A Broker's Search... Where to Buy? (Part III)
As I mentioned, I have been looking to buy an approx $750K investment property that I might move in to in 2 - 3 years. I could also sublet out my current alcove studio and move into the new property, so at least I have a few options. I am looking at buying about 620-700 sq ft in Manhattan OR a two family brownstone in Bedford Stuyvesant near the Utica stop, preferably in the Stuyvesant Heights district.
Bed Stuy
There isn't much available for $750K - most two families that don't need a lot of work and that have nice architectural detail remaining are asking approx. $799K, like this one. This one is a bit farther east / farther from the subway than I would like to be, but you can see how gorgeous these homes are!
A few readers commented on my last post asking why I didn't just buy a new development condo in Brooklyn. I have mixed feelings about new development condos in Brooklyn because there is so much new product coming on to the market and a lot of it seems to be investor-owned rather than owner-occupied. If I do buy a condo, it will be to potentially live in or to keep as a pied a terre, so I would purchase one in Manhattan. If I am going to buy outside of Manhattan, I would prefer to buy a brownstone. A saying in real estate is - "buy pre-war - they don't make them anymore!" If I am going to buy in a different location than I really want to live in, I want to buy something that is charming and unique. Intrinsic value is more important to me than looking solely at the numbers since I plan to live there at some point.
When I visit Bed-Stuy, it takes 15-20 minutes from the 14th street & 8th Ave A train to get to the Utica stop. Depending on the specific location of the property, the Stuyvesant Heights historic district is a 4 - 7 minute walk from the subway, down wide, tree-lined streets. I've seen two-family brownstones with high ceilings, fireplaces, pre-war details, and a garden. It is difficult to not fall in love with all that space! (And the red velvet cake at Bread-Stuy is to die for!) There aren't a dozen new development condos going up (refreshing!) and various neighborhood and block associations are trying to extend the historic district in order to preserve the "Brownstone Brooklyn" feel.
From a cash flow perspective, I hear mixed things about what rentals really go for there. Depending on which broker you ask, owner's duplexes go for $2,200 - $2,500/month and an upstairs one bedroom rental rents for $1,100 - $1,400 depending on the condition of the apartment. So it is possible that I would get better cash flow in Bedford-Stuyvesant than the rents of $3,000-3,500 I would get in NYC for a one bedroom condo. Looking in our rentals database, however, there is a lot of availability in Bed-Stuy. So it could take a few months to rent both units, essentially wiping out the differential in cash flow between the Financial District and Bed-Stuy.
Then there is the maintenance factor. When you buy a new condo, you can pretty much count on not having to renovate anything in the near future. When you buy a house, all sorts of fun things can happen, like roofs caving in. So I would want to purchase something a little bit less expensive than I would in Manhattan to keep an extra buffer for maintenance issues. The highest taxes I've seen for brownstones in Bed Stuy are about $1,700 a year, so about $150/month, but I'd be paying more than that for a condo anyway, unless something was tax abated, and in that case, I'd be paying much more in taxes in 10 - 14 years when the abatement runs out. And you don't have those pesky common charges, so essentially, if it costs me an extra $700/month for trash collection, maintenance, etc., its a break even.
Then there is the appreciation factor. Which will appreciate more in ten years? Bedford-Stuyvesant or the Financial District? On the one hand, the Financial District is completely up and coming, with dozens of luxury retailers moving to the area, and the World Trade Center / Freedom Tower / Fulton Street subway being finished (someday). BUT there is a LOT of product going up in the Financial District. And there is a demand for family-sized space within a 20 minute subway commute from Manhattan and people are being priced out of other Brooklyn neighborhoods. An article from the NY Times in 2003 reported that two family brownstones in Bed-Stuy could be purchased for the mid-$500Ks and now they are $750K. In a few years, I could see myself living in a brownstone but I really don't see myself living in a large studio / one bedroom in the financial district. Plus in a 2 family home, there is always the opportunity to live in the owner's duplex and rent out the one bedroom or vice versa.
So part of the dilemma is that I am not purely looking for cash flow OR cash on cash return OR or even appreciation. I am also looking for something that I would move into at a future date. I may be making this process too difficult by trying to accomplish too many things with one purchase. Looking forward to reading your comments!
This week I will be looking at: 212 E 47th Street and possibly District...
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Comments (9)
What about Crown Heights in Brooklyn? Same type of brownstones as Bed-Stuy, but probably cheaper as the area in on the cusp of becoming the next big neighborhood. I never understoond the appeal of Bed-Stuy; the only thing I like about the area are the brownstones, but other than that, it lacks a good subway system and it lacks good amentities. Crown Heights I think has more character, a better subway system, and while there are just a few amentities, I think there are more to chosse from than Bed-Stuy.
Posted by Davida | June 26, 2007 12:23 PM
Frankly, you seem to be weighing apples and oranges. Bed-Stuy and the Financial District are vastly different areas of the city. Forget the investment rationale for a moment -- decide where (not within what structure) you'd rather live, and go from there.
Posted by Jon | June 26, 2007 7:22 PM
Yes they are different areas but the one fact she knows right now is that this is going to be an investment property that she would LIKE to live in afterwards at some point.
That second part of the strategy, the LIKE TO LIVE IN part, is a big uncertainty and therefore I think she should focus on value. I know Christine. She'll be fine living in both these areas because she knows she is investing wisely. That mindset will keep her happy as she continues to build wealth.
I think the brownstone idea is a great fit for her investment style and aggressiveness. Plus she'll make her commission on both the buy and sell side of that transaction making it even more appealing. A perk of being in the business.
Now all you need is a real estate attorney and a contractor and you have yourself a little investment team.
Posted by Noah | June 26, 2007 7:39 PM
Hi! Noah is right - I would be happy living in either location. I did a little investigating of Crown Heights and there is only one 2 family brownstone that sounds interesting. There are also 4 and 5 family properties in my price range, but I'm not interested in something with that many tenants to keep track of. It's tough to convert something like that to a single family home, and you don't get any of the charm factor (fireplaces, brick, etc). Also anything over 4 units is zoned commercial & there is a whole different loan process, etc., involved. Thanks for the tip, though! There is one property in Crown Heights I am definitely going to check out near the Utica stop. Possibly one near the Nostrand stop as well, but it looks like it has been stripped of all of its charm, so I will probably pass.
Posted by Toes | June 27, 2007 1:15 AM
I do realise you've picked your locations already, but for your readers who might still be looking I say Washington Heights. Lower Washington Heights to be specific. I was LOATHE to move there four years ago from the West Village but now own three places, in addition to the one I occupy. Two already have a positive cash flow and the third should after I complete a renovation. My residence has appreciated tremendously (why I was able to leverageit to buy the properties just mentioned) and the area is changing. At a glacial pace, however. Columbia Pres. churns out a steady group of overworked, never home interns and doctors and a lot of services like coffee shops and dry cleaners are popping up.
Anyway - check it out. Might not be for you, but def. worthy of consideration. (Though keep it quiet so we can still by a few more undervalued apartments)
Posted by Eliz | June 27, 2007 5:31 PM
Eliz
i assume you mean washington heights in manhattan correct? also what type of property do you buy?
Posted by henry | July 6, 2007 9:43 PM
toes living in bed stuy ... i wouldn't have taken that bet in a million years when we were in college. you're makin this brooklyn boy proud.
no one mentioned lefferts gardens - you could prob find something outside the historic district closer to empire blvd that fits your price and size objectives, but your apprectiation curve many not be too steep in the near term. there's already been a crazy run up there over the past 3 or so years.
if you're going to consider buying a new condo you should keep your eye on the new construction going up in the area of borugh hall and flatbush ext - major appreciation to be had there over the next 10 years. between fulton mall and atl yards the influx of new commercial and retail should support the new demand for resi space that would be needed to quell any glut concerns.
Posted by Charlie K | July 26, 2007 8:59 PM
How is the crime rat ein Bed-Stuy? I would be scared to get home at night, let alone live there...
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Posted by Matt Lucich | March 10, 2008 5:01 PM