Brooklyn Multifamily at Current Rates?

Question

Would like to house hack in Brooklyn, live there for a few years, and move out 3-4 years later. Currently renting in Brooklyn.

Looking at 3-4 unit multi families. Nothing seems to be close to breakeven at full occupancy with 7% rates. Am I missing something here?

Or will this require seller financing / off market deals / steep discounts in order to make this work?

Abel Curiel · Answer

Hello Malcolm!

It is challenging to find a small multi-family in Brooklyn that'll break even but it isn't impossible.

In many instances, a 20-30% down payment can improve your chances to break even but even that is a tall order given the high purchase prices.

Alternatives are:

- looking into parts of Brooklyn with a slightly longer commute time to NYC (i.e. 35-60 mins)

- properties with an ADU. i.e. 2-family properties w/a full-finished basement and separate entrance priced under $1.1M

- targeting properties that have been on market 90+ days

Off-market properties can provide opportunities with less competition but many of them are prices just as high (if not higher) than properties you find online.

Furthermore, most of the off-market inventory we come across have one or more of the following issues: non-paying tenants; tenants paying below-market rent; deferred maintenance making it tough for the property to qualify for traditional financing; unrealistic asking prices; etc.

If you get to know the market well via research & due diligence, actively search anything that hits the market and remain patient, you will find your opportunity.

Remember, the 7% interest rates are scaring away the bulk of your competition. Mortgage applications are down 26% (see article here) compared to last year which means that property owners in more dire circumstances could be accepting lower offers.

We just helped a fellow BiggerPockets Community member lock down a Brooklyn 4-family for under $1M. Once the property closes, I will post about it here on BP.

All the best to you on your search!

Abel

Julien Jeannot · Answer

My advice is to play the long game if there is a history of high appreciation. Date the rate and refi when they come down. My market also required heavy downpayment to cash flow.

If I had listened to all the advice out there I would have never bought my first househack duplex. It was on the MLS, I "overpaid" for it, and it did not meet any of the %s rules, my lender and broker were not investor friendly and I did just about everything else "wrong." Do pick one they needs work to force equity and raise rents in the short term.

Fast forward 5 years, I gained 50% in equity (forced equity & appreciation), 2x the cash flow.

Fast forward 7 years, 2x equity, cash flows $700/unit.

I unlocked the equity in a HELOC and continued to the BRRRR.

Harold Looney · Answer

Malcolm Ring - if you are interested in living in Brooklyn for at least 3-4 years, a more creative approach is to JV with a Small Multifamily Owner who desires a live-in property manager/co-owner and is willing to buy-out your equity back in a few years. This could at least decrease your overall cost to live in Brooklyn and you can participate in the appreciation instead of just giving rent money to your landlord. DM if you want to discuss further.

Mohammed Rahman · Answer

Hi @Malcolm Ring - NYC isn't a cashflow market to begin with, especially not with FHA.

If cashflow is your goal, I advise you the same I advise other clients: look anywhere that's 2+ hrs away.

Albany is a good start.

If you understand that price appreciation, rental appreciation, and tax deductions/writeoffs combined with a cost segregation study can help you put yourself in a better position - then that's where multifamily purchases in NYC make more sense.

Alternatively, most people just want to buy & hold in NYC & househack knowing it's better to at least build equity vs. paying monthly rent that's not appreciating into anything of value.

Andrew Postell · Answer

@Malcolm Ring yeah, the way house hacking is "sold" on some of the videos isn't really accurate.  The way to think about it is that house hacking will DECREASE your costs to home ownership.  As long as you occupy one of the units, you will NEVER cashflow...ok, maybe there's an exception somewhere...but 99.9% of the time that won't be the case.  It's pretty expensive to own a home right now - pricing AND rates.  So, renting out the rooms/units helps us make it more affordable.  So, if you go into it with that understanding then you will see that house hacking still benefits you greatly.

Now, you might find a different challenge when you get prequalified for a mortgage trying to buy a 3-4 unit.  Have you gotten prequalified yet by chance?

Mohammed Rahman · Answer

Hey @Malcolm Ring -  I got your DM as well, responding separately. I'm an investor, broker, and househacker.

Where are you currently investing in?

Brooklyn, like any other area in a high cost of living city (HCOL-city) is not going to be a cashflow market (I'm guessing you're referring to cashflow in terms of breaking even).

The name of the game here is: appreciation, equity, & tax write offs with long term rentals.

It's not that it's impossible to find deals that cashflow, but you'd have to be pretty generous with your holding assumptions (low vacancy, capex, etc.) OR buy something that needs renovation at a steep discount and then force appreciation to it (BRRRR method).

Let's connect, I responded to your DM and recommend you checkout my househacking video on YT that's made for NYC investors.

Malcolm Ring · Answer

Thanks for the replies all. When I am unsure about breakeven, I mean even with all units paying market rents, not even trying to get a reduced unit for myself. Will the sum of all market rents even meet total expenses at 6.5%-7.0% interest? It almost seems like prices are still based on <5% interest rates or heavy-cash buyers.

Neighborhoods I am looking at exceed FHA limits, btw.

Plus, getting into a $3M NYC multi-family property feels like a modest building problem can easily take you into the negative.

Ryan Thomson · Answer

@Malcolm Ring second thought you are going to have to put 15-20% down most likely for a 3-4 unit house hack. Reason being is that FHA loans have a self sufficiency test on 3-4 unit places that almost no market can pass right now. I work with house hackers in Colorado Springs and 3-4 units do not pass that test right now.

If that's true for NYC I would focus on duplexes.

Or if you are military and have access to the VA loan you could get a 3-4 unit place for 0% down!

Ryan Thomson · Answer

@Malcolm Ring two thoughts. One is on "cash flow/breaking even":

I wonder if your criteria may be a little unrealistic for the current market. House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple reasons:1. You are living in one of the rentable units2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.

Ben Einspahr · Answer

@Malcolm Ring. I would have to agree with @Andrew Postell. Be sure you are analyzing as stabilized rental, vs living there. That is when the liability (house hack) turns into an asset (rental) for low downpayment. From your post, looks like you already are?

Your market seems similar to Denver where it is very challenging making the numbers work on multifamlies to house hack. Plus the financing gets wonky. Read this post I just wrote about multifamily house hacking financing.

Are there single family homes that have some form of separate entrance/ ADU that still give you your privacy with out the premium price tag of a multi?

Examplehttps://www.zillow.com/homedet...

https://www.zillow.com/homedet...

Brooklyn Multifamily at Current Rates?

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