All Forum Posts by: Phil M.

So, my parent's are going in on a multifamily investment property (Non owner occupied). Now, there will likely be vacancy for a few months they clean up the property and look for suitable tenants. Their only other income is a pension and social security. My question is: Will they be able to deduct losses against their other ordinary income? From what I understand the law is that you have to be considered a "Real Estate Professional" to be able to deduct against other income. But since they are both retired, and will be using considerable time towards this investment (Possibly 750 hours or more as required), would it be feasible to be considered Real Estate Professional and be able to make deductions (losses) against their other ordinary income (Pension and social security)? 

If not, are there any investment property deductions that they could make against their other ordinary income sources?

Ford stock ($F) hasn't been that low since 2008. So you held the company for a while and sold?

What about tenant retention and non paying tenants/squatters? Is that an issue in the less affluent neighborhoods? I'm also unsure of the laws regarding how long a tenant can legally squat. Here in NYC, tenants have a 6 month period until they can be forced to leave

 Usually harder to find full section 8 tenants

I've seen non section 8 tenants squat for 6 months+ recently. I can only imagine how long section 8 tenants could possibly stay; it could very well be longer than a year if they're disabled or elderly. Being a landlord in NYC is no picnic, but the rents are very high and you can pull in more than $100 a door cashflow if you buy right, that's the tradeoff.

It's funny you mention it, because I was just talking to my mortgage broker and mentioned that most lenders really are looking for at least 15% for multifamilies (2, 3, 4 famly properties) lately. If you really want to finance and put less than 5% then FHA is probably your best bet. Just refinance soon after to get rid of the PMI, as with an FHA loan it stays on the length of the mortgage, not when you hit 20% equity like a conventional mortgage.

 The average sf 3br goes for around $450-$500k on Staten Island, so as far as cash flow goes, it's hard to come by. Unless you're looking in the much lower income neighborhoods (e.g. Mariner's Harbor, Park Hill, Stapleton, Tompkinsville) it's pretty impossible to not be negative at the end of the month. The NYC property taxes don't help with that either. Taxes range on the average houses from $4-$6k. 

I'm in Staten Island and it's a tough market. Best of luck, though!

 It's very difficult to follow even the 1% rule in NYC because of extremely high housing prices. The average single family home is currently selling for $554k in the five boroughs. 

Now, say you go for an older 3br in a below average neighborhood. Say Fordam (Queens), East New York (Brooklyn), or Mariner's Harbor (Staten Island). Houses that fit that description in those areas hover around the $325-$425k range. Say you get lucky and find one that needs no improvement for $325k. Rents for 3br homes in those areas are anywhere from $1600-$1900. Say you get the median of $1750. Average property tax being roughly $4k a year or about $350/month in those areas.

$1750x50%=$875

A mortgage at current rates with 20% down will be about $1200/month. That means you're negative -$325/month.

It is VERY hard to get a positive cash flow on rental properties in NY, unless you already down the property of course. Even if you score an excellent deal (Say around $200k) on a 3br sf in those areas you just make around $125 positive cash flow on the property. Unless you section 8 the property (Which in those areas you'd pretty much have to), you'd be dealing with tenants that will probably not only have payment issues, but with squatting. Squatters usually get 6 months until eviction in NYC, and sometimes more if they claim disability or something else. I knew somebody who squatted in an apartment for 2 years!

But, properties do increase in value in NYC. So, if you're able to break even with a rental for a few years, you could probably make the monthly $125 back if the property stays in good condition. You might even make money if you take the property that has a -$325 loss every month, because chances are that $325k in 2 years that property will go up in value a few points. If it goes up 5% in 2 years you'll make $8450 in equity after you factor in your monthly loss.

So if you're willing to buy and hold and pay out a bit in the short run, you might be able to sit on that appreciating asset and make a few bucks (But don't forget transfer costs and taxes :)

 Leverage is the art of using borrowed money to make a larger return on an investment than you would be able to do using your own money. Since your using a smaller amount of your money (The down payment of a loan as opposed to buying outright in this case), you'll be able to get a larger return borrowing than you would be able to if you used more of your money on that investment.