Condo Investment in NYC

[Kevin M.]

Hi all,
I brought a single family home last year in nyc with 20% down payment. Home mortgage is $3700/month and $500/month extra payment towards the principal. Currently, I am renting it out for about $3100/month so I am paying about $1000 out of pocket (might sell and use 1031 to buy a 2 family). My future game plan is looking to buy a condo with 50% down payment and pay it off within 3 years. Condo mortgage is $2100/month (with insurance, HOA fee) and the rent would probably be $2200/month. My goal is to continue to buy 3-4 condos like this one and use the snowball strategy to pay off these condos quickly so I can build up my passive income(ideally $20k+ a year from 1 paid off condo). I am open to hear any suggestion or advice to make better investment decisions and get more tax benefits like setting up an LLC . Thanks!

[Robin Simon]

Congrats getting started - advice, are you dead set on investing in NYC?  Very tough market for cash flow obviously and remote investing has never been easier

[Mohammed Rahman]

You’re on the right path! A few things to consider:

1. Selling and 1031 Exchange: Moving to a 2-family is a great idea. It’ll give you better cash flow and more rental income to offset your mortgage.
2. Condos: Condos are fine, but they often come with higher fees and slower appreciation. You might get better returns from multi-family properties, which offer more rental income.
3. LLC: Setting up an LLC has pros and cons. It protects your assets, but it can make financing harder. Talk to a CPA for advice based on your goals.
4. Reinvestment: Instead of paying off properties quickly, reinvest your cash flow into more properties to grow your portfolio faster.
5. Rent Increase: Look for opportunities to increase rents or add value to your current property to boost cash flow.

Consider focusing on multi-family properties for better passive income. Let me know if you need help finding your next deal!

[Ashish Acharya]

@Kevin M. Your current single-family property has a $1,000 monthly out-of-pocket expense—consider selling and using a 1031 exchange to acquire a multifamily property with better cash flow. While your condo snowball strategy builds equity, modest cash flow and HOA fees may limit returns. Explore multifamily or out-of-state investments for higher yields.

Setting up an LLC provides liability protection but has no tax benefit for you now.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

[Trevor Finn]

Hey @Kevin M.

It sounds like you’ve got a solid plan to build passive income with a focused snowball strategy! One thing to consider is whether a two-family property might provide better cash flow than a condo, especially with NYC’s high costs. Using a 1031 to upgrade to a two-family could help you reduce or eliminate the $1,000 out-of-pocket expense you’re paying now.

Also, condos often come with HOA fees that limit cash flow, so be mindful of their impact. If you're set on condos, ensure you're targeting areas with strong rental demand and minimal HOA restrictions.

Regarding an LLC, it's great for liability protection, but it won't necessarily give you tax benefits unless structured strategically. Talk to a CPA to see how it fits your plan.

Keep building, you’re on the right track!

[Basit Siddiqi]

Did you property appreciate for the 1 year that you had ownership?
If there was no appreciation, there is no need to do a 1031 exchange.

I have never been a fan of condo's as you lose some control over the investment - You have no control over the monthly maintenance fees, you may not have control over who is on the board, you have no control over special assessments.

I wish the investments turn out well for you!

[Bryan Stengel]

Hi Kevin, I would encourage you to maybe consider outside of New York in the future. The tenant laws in New York make life as a property owner way harder. In addition, condos tend to not appreciate as fast in value compared to single-family or multi-family homes. Unfortunately, I do have a property in an HOA, which often comes with their own set of rules that you'd have to follow of course. Every HOA is different, but they significantly affect your cash flow. The fees also tend to go up every year as well. If you could avoid an HOA, I'd advise to do so. I'd also advise out of state since you can certainly generate better cash flow too.

[Dave Foster]

@Kevin M. A 1031 exchange would use all of the tax in the purchase of your next property. This would greatly increase the size of your next downpayment. Which would allow you to escalate that snowball payoff without having to use part of it to pay the tax. So you can find better performing investment properties. Multi-family properties many times provide a better return per square foot than single family, which would be to your advantage as well.

As long as you're mindful of the reinvestment requirements and purchase at least as much as you sold and use all of the proceeds, you shouldn't have any issues with this strategy.