Category Archives: Investment

How does a rent stabilized tenant affect a Manhattan townhouse’s value?

In an ideal setting,  a Manhattan townhouse will be delivered vacant and sold to a buyer who can convert it to a single family mansion, condos or a rental building. However, when a Manhattan building is conveyed with a rent stabilized tenant or a few rent stabilized tenants, then the buyer pool will narrow but it still has tremendous value. The factors that impact the value will be size of the apartment, likelihood of accepting a buyout, and what percentage of square footage, the RS tenants occupy within the building. The calculation of value is going to be based on the net operating income.(NOI). The NOI and cap rate will dictate the value, but the upside which the buyer/investor will evaluate will have to do the likelihood that the tenant might be bought out now or in the near future, the age of the tenant, and how likely they might have immediate family who will succeed them within the apartment.

For example, on a recent tour of Upper west side townhouses with an investor we looked a one building that was asking $5.4 million with 6 units 2 of which were rent stabilized. Within the same neighborhood, a 7 unit building was asking nearly $1 million more with all free market tenants. Both were both offered at an approximate 3% cap rate.

Now what happens when the majority or all of the building is occupied by rent stabilized tenants and the cap rate is extremely low or the income is not even covering the expenses, now you will see an even more narrow pool of buyers whose expectations for a discount go up as the rents paid by the tenants goes down as does the likelihood of a buyout. In this situation, a more thorough analysis based on current market conditions will need to be done by a Manhattan real estate broker experienced in the transfer of townhouses and multifamily properties.

The Author-  Brian Silvestry , a licensed real estate broker, has been selling residential and commercial real estate since 1999. He has sold in every neighborhood from Battery Park City to Washington Heights.

 

How to avoid taxes on the sale of your Manhattan investment property

One of the easiest way to save money on the sale of your Manhattan investment property is to do a 1031 exchange also known as a like kind exchange. The gist is you sell an investment property, and purchase a property of similar value. The property must close within 6 months of the sale of the first property and you need to identify it within 45 days of the closing of the sale.

Let’s take a look at an example.

You have an investment condo worth $2 million that you have owned for 20 years that you bought for $500,000. Instead of paying tax on the profit, you buy another property worth $2 million and roll over the gain. The purchase can be another condo, multi-family, vacant land etc… When you close the sale of the condo, you have 45 days to identify potential purchases and 6 months to close or you lose the opportunity to do the 1031 exchange. Speak to your CPA and attorney for details on how to execute this process. But once you execute the purchase, you trade one property for the other and have deferred the taxes. With the typical Manhattan condo investment property returning 2-3%, you can probably buy another property either in New York or another statement that will return two to three times the net cash flow. In addition, if you have owned an asset for a number of years, it is likely you have depreciated it possibly even to the max. By starting over, you can begin depreciating anew. Again, speak to your CPA.

Keep in mind that a 1031 exchange is not for your primary residence but rather a property that you have rented it as an investment. But with this technique in your arsenal, you have the ability to sell and defer the taxable gain!

The Author-  Brian Silvestry , a licensed real estate broker, has been selling residential and commercial real estate since 1999. He has sold in every Manhattan market from Battery Park City to Washington Heights.

313 West 138th street 8 unit in contract

313 West 138th street, one block west of Strivers’ Row in Central Harlem,  has gone to contract. The property which has 5 studios and 3-1 bedroom apartments was asking $1.8 million. After a flurry of activity, it has gone to contract for more than the asking price.

 

313 W 138th street listing details

The Author-  Brian Silvestry , a licensed real estate broker, has been selling residential and commercial real estate since 1999. He has sold in every Manhattan market from Battery Park City to Washington Heights.

 

Manhattan property owner tip Why renting no fee is a mistake

According to a recent real estate report, nearly half of the Manhattan apartments rented in the last year were rented with concessions. The most coming seller’s concession is the owner pays the broker fee. From a small Manhattan property owner point of view, renting no fee is a mistake. Instead, it’s better to just charge lower rent. The net is the same and you may keep the tenant longer. Let’s look at an example.

You have a studio apartment that you want to rent for $2400 and you decide to offer to pay the real estate broker fee.

$2400 monthly rent
$2400 broker fee paid by owner

On a one year lease this brings your net to $2200 per month but due to fact that the tenant is still paying $2400 in a market where they can find a rental for $2200 or less they may just decide to move in a year when they lease is up. If instead you charge the tenant, $2200 or even $2100 and let them pay the broker fee, your net is the same but the tenant is locked in a a lower rate thus decreasing the chances they will move at the end of the lease. Also, you will have more room to raise the rent in the upcoming leases.

The Author-  Brian Silvestry , a licensed real estate broker, has been selling residential and commercial real estate since 1999. He has sold in every Manhattan market from Battery Park City to Washington Heights.

 

Landlord’s guide: How to manage tenants

If you own a couple of Manhattan apartments, or an SRO or multi-family , no doubt dealing with tenants can be a challenge for even the most experienced Manhattan property  owner. Here is a checklist of common sense but often overlooked things to keep in mind when renting and dealing with tenants.

1- Rent at below market or close to market rent. This will allow your apartment to rent quickly and you will have more interested potential tenants. Many times, I sit down with Manhattan property owners who want to ask for a rent that will likely lead to an apartment sitting on the market. On a $3000 lease, f you ask, $200-$300 more but lose 3 months rent, that means you lose $9,000 that you will never recoup.

2- Raise or lower rents as appropriate to keep tenants but maintain profit. Years ago, I owned an apartment on Manhattan’s upper west side on Central Park west that I rented out to a tenant. She always paid on time and never bothered me at all. She informed that she was considering to move at the end of the lease because she could save money by moving further uptown. I asked her how much she would save and she said about $200 or so. Instead of suffering a vacancy I reduced her rent by about $150 and she stayed. She stayed with me in total 7 years from the first time I rented it up until I sold the apartment. On vacancy, I would lose at least one month rent if not more, and also have to paint and fix the apartment. The cost would have been more to have the vacancy.

3- Raise the rent as appropriate. I met many landlords who are reasonable and firm and others who are too nice and feel guilty about raising the rent. When the lease is about to come up, consult with your Manhattan real estate broker to see what you can get on the open market. If the rents have gone up or are in a continued up cycle, then you should raise the rent to keep pace. Many long time owners are 10-20% below the market in the rents that they charge. There is nothing wrong with keeping pace with the market. You can still charge an excellent tenant a discounted rent but if you raise their rent and they are still 10% below market, they are not going to move.

4- Be firm and make sure that you always get your rent on time. Lease riders can have late charges for rent submitted late. Also, do not be too lax about evicting a tenant who is not paying. If they do not pay, then you need to get an attorney and move to eviction. Problems do not go away by ignoring them and this one will get worse.

The Author-  Brian Silvestry , a licensed real estate broker, has been selling residential and commercial real estate since 1999. He has sold in every Manhattan market from Battery Park City to Washington Heights.

 

How new tax law helps investment real estate

by  Brian Silvestry

The new tax law can be a big boost to investment real estate and gives an advantage over art collection. The reason is the IRS code 1031. The 1031 exchange allows owners of investment real estate to sell one property and buy another and defer the taxes. Generally, the property being sold is sold first, possible purchase properties are identified within 45 days of closing and must be closed and purchased within 180 days of the first closing. The 1031 exchange has facilitated the buying and selling of Manhattan property and in other states for years. It is a staple of the real estate investor. It used to apply to art as well as stocks. But now the new tax law has eliminated 1031 exchanges for anything but real estate.

This will seem to be a boon to the real estate industry and could play into an elevated market for investment real estate as well.

NYT How the Tax code Rewrite Favors Real Estate over Art

Thinking of raising your tenant’s rent?

If you are a small time landlord, you will want to read the NYT article about calculating your tenant’s rent. The takeaway is while a landlord may even live in the same house as a tenant and may know their tenant personally, they should still try to keep the rent as close as possible to the market. One owner who happened to purchase his properties years ago when prices were low, passed that savings on to his tenants if they didn’t bother him. Holding on to a good tenant is always wise.

Several years ago, I had a rental apartment on the Upper west side and charged slightly lower than the market rate to rent the apartment quickly which I did. I raised the rent when I could about 2-3% per year to stay close to market rent. Then when the rents decreased, the tenant who always paid on time and never bothered me, wanted to leave to reduce her monthly costs. I asked her how much and she said $150 and I reduced the rent. That saved me thousands of dollars to paint and also money that I would have lost due to vacancy. That tenant stayed 7 years from first lease to when I sold the same apartment.

 

Thinking of buying a Manhattan condo for investment?

If you are thinking of buying a Manhattan condo for investment with the objective to hold for rental income, here is one simple tip that is often overlooked.

In general, after paying common charges and taxes, you will gain an approximate 2% return annual. So an apartment that you acquire for $2 million will yield approximately $40,000 in net income. In some cases, you might have an even lower return.

One type of property that you might consider is an apartment with enough space to add an additional bedroom.  With the right design, you can rent an additional  bedroom/den for a higher income just due to the increase in bedroom count.  I had one listing where they converted the dining room to a 2nd bedroom and as a result we were able to rent the apartment for $4,200 whereas similar size apartments without the conversion were renting for around $3500. This made the return on the apartment based on the current market value closer to 3%.

You will need to see if the layout will allow it. Usually a space will need to have a minimum of 750-800 sqft to accomplish this but it will also depend on the current layout. A dining room or a dining area will be an ideal area to make the additional bedroom as long as there is a window and enough space.

With more people than ever sharing apartments and families remaining in Manhattan, this a nice way to gain an additional rental income and increase your yield on the property.

 

Subway Inn property in contract to Chinese investor

The former home of the dive bar- Subway Inn is reportedly in contract according to Bloomberg, for $300 million. Kuafu Properties LLC will close on the purchase from the World Wide Group in October. They plan to add about 60k sqft of retail space in a ground-up project. The same New York based Chinese firm has also purchased One MIMA Tower, a luxury rental on West 42nd street which it will convert to condos. They are also the purchasers behind the property at East 86th street and Lexington avenue which currently houses a NYSC.