Multi-Family in Crown Heights, Brooklyn

[Laura Moreno]

I just found this property looking a 3-unit multi-families in Brooklyn. I would love to occupy one of the units. 

- Purchase price: $1,100,000

- Units: 3 2-bedroom

- Gross Operating Income (3 units): $102,000

- Annual Expenses: $16,902

- Cash Flow before taxes: $85,098

- Annual mortgage: $50,000 (with 20% down payment)

- Cap Rate: 7.73%

It looks good, right? What do you think?

Laura

This is the link: http://x.lnimg.com/attachments/12E7445F-9991-4DC3-A583-2AD1579F92F5.pdf

[Adam K.]

@Laura Moreno That's a good area to be targeting and it's not a terrible deal. The numbers aren't that far off, but they're not entirely accurate, particularly with the rents they claim you can get. I think @Eric A. is close with his estimate of $6000-6500.

First, it's a 1 bedroom and 2 two bedrooms (maybe you can call it a converted 3). And if you notice, not all the "bedrooms" have windows and 1 bedroom in each of the 2nd/3rd floor are kid-sized bedrooms (10*6).

In that area, 2 bedrooms rent for $2000/month, 3 bedrooms rent for at most $2500/month -- let's be generous and say you can get $2500/month even though the layout isn't great and the bedrooms are small. Most likely, it'll be less. I'd expect at most $1700/month for the 1st floor unless there's an amazing finished basement / backyard which there doesn't appear to be. Keep in mind there doesn't appear to be laundry in building, there's no dishwashers or central air or any amenities.

But let's say you live in the 1 bedroom and get $5000/month in rent from the other 2. So annual rentroll of $60K. The brochure has a 0% vacancy rate, which is unrealistic (let's call it 3%). The taxes look low, which is good. Insurance is about right. Their utilities estimate is pretty close, but it's a little low. I'd at least double the maintenance cost. I think the annual expenses (including vacancy, but no PM because I assume you'd be self-managing) would be around $20K.

With your mortgage payment, in a best case scenario, you'd be looking at losing around $20K a year if you occupied the 1st floor. That's not too bad, considering principal paydown and the mortgage tax deduction will help. The thing is, you'll be spending $250K in a down payment and closing costs and you can probably rent in that area for about what you'll be losing per month. So is there a better use of your $250K? It depends on how much appreciation you think there will be in the neighborhood. I think the neighborhood is definitely on the rise and there aren't a ton of multifamilies in that price range.

Keep in mind this has been on the market for 6 months and nearly 4 months after the huge price cut. There's a reason no one is jumping on it. Also, the brochure implies a cash payment so you should find out if you can even finance it.

Is it a great deal? No. Is the cap rate 7+%? No, not even close. Probably half that. But are you likely to find a better deal in that neighborhood on the MLS? That's the question. I'd personally keep looking or make a offer on this place for under the asking price.