Sell, HELOC, or Mortgage Brooklyn Brownstone 3 Unit

[Robyn Henderson]

I posted something similar in the Starting Out forum and did not get many responses. 

I was hoping to get the advice of more seasoned professionals who know the area. My family has a 3 unit investment property in Cobble Hill Brooklyn NY which has appreciated from $40k when my parents bought it to about $3M today. The mortgage has been paid off for many years and it currently grosses $6,300 a month. My parents live in Boca Raton Florida and just collect the rent checks every month with minimal upkeep.

I was thinking of getting a HELOC on this investment property. I was able to find a credit union who would do a 5 year draw and 15 year repayment for 4.75% up to 70%LTV, 5.75% up to 80% LTV and 6.75% up to 90% LTV with no maximum cap on the amount as many banks that I researched seemed to have.

Another option would be to get a nonconforming mortgage from a portfolio lender. Most banks will lend up to $1.1M as a conforming loan but there is still lots of untapped equity if I go this route. 

My parents would prefer to keep the property as the area has good renters and continues to appreciate. Besides, the NYC market is slowing and I dont know how fast this property would stay on the market if we did sell.

I feel there is lots of money trapped in the home equity and I want to put it to good use by acquiring real estate elsewhere. I'm very familiar with residential real estate (1 to 4 units) but I think we would be able to use this large sum of money and get into commercial multifamily properties. Alternatively, with a HELOC, I could buy smaller properties for cash and then use the BRRR strategy.

I'm looking for buy and hold (and not flips) and I'm open to investment areas (preferably in the tri-state area but if I can find good cash flow, I'd be open). 

For those of you who have done similar transactions, what's the best approach? What has worked for you?

[Ahmed Saad]

Hi Robyn, 

I have 2 properties in Park Slope and have managed them for over 10 years now. Here are some thoughts / questions / recommendations.

1. What are the conditions of the units of your current 3 family? I'm asking this for 2 reasons. First, if you're GROSSING $6300 on 3 units in Cobble Hill I think you're rent is very low. If they are 1 bedroom apartments and they are in decent condition you can probably get about $2700 per apartment fairly easily. If they are 2 bedroom then maybe $3000-$3200. Second, if there's room to improve the conditions of the units, then there's room to improve the rents, thus room to improve the amount of money you withdraw from the property.

2. Let's pretend you're looking to take out $1m (which is very reasonable considering the property). You can use that as a DP on a property in Brooklyn and grab a really solid building in an A area. The cashflow would be OK from a % standpoint but from a $ perspective it'd be good. Of course the appreciation will be stupendous. 

If you're looking to really grow a portfolio, you can use that $1m as an investment fund and start buying fix and hold units in an area like Philly. You can BRRR(R) if you want but then you need to find management. It's not really worth your time or effort to manage any of those for the rent you would get there.

3. Since you are comfortable with the small multi family, I'd say why reinvent the wheel! 3-4 family properties are the best. They are easy to manage. No RS/RC issues! Larger properties in NY have issues with HPD all the time. Constant issues with sprinkler inspections an boiler/heating issues. They qualify for residential loans but with the added benefits of the rental income to help pay the loan. 

I hope this was helpful. Always happy to see another Brooklynite here!