All Forum Posts by: Josane Cumandala

This is a nice problem to have! I live in Bushwick not too far from Ridgewood. I also appraise real estate in Manhattan and Brooklyn. In my personal and professional opinion this is probably not the best time to buy a rental property in New York City. Inventory is super tight, the market is pretty flat, rents are falling and landlord concessions are high. Granted, this data is skewed towards the high-end A-class properties but even on the lower end of things at least for now rents seem to be pretty stagnant. There is still opportunity out here but a lot of it is going to be reserved for major developers and institutional investors. 

It's not a bad idea to take some of that equity out now while the market is still strong and do SOMETHING with it, just be aware that real estate is very cyclical here and we are most likely near the top. I would not buy something now with the expectation of the same amount of appreciation we saw in recent years nor would I expect a significant increase in market rents for any particular neighborhood. There's just too much oversupply in the apartment space that will take several years to absorb. 

And be aware that it's probably better to do some improvements now before they become serious deferred maintenance. If nothing has been done since the eighties it's probably not a bad idea to look at the roof, windows, foundation etc. 

I hope that helps. Best of luck! :)

Full disclosure: I am an appraiser. Now, I know that not all appraisers are equally skilled and versed in their market area. There is an unfortunate practice now of "appraisal management companies" shopping for appraisers by price, going with the lowest bidder and taking a huge cut of the profits. Competent appraisers will not work for AMCs so mortgage-related appraisers sent by banks are often bottom of the barrel. That said, I often have to ask why people assume brokers comps are correct? I always take comps from brokers and they are almost never relevant. They will give me three bedroom homes when the property is a two bedroom, or use comps from a vastly superior part of town to justify a higher value. Sounds like they are trying to support a higher commission, not a better service to the public. They do not teach appraisal or comparative market analysis in real estate school. The classes you take to become an agent pertain primarily to license law, not real estate. I know this because I have been both an agent and an appraiser in my time. Before all the agents here flame me know that I respect y'all a lot. I just think agents need to educate themselves better on market analysis and the rest of us as consumers need to know how to vet an agent. As for appraisers, we will see one day just how many bad deals have gone through that shouldn't have because of AMCs but unfortunately the reasonable ones that never happened will be much harder to quantify.

Originally posted by @Nathan Guyette:

@Josane Cumandala, thank you for your response. No, I did not have any specific issue with an appraiser or their valuation. Just curious about how to judge them as there's no easy to view rating system for them.

Yeah, appraising is an art, not a science. I think a good report speaks for itself but beyond that you just have to consult with other professionals if you feel you need a second opinion. 

Is this is New York City or somewhere else in New York state? 

I don't know about other places but in NYC there's this idea of "squatters rights." Since it's not your friend's property he has no power to evict her. Where it could get murky is if he sublet the apartment to her without notifying the landlord. But since he's telling a tenant to evict a non-tenant it sounds like the owner either doesn't know the law or is trying to avoid a bigger headache. 

If she's refusing to leave and she's refusing to take over the lease/pay rent the landlord will most likely have to go through the courts to evict her. Not fun. The landlord may try to place the blame on him for letting someone stay in the apartment without authorization. I do not know the extent of his liability in this situation in all honesty, not a legal professional. Best of luck! 

Get educated. If money is tight start with learning about personal finance and getting your money right. Study as much about real estate as you can. Network with professionals. Read books and listen to podcasts on real estate investing. Money without knowledge is like water through your fingers. 

Think about it. If a judge or attorney discovers that you transferred a property into an LLC conventiently after you discovered a tenant planned on suing you would they look favorably on that decision? Do you think they will respect your LLC and limit your liability? No. Because that was not a move done in good faith. The time to protect your assets is before there's a claim against you, not after.

Originally posted by @Mansi Kothari:

@Josane Cumandala Hi Josane,  thank you for adding your insights here. The property is in Crown Heights, off Rogers Ave.  The rental income is based on actual rents I have confirmed with leases. I re-ran the numbers with increases in the expenses (including vacancy, capex, maintenance, and property management) and the cash flow is definitely negative. This is of course conservative pro forma based on the information I have from seller and markups based on what I know about the area. I am currently renting in the neighborhood elsewhere.  Thank you @John-David Herlihy for encouraging the 2nd look. 

I guess my question is in a market like Brooklyn, with 5% cap rates and dropping, would an owner-occupied make sense here? 

Cap rates imply you are paying 100% cash. It doesn't factor in things like debt service. I would think the cash on cash return is a much better metric for smaller income properties. If the cash flow is clearly negative it doesn't really make sense as an investment.

However, in my experience as an appraiser, the people who buy the small multis out here do so for appreciation, their quality of life, and the lower carrying costs of the mortgage. So I guess a better way to analyze this is how much more would you be spending on a single-family home in that area for a property of comparable size, condition, and frontage? At least the small multi-family gives you some help with the debt service, or it should. Again, it depends on how you value your time and how long you can feed the beast for appreciation. Also make sure you have the stomach for tenants and toilets and you set up proper asset protection. Best of luck! Feel free to contact me if you have more questions. 

Where in Brooklyn is this property located? Rents and vacancy will vary dramatically based on the neighborhood.

I live in Brooklyn myself and appraise real estate there and in Manhattan. Without knowing the location I'm concerned that it doesn't meet the 1% rule. But then again it's very hard to hit that on small multi-families out here. Also the cash flow doesn't come close to covering the expenses even if you weren't owner-occupying. Also how much is your time worth? Would you be self-managing or outsourcing to a property manager?  

Yeah like others have pointed out -  RDPD has no actual investing strategies. It's core takeaway is to know the difference between an asset and a liability and get educated on the asset class you're interested in. Of his books I actually liked Unfair Advantage the most because it at least tries to be a little bit more specific about investment strategies. But again the message is the same - get educated. No investment is going to work if you aren't informed on the subject. That's not a bad message but it's kind of a lazy one. The less specific you are the less chance you have of being proven wrong.

Now if anyone has read Rich Dad Advisor Ken McElroy's books on real estate investing I'd love to hear their perspectives before I buy three books. :)

Yeah I liked Kiyosaki's books but from what I understand the coaching program has nothing to do with him, he only licenses the Rich Dad name. I would save yourself some money and just read the Rich Dad Advisor books if anything. Kiyosaki's actual books aren't really about investing. Andy Tanner writes books about the stock market and uses the Rich Dad Advisor name for publicity. Ken McElroy writes about real estate. Tom Wheelwright about tax strategies, etc. Read the books by the actual experts. Kiyosaki himself mostly just writes about mindset.