14 Unit in Brooklyn with Family or Go alone in New England?

Question

A little long but interesting: I own a part of a 14 unit that is RENT STABILIZED in Brooklyn NY with 7 Family members which has been in the family for decades. The rents are very low and only 25%-50% of market rates due to the very strict rent stabilization laws. Therefore the property value is that much less due to low rents and strict laws keeping them low. Even though it's paid off, it's barely enough income for 2 people and certainly not 7. The only way that we can make money that I know of is by going through the intense process of converting units to condos.

The problem is that half of the family wants to keep it unprofitable as is for at least 5 years due to a random, confusing request by our deceased Grandmother. They are also already well of financially and not interested in business in general. Some are even ant-business and anti landlord. They feel bad about trying to get rid of tenants etc. My side of the family wants to realize the profits one way or the other so we are thinking of selling or taking a buy out.

I think a full or at least a partial buyout is best as we will not be able to work well together due to different business philosophies . I run a small delivery service and have 2 rental properties. I would like to increase my income asap and would like to do it through rental income or something similar.

So feel free to give your feedback on the family property but almost more importantly I would like to know the best way to turn 100k into 3k-5k a month rental income or the like. I'm in Providence RI. Multi families are 200k-500k depending on the area. Thanks!

Joseph Kotey · Answer

Hey @Frank still working out details on Brooklyn. Sending an email now that will hopefully allow us to come to a conclusion

Anthony Thompson · Answer

@Joseph Kotey it's not exactly clear what you're asking specifically. On a quick read, it sounds like half your family wants to run the property like a charity, and the other half (yours) does not.

If were in your position, I would either want to buy the other side out, or get bought out. It sounds like staying in the current situation is just holding you back from starting your own real estate business where you can follow your own business sense wherever it takes you.

Regarding your bigger question of increasing your income asap, to be honest I don't think your numbers are realistic. It's certainly possible to get a 3K/month return on a 100K investment but I would have to say that is by far a rarity and would be an exceptionally good and uncommon (and possibly risky) deal - you're talking about a 36% return.

I would never say never, but I think it's very unrealistic to expect that kind of return early on in your investing career. With leverage you might be able to make half that (1500/mo or 18% cash on cash return) if you're very, very lucky. But I think a 10-15% cash on cash return would be more realistic.

Also keep in mind that with leverage you'll be increasing your return, but also increasing your risk because those mortgage payments are a fixed expense that must be paid no matter what else is going on with the property or your life. (The government and the bank get paid first, and if they don't, they take the property from you.)

I'm in the middle of doing exactly the kind of deal you're talking about, bringing 100 to the table and buying a property for 280. My cash on cash return is estimated to be only 6% but you know what? I'm happy to get it because 1) price-wise it's actually one of the better deals I've seen in today's overpriced market, 2) my risk is much lower because my LTV is only 65% (i.e. lower leverage) which I feel very good about in this phase of the market, and 3) my alternative was to pay a bunch of taxes, so effectively a good part of that return is made on money I would have otherwise had to pay to the government.

My point isn't to dampen your enthusiasm but to maybe recommend that you talk to some other investors (in NY or Rhode Island!) and see what they say about realistic expectations of return for capital invested and risks taken.

Or to put it even more simply, as much as you might want to, it might not be time to quit the delivery service just yet :)

Joseph Kotey · Answer

@Frank Patalano see above

Carolyn Fuller · Answer

@Joseph Kotey I would be hesitant to rely on the Airbnb dollars when making your investment decisions. Income from an Airbnb can shift substantially, as new hosts enter the market in your area and / or your locale regulates the industry. New laws can easily go on the books after you purchase that make your Airbnb illegal. It has happened in my city and I have watched hosts scramble to deal. Also, I have watched as many new hosts enter the local market and drive down the rates.

I think it would be more prudent to base your investment decisions on an assumption of passive rental income.

Joseph Kotey · Answer

Thanks @Anthony Thompson yes it seems like they  do want to run a charity haha.  You answered my  questions. I wasn't thinking that I would make the 3k completely passively so I'm willing to put some labor into it like doing AirBnB or the like.  I'm trying to find the right mix of passive and labor intensive income  but yes the reality check is helpful for sure.  I'll have more $ to work with on a full buyout so I'll have to figure out how to allocate the funds but I figured 100k is a good place to start and learn.

@Frank Patalano  Thanks! a lot of folks are saying I must stay in Brooklyn "because its Brooklyn" so the bigger question is, I want to make sure Its worth forgoing the "magical long term benefits" of the  Brooklyn /NY market so I can invest how I want to now on my own. Yes there will be pretty much no tax for us. Why would you get out of Brooklyn ASAP? Google and Amazon recently announcing that they are moving close is making this decision to take a buyout or partial buyout that much harder, ugh.

14 Unit in Brooklyn with Family or Go alone in New England?

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