East Harlem and Northern Manhattan House Hack - Is it possible?

Question

Hi BP, I'm a RE broker who's looking to purchase his first investment property. I think there's great upside potential in East Harlem and Northern Manhattan (Hamilton Heights, Washington Heights, etc), and as a single guy, I love the idea of doing a house hack. Is it possible to buy a 2-4 family townhouse/SRO that needs a total renovation and BRRRR/house hack it?

I'm running the numbers and I can't quite make it work, so if anyone has any insight or experience in the neighborhood, please share. Thanks in advance!

William Cheung · Answer

@Scott Wolf I did not know that fact about the mansion tax..thanks for sharing! My thought for the house hack was that I can rent out the upper floor unit(s) in its entirety, while renting out the garden level unit on a room by room basis, and living in the basement if I have to. I'm hoping that will shift the numbers in my favor to make a house hack work.

Scott Wolf · Answer

@William Cheung I do not think you will be able to make a property like that cash-flow(or have zero out of pocket for your rent) if you are living in one of the units. What you can achieve is growing equity in your home, and perhaps achieving a lower out of pocket rent then what the rest of the market is asking. Any BRRRR strategy you try to employ, will have tons of competition with other investors.You need to reassess your goals about zero out of pocket costs for your rental. If you looked in the Bronx, Yonkers or Mount Vernon, that might be an achievable goal.Additionally, as a fun fact, 4-family homes are not subject to the mansion tax in NYC.Best of luck.

Samir Goel · Answer

Hi @William Cheung -Great question. If you really want to make this work you might need to think about an airbnb situation. If you own the property and constantly airbnb out the 2-3 rooms you are not residing in you might be able make it work. In east harlem if you can get something below 110th and 3-4 blocks from central park you can get $100-120 / room / night on airbnb w/ 1 vacancy per month once you ramp up. Otherwise the margins just difficult to work out w/ nyc pricing. **** Please look into nyc regulation, as there are some nuances to be aware of. That being said IF you live in the property and airbnb excess capacity you are generally speaking ok as long as you take certain precautions with your set up.

Ceasar Rosas · Answer

@William CheungHi William, I think it all depends on how you look at the numbers. I think you'd be hard pressed to make anything cash-flow with less than 20% down and having to pay PMI. House-hacking, here in the 5 boroughs, isn't the same as house-hacking in other states. You will PAY to house-hack here. Can it be less than a rental that's similar, sure. I tell everyone that is looking to invest in the 5 boroughs, Do your numbers as if you are putting 25% down payment and not living there every single time. Can the numbers work then? If they do, then if you buy it, you then pay down aggressively until you reach that 25% of equity, refinance, and then you should start seeing some good returns. Does that make sense?

Dirk S. · Answer

It depends if you can legally live in the basement. For example 3 families often have a built out basement but its kind of illegal, not strictly enforced I think(!), not an expert, but there may be some bank/insurance issues.

William Cheung · Answer

@Kathy Johannes good luck to you too! Please keep us posted on your search

Kathy Johannes · Answer

High William. I too am from New York; Brooklyn and I am also in the process of looking for a property to house hack. I am looking in the Brooklyn area as well as Jersey City to keep my options open. With that said keep looking and keep analyzing as I keep reading don't be afraid to go for that UGLY house. I am also looking into FHA loans/ 203K loans as well as hard money lenders. Just keep at it. And Good Luck.

William Cheung · Answer

@Calvin Lipscomb I meant that unless I'm able to negotiate a significant discount off asking price, the properties just don't cashflow. I'm not in a position to be able to put down a large down payment so I know that makes it much tougher. In an ideal world, yes, I would want to come out of pocket as close to $0 as possible.I was wondering if anyone has been able to purchase in these neighborhoods using seller financing or some other creative method, or was able to pull off a BRRRR or house hack and actually be able to generate a small amount of cash flow.

Calvin Lipscomb · Answer

What do you mean by "can't quite make it work"? The asking price might be to high to start. Numbers can also be relative. Are you expecting to pay zero out of pocket per month?