All Forum Posts by: Frank M.

I appreciate all the responses. Much thanks. If I am not mistaken, the zoning doesn't permit full edge to edge, as older house on this block were built, but only 55% coverage. This drops the sq ft to 2200 or 6600 for 3 floors. If construction totals $450, my numbers are way off, even a $600/sqft resale puts the value at the $1M-$1.2M range. 

There are multiple owners of the building and they all have their own thoughts on this. I'm just gathering information for my sister who is one of the parties involved. 

Yes, from what I'm told, i.e. my sister who is still in the area, advising that this is what Condos are selling for in the area. I'm not claiming to be sure of anything, just hoping to find a member who can confirm what the price per square foot is in this area, and more, how to maximize the current situation. 

Kalid - can you add a bit of background? When you say you contacted a seller, what do you mean? A FSBO whose house you want to buy? Or a potential seller whose house you'd like to list? Your profile doesn't quite clarify what you're trying to do.

Chris - that may very well be my answer. Although $300*12000 is still $3.6M vs the $7.2M resale I'm seeing. 

No. The present owners are clueless. No knowledge, and no desire to take action. One of them is my sister, and I would like to get the best return possible for her. In a perfect world, I'd find a builder that would say "sure, $300/sq ft is right" (So $3.6M) and a bank that finances at some rate higher than my regular mortgage. This leaves the owners with 12 units costing $300K each, worth $600K. Rent them or sell, their choice. 

Right now, I'm looking at relying on one of them interviewing a local realtor, and seeing what the market will price out this property. 

I am looking at the family house in Brooklyn, NY, needing to be sold. Its value is all in the parcel of land, not the building. 4000 sq ft, in Bensonhurst (NYers will know the area). It's 1/4 mile from the subway, close enough to be under 5 min walk, far enough to not hear the train. (For outsiders - the subway is above ground in this area). 

Now, if I back of napkin, $200/sq ft to build, this would give a cost of $200K/ 1000sq ft unit, and 12 units on the parcel. In this neighborhood, condo conversions smaller than this are going for over $600K. 

Disclosure - I am not an owner. The owners are other family members that I'd like to see get the best deal they can. I'm too far away to do anything 'hands on', just trying to get an understanding of what they might be able to do. I am in Massachusetts, where, even in a relatively expensive town, the MLS price per square foot average I see is $275 or so, which of course, includes the land. We use an estimated $150/sq ft building cost when evaluating a tear down or land purchase.

From this, it would seem the new 12 unit condo complex would sell for $7.2M, and cost $2.4M to build. If I am off on the construction cost, $250/sq ft would bump the cost to $3.0M. 

What I'd like is to understand the best advice I can give the current owners. There was a death in the family, and they are all looking to sell. They are thinking the current value is $1.6M for the land, but it seems too big a difference. This would mean a builder would stand to make over $2M profit? 

Right now you have a conforming situation. Say the current lot size must be 10,000 sq ft and the house now sits on 19,000 sq ft. This is a situation where you can't split the lot. 

Not without asking for a variance, which may be tough to get. Whether you wanted to produce an empty 9K lot or 10K, you still will have to face the zoning issue. Leaving the house sit on 9,000 sq ft if allowed, would at least give you the salable parcel with no issues. 

This is a made up example. 

When I bought my recent 3 unit building, there were two parcels, a house on a tiny, non-conforming lot, and a 10,500 sq ft parcel abutting. I can build when ready, only because these lots were never combined. I have two deeds and can build or sell the good parcel, killing the house's parking and yard, if I did so. 

4 units, at $800 each. Are these all 3BR? If so, you might push to $850-$900 if they are spacious and in great shape. Otherwise, you are right in the price range for that area. As another poster stated, don't count on the increase, odds are the rents are what the market will pay. But don't take our word for it. You said 10% management fee. The people who will manage it should know the area and advise what the going rent would be. There's a clear difference in rent from Fitchburg to Leominster, just one town away.  

The depreciation can make a positive cash flow rental show a tax loss. This is what most new investors might miss. 

Say of the $200K price, $50K is attributable to land and $150K to the building. The first full year, you'd see $5455/yr depreciation. (The first parial year, it's prorated.)

The real question is if you are able to rent for a profit. If mortgage interest, principal payment, property tax, and expenses are more than the rent, you may have negative cash flow. Ignoring principal payment portion, if you are break-even, the depreciation might provide some tax savings. But it also lowers your basis. With no other permanent improvement expenses to increase basis, this means that in 28 years, you have a $50K basis, and a potential large tax bill when you sell this house for $400K.  

If you offer more details, members can give you a better idea if you'll have a tax bill from this investment. If you do, it's a good thing. It means you are profiting enough to actually show income. 

Chris, Thank you for the response. It seems I am getting hung up over the prior to in service date. This issue forces some things that would be a repair to be added to basis. 

If I'm understanding this correctly, property tax and utilities are similar to the insurance and get expensed, but all other work, even if it would seem a repair after in-service date, is added to basis. 

I bought my fixer-upper last March, and it took until November before it was ready to show, i.e. place "in service."

I asked prior, if the insurance had to be capitalized or if it was an expense, and @StevenHamiltonII was kind enough to respond, expense. 

Now that I'm hacking away at the tax form, I am wondering if anything else can be expenses prior to 'in service' date. I'm looking at the Real Estate taxes and Utilities, to be specific, but if I'm missing anything else, I'm happy to know. 

I've sifted through Pub 527, with little success. It's pretty clear that depreciation starts after the building is placed in service, but I don't find where it separates out what else can be taken prior. (Thanks)