't really know how it will make them so successful until they see the math as I described it above.
So it's really the LACK of PARTNERS that prevents people from buying into HOT Markets... Markets that I continue to buy in with my Partners.
So the question I like to ask people who want to do it all on their own is why don't they have people they can trust and Partner with? What's the issue here? Is it a lack of money or is it a lack of having TRUSTWORTHY partners in your life? Maybe it's time to network in a way that is different than what you have been doing and find the right PARTNERS to help you open the doors to GREAT investments!
I hope the readers of this post can see how great opportunities can arrive if you can do 2 things.... 1) Analyze what Markets are GREAT and 2) Find Fantastic Partners!
That's What I specialize in and it's made me VERY successful.
Without my Partners, I could not have continued to buy in NYC at the level Prices are now. I'm in Contract for a $2 Million, 3 Unit Property close to Barclay's Arena and it will most likely be $4 Million with 10 years, if not 5 years. It's nice to make $millions for my Partners and I. So let's all do it together!
@Llewelyn A. Thank you for your response.. Never been to Brooklyn before but I have heard that things have drastically changed down there and it's nice to get a few words from an insider... a lot of the concepts you have mentioned can easily apply to the Southern California market as well... I noticed you mentioned a lot of terms that are not regularly mentioned on the forums or even the podcasts... Do you have a book or 2 or a website you use or recommended??
Hi Simon! Yes, I do! It's a really GREAT Book but will NEVER be on the Best Seller's list.
What normally is on the Best Seller's list is books with very little Math or Math that is very simple. It's not that simple math is wrong, it's just that you can open your mind up to much more possibilities, like investing in appreciating markets, once you become knowledgeable about 2 things, 1) Sophisticated Math and 2) Economics so you can read the future of the market.
Personally, I don't know how any Investor doesn't want to learn enough about Economics to get a gauge on how the next 10 years in their specific Area of investing may turn out.
Will it be like Detroit, which went bankrupt but you could easily have seen that if you paid attention to the 3 Big Auto Makers? Or will it be like Brooklyn...... that went CRAZY with sky high appreciation in the last 10 years?
The Book I recommend is What Every Real Estate Investor Needs to Know About Cash Flow
For Economics, I recommend reading things from the Economic Calendar from Bloomberg: Bloomber Economic Calendar
Economics is very difficult at first, but will take some time to absorb it. Sometimes, you can let others do the work for you, such as when franchises open up like Starbucks. There's a reason why they are opening up that store there. BUT, if you can get an understanding of both of the two links above over time, you may be surprised how much it can open your mind!
I also recommend understanding your specific market of investing. Know who the big players are and if they are vulnerable to a change or even if it can be affected by changes in Climate.
Getting a lot of these kinds of knowledge only make Common Sense.... but as the saying goes, if Common Sense was so common, would we be saying it that way?!
@Llewelyn A. You have such great experience in the area! Do you have any recommendations for a broker? I'm trying to break into the BK market and my current broker doesn't feel aggressive enough for the city. Nor does he seem to know Brooklyn as well as he does Manhattan.