New York- Does it make sense to invest here with the new laws?

Question

Hi All,

While I'm relatively new to the New York real estate investment game, I've been a licensed NY/NJ attorney dealing with real estate law (mostly representing buyers/sellers on residential and commercial deals and representing lenders to close loans).  I'm experienced with the process of finding, buying/selling and closing on a property but never delved too deep into the personal investment aspect and was looking to start.

I've taken the opportunity to do a lot of research over the past several months and have learned a lot.  While I'm motivated to start and would prefer my first properties be in NY, I do not mind expanding to other states.  My previous concerns with NY real estate are largely well known already- high bid up sale prices, low CoC return, highly favorable tenant laws, etc.

Now on top of the rent moratoriums from COVID, landlords also have to deal with new statewide tenant protection laws enacted toward the tail end of 2019 that provide an astronomical amount of tenant protections.

https://www.rebny.com/content/rebny/en/newsroom/in-the-news/2019/Housing_Stability_Tenant_Protection_Act_2019.html/

also not looking good for "mom and pop" investors:

https://www.amny.com/news/rent-laws-new-york-1-32225521/

Bottom line is, I'm sure there are NY residential landlords in here. How is your current experience, what do you think of these new laws? Given the chance, would you continue to acquire more properties at slightly below market prices (really hard to find a good deal here also), or would you look for opportunities elsewhere?

Appreciate everyone's insight.

Wilson

Nathan Gesner · Answer

Can you make money? Sure. Can you make a heck of a lot more in other areas? Absolutely!

I could buy a single-family home with cash and make profit. But I can make a lot more utilizing leverage. It's the same thing for your question. You need to run the numbers, compare them to your goals, and see which option works best for you.

Personally? I would have left that state ten years ago.

Wesley W. · Answer

Honestly, I wouldn't nowadays until the political winds change.  I'm personally 1031ing out.  Landlords have lost a lot of rights over the last year, and the legislature has indicated they are not yet done with the taking.  Look for the "good cause evictions" bill to come back over this special summer session.

If the United States were made up of NY, I would say take your chances and invest.  However, there are 49 other choices available to you, nearly every one better.

Take your hard-earned money where it is treated best!

Joe Aiola · Answer

@Wilson Pun Great post! My opinion is that you can still buy properties in NY if you're smart about what you buy and where you're buying. For example, buying in an A-class area will mitigate some of the risk of getting a bad tenant. I also believe that there aren't many people who are out there actively looking to try to screw the landlord over. So, no matter where you invest, it's always wise to have a great tenant screening process as well as being a great landlord. These two things also helps mitigate the risk for the landlord.

Parts of NY also have tremendous appreciation, which every investor loves!

There are definitely serious concerns though, as you mentioned. It's worth talking to investors in other markets and seeing which is the best fit for you.

Best of luck!

David M Trapani · Answer

Hi Wilson,

A very good question. For comparison sake, I 1031’d all long-term rentals out of California due to state-wide rent control & no doubt more tenant protections coming down the pipe. As Wesley points out 49 other choices. Traveled to the states I liked, forged relationships for boots on the ground and/or reasonable rate PM. Loved it so much, found one where I moved myself. Now it’s home as well. Best wishes on your decision & a successful journey!

Wilson Pun · Answer

@Wesley W. spot on- i've been hearing other people considering 1031ing out as well.  At this point, I'm not even sure if it's a numbers game, especially with prices so high making it harder to diversify via tenant count/property location.  1 bad tenant can really set a landlord behind.

Sean Toomey · Answer

@Wilson Pun

Hi Wilson and welcome. What a great post. I live on Long Island and have chosen to invest out of state. It’s hard to cash flow here and laws definitely favor the tenant.  Flips do work here but can be risky at times. If you want to have long term holds out of state is your best option.

If you have any questions feel free to reach out to me.

Sean

David M Trapani · Answer

Agreed. One way to start is to get that first out-of-state property up & running. Build boots on ground network or reasonable PM. Then if it goes well, expand. No need to move, unless that's desired. By the way, we have reciprocity in Tennessee. No need for another bar exam.

Wilson Pun · Answer

thanks @David M Trapani, definitely considering the out-of-state option.  As an attorney also, I'm sure you can appreciate the struggles of being admitted in certain states and essentially choosing between your practice or your REI if moving out of state, that is unless retaking the BAR is an acceptable option

Wilson Pun · Answer

thanks @Nathan G. seems if the numbers work out better for other states, next step would be trying to find a good PM in my target markets and see how the PM cost would fit into my bottom line.  It's really the uncertainty and inaccessability factor that concerns me the most with OOSI.

Wilson Pun · Answer

@Joe Aiola thanks Joe.  Yea you're right, I don't think that tenants are trying to screw landlords over on purpose, just with the median rent prices as high as they are and the closure of the city until recently and the unemployment rates- the concern is the numbers have to give somewhere.  Also, it was always part of the plan to have a great screening process, but the new laws prohibit landlords from asking or screening based on past/ongoing litigation.  There's also-  RPAPL 753: Instead of court having discretion to give only up to 6-month stay if pay use and occupancy, it is now one year and where it applied only to tenants, it now applies to occupants. Factors to consider include extreme hardship for the Tenant. Changes the time to cure defaults after trial from 10 to 30 days.

So essentially one bad tenant is enough to tank your cash flow to negative for a potentially long time.  I think my next step is consider other markets to be able to get a better numbers and procedural comparison.

New York- Does it make sense to invest here with the new laws?

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