All Forum Posts by: Morris Cohen

That’s going to be very challenging unless there is an existing sponsor that already owns 60% of the building. The problem is once you own more than 10% of the building conventional lenders have an issue lending in the building so the board and existing shareholders will have a problem selling/refinancing their loans. This will likely lead to you being blocked by the Co-op board from purchasing any additional units due to the fact that turning the Co-op into a rental building will devalue everyone else’s units. Not to mention that conventional lenders also want 51% of th building owner occupied as well. As such, I see it getting more and more difficult as you try and obtain more units as more and more issues will come up. 

It's all a personal preference as to when you want to get started. I hear both sides of the argument. The key takeaway for me is that bad credit and very little savings doesn't necessarily exclude you from investing. You can partner with someone if you find a good enough deal. That can give you some good experience to do it on your own once your credit and savings are more in order. You can also house hack. I would start with a 2-4 unit property either with a 203b or 203k fha loan. All you need is 3.5% down and you may be able to get the seller to chip in for closing costs. A 203b loan would be for a property that is fully fixed up, so it may be easier to run the numbers, but a 203k loan would be for a property in need of renovation. Buying a fixer upper via a 203k loan could be a good way to start off if you can handle the stress of a renovation as you can "build in" equity to the deal, live there for a couple of years while you're fixing it up and/or renting it out after which you have many options. You can sell it and take the profits so you can start doing more deals or keep it in your rental portfolio (hopefully in a couple of years you'll have more money saved so you can do more deals). The bottom line is there are definitely some options for you to get started if you feel comfortable doing so. 

@Andy P. I have done a few of them. The lenders that will consider it will only do 5/1 and 7/1 ARMs (no 30 year fixed) as they are holding it on their portfolio. I’ve gotten 70% on a purchase and 60% on a rate/term and cash out refi. The cash out refi rates are awful though. 

AirBnB aside, even renting out co-ops to longer term renters can be a challenge in many cases. Many co-op board require you to have lived there first and then only allow you to sublet 2 out of every 5 years (this varies from co-op to co-op, so there are some with more lenient policies). Not to mention the fact that 95% of lenders do not lend on investment co-ops (the maximum I have found is 70% on a purchase). The way I see it, co-ops will be an uphill battle if you are purchasing one strictly for investment purposes. 

This large single family residence was just completely rehabbed. It has a beautiful kitchen with granite counter tops, glass mosaic back splash and new cabinets along with stainless steel appliances. New hardwood floors were installed making the finishes on this house top of line. The renovation is fully completed and it's priced to sell quickly. 

My advice- do whatever the Co-op says. Their management companies tend be to be very unresponsive and given th red tape that is involved in everything they do, it will take a lot more time and money to get them to accept to do it your way. Even if it’s cheaper not to hire a NY attorney (you should calculate this by adding up the additional holding costs it will cost you to fight this, which will be significant), the time value of money will likely make it well worth your while to follow their instructions. The path of least resistance is listening to the Co-op board whether what they say makes sense or not. 

There are pros and cons to both. Rates are rising, so cashing out on some equity now would make sense so you can lock in a low rate before rates rise too much. Also, waiting until after you vacate can make it a lot more difficult to obtain financing. investment co-op cash out refinances are VERY hard to come by. I know a couple of banks that would do it, but you would get hit with every hit to the rate in the book not to mention the fact that a 30 year fixed would be nearly impossible to get on an investment co-op. if you plan on only buying this two family and have no other immediate plans to purchase additional investment property then I would leave the co-op alone as there is no reason to add additional leverage if you have the cash. However, if you feel you are going to ramp things up it would make sense to stay living in your co-op for one additional month and cash out while it's still your primary residence so you can get a 30 year fixed conventional loan and to give yourself additional flexibility to buy more later on. 

I own multi-family in Brooklyn and some single family in the Midwest and I can tell you the 50% rule does not apply to Brooklyn. If I had to put a number on expenses prior to P&I expenses it’s probably around 20-25% of gross rents for my three family properties, but keep in mind that whether you have you or your tenants pay utilities, whether you have water efficient fixtures, you self-manage, etc all play a part in this. For your first deal, I HIGHLY recommend you put numbers into a spreadsheet and show it to someone before pulling the trigger to ensure you don’t miss anything (if you’d like I’d be happy to take a look at them just PM me). 

Regarding repairs, it’s hard to predict, but I’ve found that using a fixed number (based on the condition of my property) has been more accurate for me. The way I see it, it’s going to cost me the same amount to send a plumber out whether the monthly rent is $3,000 or $800. As such, I’ve found the 50% rule is more applicable in more affordable cities than New York. 

That is an unusually high deposit. In Brooklyn it’s usually 10% of the contract price. It seems to me that it’s time for litigation. It will take time (a couple of years) but eventually he will get his money back. Your transactional attorney may not be able to handle the litigation piece so I’d ask him for a referral. I know a few, so PM me if you want me to send you their contact info. I wouldn’t start looking for something else unless you don’t need that money to purchase something as unfortunately this is going to be a long ride. 

are you sure the Co-op requires 25% down? There could be different rules for apartments in the Co-op and the commercial space. Before doing anything I would check with the managing agent to make sure those down payment requirements apply to people purchasing commercial space as well.