Apartment Investment

[CityGal]

Considering as I cannot afford to own a place I really want, I was thinking of maybe buying an apartment in a not so desirable but developing neighborhood and renting it out. There are a few neighborhoods in Manhattan who in 5-10 years will undoubtedly be as expensive as the rest of the city. I know there is a lot of research to do on this but I remember reading that some of you are property owners/landlords/landladies. I was thinking that maybe with this investment I would be able to one day afford a place for me…of course this is just a theory for now and I am not planning on doing anything rash since I was just hit with a 2G moving fee. How does this work? Over the holiday, I am going to do some research on the market in some of these areas and see what rent normally goes for and how much work and money is actually needed to make something posh enough to rent out and cover the mortgage. Does the mortgage have to be paid off first before you can buy another place? For example, let’s say the place I am thinking of costs 100Gs now and in five years is about 80% paid off, it is a seller’s market and the apartment sells for 110/150Gs, can I sell the place? I know the bank has to get the remainder of its loan plus interests, but, wouldn’t I have a bigger money pot from which to buy a new place? JRWhelim aka Investment Guru, please help.

[Xander]

How does this work? Over the holiday, I am going to do some research on the market in some of these areas and see what rent normally goes for and how much work and money is actually needed to make something posh enough to rent out and cover the mortgage. Does the mortgage have to be paid off first before you can buy another place? For example, let’s say the place I am thinking of costs 100Gs now and in five years is about 80% paid off, it is a seller’s market and the apartment sells for 110/150Gs, can I sell the place? I know the bank has to get the remainder of its loan plus interests, but, wouldn’t I have a bigger money pot from which to buy a new place? JRWhelim aka Investment Guru, please help.
You assume:

1) The property will appreciate in value. You said it "will undoubtedly be as expensive as the rest of the city". If this is true, why have no other investors jumped on this "sure thing"? (I'm not trying to dissuade you--just pitching questions to think over)
2) Rent will cover the mortgage.
3) You will always have a renter.
4) Your renter(s) wont damage the property.
5) Nothing else will happen to the property (fire, flood, implosion).

You can sell the place at any time you want. There are programs for first time buyers, but if it's not your primary residence, you may not get tax breaks.

I'm looking for a place right now as well, but it will be my primary residence. I'm considering getting a larger place and renting out the 2nd bedroom/bath. Perhaps that's an alternative?

[winneythepooh7]

My fiance is a contractor and trust me, some of the properties you are thinking of are going to cost you a lot more in the long-run. Shitty plumbing, electric, roofs, etc. that you will be responsible for.

You will need to deal with tenants. Is that something you want to do?

A lot of my clients are in low-income neighborhoods throughout NYC (and even nice expensive neighborhoods), and even if they have a decent apartment with nothing much wrong with it, they make it hell on their landlords. I know I am a Social Worker and shouldn't be talking like this, but it's true.

It's pretty sad when a Social Worker sides with a landlord.

If I were you I'd focus on getting your finances together and renting out somewhere on your own before you get too involved in this.

Or watch that show "Flip this House" or whatever it's called on HGTV. My fiance calls it the moron-show because some people just see dollar signs, but unless they are actually a contractor, really don't understand what they are getting into.

[CityGal]

You assume:

1) The property will appreciate in value. You said it "will undoubtedly be as expensive as the rest of the city". If this is true, why have no other investors jumped on this "sure thing"? (I'm not trying to dissuade you--just pitching questions to think over)
2) Rent will cover the mortgage.
3) You will always have a renter.
4) Your renter(s) wont damage the property.
5) Nothing else will happen to the property (fire, flood, implosion).

You can sell the place at any time you want. There are programs for first time buyers, but if it's not your primary residence, you may not get tax breaks.

I'm looking for a place right now as well, but it will be my primary residence. I'm considering getting a larger place and renting out the 2nd bedroom/bath. Perhaps that's an alternative?

Essentially I want to start off with a two bedroom and then upgrade but I have no idea how to do any of this stuff. My roommate always talked about only being able to afford a studio and I think my funds will only allow me to do the same. How much saved up do you think is a good amount before I start seriously looking? Right now I am just playing with the idea so I am pretty much just doing hypotheticals. The questions you pose are pretty good.


1) The property will appreciate in value. You said it "will undoubtedly be as expensive as the rest of the city". If this is true, why have no other investors jumped on this "sure thing"?

Well the renting price for a lot of areas are increasing. In my old neighborhood (and where my mom still lives), the rent has doubled within the past few years. My mom has a three bedroom and pays only 600 while studios and one bedrooms are now renting for 1000 and 1200. Although my mom has lived there for over 20 years, there are a few people who have also been there for a number of years less and roughly pay the same amount.

2) Rent will cover the mortgage.

I know this isn't a sure thing but this is where I believe I will have the biggest problem.

3) You will always have a renter.

Hmmm this is also a tricker one. Seeing as it is yet to be a desirable area getting people to dish out dough for a place there may be a problem.

4) Your renter(s) wont damage the property.

Yeah, this part is going to suck as well as any other random things that need fixing and which I will be responsible for fixing.

5) Nothing else will happen to the property (fire, flood, implosion).

Insurance will hike up the price a bit.

Thanks for giving me stuff to research and think about.

[CityGal]

My fiance is a contractor and trust me, some of the properties you are thinking of are going to cost you a lot more in the long-run. Shitty plumbing, electric, roofs, etc. that you will be responsible for.

You will need to deal with tenants. Is that something you want to do?

A lot of my clients are in low-income neighborhoods throughout NYC (and even nice expensive neighborhoods), and even if they have a decent apartment with nothing much wrong with it, they make it hell on their landlords. I know I am a Social Worker and shouldn't be talking like this, but it's true.

It's pretty sad when a Social Worker sides with a landlord.

If I were you I'd focus on getting your finances together and renting out somewhere on your own before you get too involved in this.

Or watch that show "Flip this House" or whatever it's called on HGTV. My fiance calls it the moron-show because some people just see dollar signs, but unless they are actually a contractor, really don't understand what they are getting into.

I figured as much. This idea always pops in my head and then when I look at the realities I quickly get dissuaded and saddened by it and my situation.

[winneythepooh7]

I figured as much. This idea always pops in my head and then when I look at the realities I quickly get dissuaded and saddened by it and my situation.

You could always go into something like this with an investor/family member. But there's still lots of cons to that. Just speak to Cider ;).

I am a lot older then you and engaged, and it's going to be really hard to buy a crappy house in Long Island that my fiance can fix-up because that's his thing. You fully admit you know nothing about what you would be getting yourself into. Your roommate already took you for a sucker, and that's just for a rental. Don't do something even more stupid like getting involved in real estate until you actually know what you are doing, and have financial security.

[redav]

Rental property can be a great investment. However, it can also be a very risky investment. What if you go a few months without a tenant, will that erode all your savings? My personal opinion is that if you are not in a good financial place now, you don't want to take on that risk. There are too many horror stories of what can happen when things don't work out.

Appreciation is always an iffy thing. With the current housing market, you can't be sure what values will do in the near future. Due to closing costs and realtor fees, you need to plan on holding real property for a long period of time (10 is good; 5 seems a bit short) to ensure a decent return. Also, federal tax codes say that only if you live there for 2 of the last 5 years will you qualify for exemption from income tax on the profits.

I'm a bit perplexed by your moving costs. You posted it before, but I don't understand where it came from. I've never had anything like that before. For me, it sounds like THAT is where the money is.

[Xander]

Don't do something even more stupid like getting involved in real estate until you actually know what you are doing, and have financial security.
I think that's why she's asking us for feedback. :) I'd like to learn more about it myself. I thought buying a place would be relatively easy, but so far, just headaches.

[wordsmith]

God, I hate reality TV...it's made being a slumlord the trendy, hip thing to do, rather than shady.

It's also made everybody and their mom think that they are real estate experts.

[winneythepooh7]

God, I hate reality TV...it's made being a slumlord the trendy, hip thing to do, rather than shady.

It's also made everybody and their mom think that they are real estate experts.


That's why M has a field day with that show. It's especially entertaining for him when he sees some idiot with a P/T job, 3 kids and a pregnant wife think he only needs $10G for repairs, and it ends up being like $80G for repairs, and the owner can't afford door knobs, faucets, and other basic "trim".

Citygal, etc. I also wonder how hard it is to get approved for a mortgage. AshleyJ wrote a thread on this a few weeks ago. She was trying to get approved to buy a studio and it was not in a major great neighborhood from what I recall, and she got turned down.

I have a hard time believing it's going to be easy on one income, without a down payment, when places in Manhattan could run just under a million. Even $500K is not cheap.

[red]

Rental property can be a great investment. However, it can also be a very risky investment. What if you go a few months without a tenant, will that erode all your savings? My personal opinion is that if you are not in a good financial place now, you don't want to take on that risk.

personally, i wouldn't do it. my parents have a rental property and the past year has been a nightmare with tenants- sort of like the thread "should i rent to someone with bad credit". it sounds like easy money but it's really very very labor intensive. we all spend time on it- my parents, my husband and i, my brother. we finally got rid of some deadbeat tenants and then the apartment was vacant all summer because everyone who applied for it had horrendous credit. it's not easy money is all i am saying. it's a ton of work.

[CityGal]

So, can someone explain how the 'Donald' makes it so filthy by doing this?


Oh....I am just entertaining the idea and having a hypothetical...not doing anything rash. Guess I wanted some serious input.

[wordsmith]

So, can someone explain how the 'Donald' makes it so filthy by doing this?

I'm gonna go out on a limb and speculate that it's somehow tied to years of business experience and real estate acumen.

[AshleyJordan]

Citygal, etc. I also wonder how hard it is to get approved for a mortgage. AshleyJ wrote a thread on this a few weeks ago. She was trying to get approved to buy a studio and it was not in a major great neighborhood from what I recall, and she got turned down.

I have a hard time believing it's going to be easy on one income, without a down payment, when places in Manhattan could run just under a million. Even $500K is not cheap.

Yes, I did start a thread like that-- it was a fairly modest investment, 2BR in an eh neighborhood, and I was unable to get the financing I most wanted (maybe because of my loan debt, maybe also because it was an eh neighborhood!) I'd like to add I'm also really glad I didn't get approved that one time-- I've since found better places and better financing, and plan to spend this next year doing my homework on the buying process.

I'm also not sure about turning right around and renting the place-- I would think if you're just starting out, it makes more sense to at least live in the property you buy. Also, a lot of condos and co-ops have pretty strict rules about that sort of thing. . . .

[WorkInProgress]

I'm gonna go out on a limb and speculate that it's somehow tied to years of business experience and real estate acumen.

And perhaps the sheer quantity of properties he has.

And perhaps the fact that he has people who take care of things so he doesn't have to.

Maybe.

[winneythepooh7]

Yes, I did start a thread like that-- it was a fairly modest investment, 2BR in an eh neighborhood, and I was unable to get the financing I most wanted (maybe because of my loan debt, maybe also because it was an eh neighborhood!) I'd like to add I'm also really glad I didn't get approved that one time-- I've since found better places and better financing, and plan to spend this next year doing my homework on the buying process.

I'm also not sure about turning right around and renting the place-- I would think if you're just starting out, it makes more sense to at least live in the property you buy. Also, a lot of condos and co-ops have pretty strict rules about that sort of thing. . . .


All good points. I remember when I first moved to Queens, I lived in a building that was way strict about owners renting out apartments to tenants. It basically was not allowed. Or they would make it extremely hard on the landlord and potential tenants (lots of income requirments/excellent credit).

I have spoken to a couple of people with high educational debt like myself, and they've been approved for a mortgage. I don't think that is held against you, as long as you have a history of making your payments on time. I think (and again, I'm not an expert) student loan debt is almost looked at as a "fixed payment".

We definitely are not going to be looking in NYC. We will be looking at major fixer-uppers on Long Island. And we are also getting a lot of financial help from family, otherwise, we wouldn't be able to do it.

We are going to sign our lease for another year. We are getting married in 10/07 and will spend a lot of time this coming year looking at potential places.

My fiance has considered doing the "flip the house" thing with our first home, because he actually can do most of the work himself, but who knows.

I'm not going to count my chickens until they are actually hatched.

[redsail]

So, can someone explain how the 'Donald' makes it so filthy by doing this?


If you mean Trump, he is one the most amazing negotiators to ever live. His riches were made at the purchase because he could negotiate deals that were always favorable to him. I haven't read it personally but his book, The Art of the Deal (http://www.amazon.com/Trump-Art-Deal-Donald-J/dp/0446353256) is supposed to be great.

[sondra_finchley]

Even Donald Trump almost lost it all. Wasnt he on the brink of bankruptcy in the early 90s?

WtP7- My mom and I like to watch Flip this House and marvel at 1) people doing things we wouldnt dare dream of doing and 2) people doing things without the faintest idea of work involved and cost. Mom and dad have done a lot to different houses and know the time it takes and shes speechless a lot of the time! :) The show where the people are a bit more "with it" and know to live in a house for X number of years before renovating it to get a tax break is fun to watch though. Still amazes me how anyone could crank some money out of California real estate.

[jrwilheim]

Considering as I cannot afford to own a place I really want, I was thinking of maybe buying an apartment in a not so desirable but developing neighborhood and renting it out. There are a few neighborhoods in Manhattan who in 5-10 years will undoubtedly be as expensive as the rest of the city. I know there is a lot of research to do on this but I remember reading that some of you are property owners/landlords/landladies. I was thinking that maybe with this investment I would be able to one day afford a place for me…of course this is just a theory for now and I am not planning on doing anything rash since I was just hit with a 2G moving fee. How does this work? Over the holiday, I am going to do some research on the market in some of these areas and see what rent normally goes for and how much work and money is actually needed to make something posh enough to rent out and cover the mortgage. Does the mortgage have to be paid off first before you can buy another place? For example, let’s say the place I am thinking of costs 100Gs now and in five years is about 80% paid off, it is a seller’s market and the apartment sells for 110/150Gs, can I sell the place? I know the bank has to get the remainder of its loan plus interests, but, wouldn’t I have a bigger money pot from which to buy a new place? JRWhelim aka Investment Guru, please help.

Well...since you asked in such a nice way...

I'd have to know more about your income to say whether this was a feasible idea. But my impression is that, given how overpriced real estate has become in the recent housing bubble, particularly in New York, you may not be able to rent out the apartment for enough to cover the mortage. Additionally, you would have to cover property taxes, insurance, and repairs. So might end up losing money by renting the apartment out.

Another thing to keep in mind is that any rental property sits empty some of the time. Even in a city like New York, where there's so much demand for housing, you could end up carrying an apartment for a month while you find new renters. Could your finances handle the strain of carrying that in addition to your own rent?

A third issue is whether you could meet co-op board standards, which are pretty stringent, from what I hear. Unless you're planning to buy a condo--and there are many fewer condos than co-ops in New York--you're going to have to get approved by a co-op board to buy, and they tend to go through people's finances with fine-toothed comb.

You're right that by owning a place you could potentially benefit from the price appreciation--if you buy for $400K and 10 years down the road the place is worth $600K, you've made $200K in profit. That may or may not help you in your quest to buy a place in the neighborhood you'd prefer--it would depend on how fast prices were appreciating there.

[jrwilheim]

I have spoken to a couple of people with high educational debt like myself, and they've been approved for a mortgage. I don't think that is held against you, as long as you have a history of making your payments on time. I think (and again, I'm not an expert) student loan debt is almost looked at as a "fixed payment".

The actual term is installment. Your credit report will deal with two types of credit: installment and revolving. Installment credit (i.e., auto loans, student loans) is any loan where you take out the loan once and pay it down by installments until the debt is gone. Revolving credit (i.e. credit cards) is any kind of credit where you have a limit you can borrow up to but where the amount you have borrwed can go up or down at any time provided you don't exceed the limit. A revolving credit account can have a fixed payment--i.e., you're required to pay at least X on your credit card each month.

[ccc]

You don't even have to sell it, you can use your equity as a deposit on the second place, and rent the first place out for extra income.

According to your calculations, you'll have $90k in equity in your investment property (assuming it increases in value to only $110,000). You can then put a maximum of $68k as a desposit on your second place. This will leave 20% equity, which most reputable lenders require, in your original place.

I have no idea what a nice place costs in New York, but assuming it's $300k, using your $68k deposit, your loan on that place will only be $232K.

In total, you'll have $410,000 worth of property, and $300,000 worth of loans against them = $110,000 worth of equity.

Assuming you have enough income (including rent from the investment property) to cover the loan, you'll have a nice place to live and an income producing property.

Also, you should look into the tax advantages. I don't know about the US, but in Australia, we can claim loan interest on an investment property as a tax deduction. If that's the case, then, depending on how much rents are in the area, you may be able to get a hefty tax return for quite a few years.

[ccc]

Also, could you buy an investment property in some other part of the country?
Is there somewhere where a lot of migrants are moving to?

Is there somewhere where there are a lot of elderly people living amongst younger people? If you buy a deceased estate, you can usually get it cheaper, and if the place is structurally sound and only needs redecorating, you can rent it out to the younger, trendier people in the area.

Is there somewhere more suburban than Manhattan, where you can buy a cheaper place, but not have to worry about the sorts of people that would rent it, damaging it or not paying rent?

I don't think you should give up on the idea, there are ways it can be done.
You don't have to be Donald Trump.

Besides, think of the risks involved in NOT buying property - when you're 80 years old and struggling to pay your rent because pensions don't exist and your 401k savings only cover your food and bills, won't you be wishing you owned your own place?

[winneythepooh7]

CCC: I think your view is very clouded and not at all realistic.

[AshleyJordan]

Besides, think of the risks involved in NOT buying property - when you're 80 years old and struggling to pay your rent because pensions don't exist and your 401k savings only cover your food and bills, won't you be wishing you owned your own place?

I think that's an extreme example and there's a middle ground between killing yourself to buy in your very early twenties (which I almost did,) and NEVER owning property although you can. At some point during those 60 years, someone can easily save up a downpayment and pay off a thirty year mortgage. :rolleyes:

[winneythepooh7]

I think that's an extreme example and there's a middle ground between killing yourself to buy in your very early twenties (which I almost did,) and NEVER owning property although you can. At some point during those 60 years, someone can easily save up a downpayment and pay off a thirty year mortgage. :rolleyes:

I'm tired, so you said exactly what I was thinking. I am having a hard time picturing being a homeowner with my fiance on TWO INCOMES in the NYC area. I can't imagine being an early 20-something, just starting out, with barely a pot to piss in, trying to buy "investment property" in NYC. It just seems assanine to me. But again, it's not realistic, so it probably wouldn't happen anyways ;).

[AshleyJordan]

I'm tired, so you said exactly what I was thinking. I am having a hard time picturing being a homeowner with my fiance on TWO INCOMES in the NYC area. I can't imagine being an early 20-something, just starting out, with barely a pot to piss in, trying to buy "investment property" in NYC. It just seems assanine to me. But again, it's not realistic, so it probably wouldn't happen anyways ;).


Also, IMHO, an "investment property" should come when you have enough financial wiggle room to take such a risk. To me, that's $ you could put into your 401(K), the stock market, a side business, etc., in other words, "gravy."

I've spoken at enough length about my homeownership plans, so I won't bored other QLCers with the details. I will say the basic idea behind my plans is that I'll have to live *somewhere* and that housing costs are a fixed expense that I could either spend on rent, or a mortgage. To me, this makes the most sense for buying your first property.

[winneythepooh7]

Also, IMHO, an "investment property" should come when you have enough financial wiggle room to take such a risk. To me, that's $ you could put into your 401(K), the stock market, a side business, etc., in other words, "gravy."

I've spoken at enough length about my homeownership plans, so I won't bored other QLCers with the details. I will say the basic idea behind my plans is that I'll have to live *somewhere* and that housing costs are a fixed expense that I could either spend on rent, or a mortgage. To me, this makes the most sense for buying your first property.

I agree. It's like everyone watches "Flip this House" and thinks it's SO easy LOL.

[AshleyJordan]

I agree. It's like everyone watches "Flip this House" and thinks it's SO easy LOL.


I can't even watch that show. . . I think you have to be either

1) crazy
2) independently wealthy
3) *really* into renovation-- i.e. a professional contractor

to even consider that. There should be a disclaimer "do not try this at home," because it can be financial suicide. . . and you'll lose all of your free time, trying to flip a house.

[slimjim]

All told, I think this is a terrible idea.

Real estate investing involves capital. You mention that you want to buy this place and rent it so that you will eventually cash in and be able to buy your own place. There just isn't any logic behind this. Let's buy a piece of property on pure speculation that it will appreciate so I can hopefully cash in an buy myself a house.

You need to realize that you will be a landlord. Tenants will be calling you at 3am to fix a lightbulb. Yes, that is correct, it may not be your responsibility, but they will call you to come check it out.

You don't seem to have much collateral for the loan, therefore you will get a higher interest rate since this will not be your primary residence.

Heck, you are going to blow $$$$$ in closing costs alone. You've got lawyer fees, real estate commissions, prepaid insurance, lender fees, etc., etc.

Keep whatever capital you have, add to it and don't make a move until you can afford to put 20% down on the place you want to live in and then buy that.

Buying a home takes discipline and time. Don't think that you can jump into the real estate market, make a quick buck and cash out. It doesn't work like that.

[ccc]

You need to realize that you will be a landlord. Tenants will be calling you at 3am to fix a lightbulb. Yes, that is correct, it may not be your responsibility, but they will call you to come check it out.

.

The real estate agent should be responisble for looking after the tenants problems. They take 7-8 % of your rental income, and do everything for you.

[Chameleon]

The real estate agent should be responisble for looking after the tenants problems. They take 7-8 % of your rental income, and do everything for you.
In the US, the real estate agent/realtor's job is done once they've sold you the property. You might be thinking of a property manager.

[winneythepooh7]

In the US, the real estate agent/realtor's job is done once they've sold you the property. You might be thinking of a property manager.

Probably. And for people like my fiance, who actually is a contractor, it seems nonsenical to pay an extra $800 or MORE a month for "maintenance" when the majority of the time, he can do it himself and it's like pulling teeth to get the super to follow through. We don't own our current apartment (but many people in this building do!) and we recently had our kitchen sink pipe burst. I took a day off of work for him to come fix it. He never did. It was a week later and after much bitching by the landlord and the management company before he got his ass up here to do his job. I'd be super pissed if I was paying a maintenance fee on top of a mortgage and this shit happened. I was pissed off enough because our rent is already sky-high.

[vxmike]

So, can someone explain how the 'Donald' makes it so filthy by doing this?


Oh....I am just entertaining the idea and having a hypothetical...not doing anything rash. Guess I wanted some serious input.

1) He started 40 years ago when real estate was dirt cheap.

2) He had wealthy parents.

3) He really isn't that rich in terms of net worth...The Donald has a TON of debt and has flirted with BK several times in the past.

[jrwilheim]

Another thing to consider with a New York co-op or condo investment, in particular, is that many co-op boards and condo associations will not allow a property to be rented out, particularly long-term.

[winneythepooh7]

Another thing to consider with a New York co-op or condo investment, in particular, is that many co-op boards and condo associations will not allow a property to be rented out, particularly long-term.

Good call. I know I've said that before myself, probably on another thread exactly like this!