A Broker's Search...Where to Buy (Part V)
For anyone who has been following my search for the best way to invest about $150K-$200K in real estate right now, here is the update...
I put in an offer on a one bedroom that I really liked at the Gramercy. I offered $10K less than the asking price of $765K, but I offered to "pretend" that I wasn't a real estate agent in the hopes of getting a better price on the apartment. For anyone thinking they can save money this way - guess what - they don't care if you come with a real estate agent or not. The developer has a budget for paying real estate agents and they don't care if it is a direct deal or not. (Side note: I actually offered to cut myself out of a transaction at the Link for a friend of mine so he could save some money and I was informed that it absolutely didn't matter if I was there or not - the developer wasn't going to give him a price break on the apartment).
The other part of my offer strategy at the Gramercy was to ask for the sponsor's transfer taxes of 1.8% of the sales price to be added into the sales price in what is known as a "seller's concession." The seller's concession can be a great tool. Even if you negotiate a savings of $10K off of the price, if you are able to negotiate a seller's concession for the transfer taxes, it actually looks like you paid MORE for the apartment than the asking price. In a seller's concession, up to approximately 3% of the closing costs can be legally added to the purchase price, so you can mortgage some of your closing costs instead of paying out of pocket at the closing. So for a $765K apartment, if the sponsor allowed a seller's concession of 1.8% of the sales price, that would be a concession of $13,770. So even if I offered $755K, with the seller's concession of $13,770, it would actually appear to anyone looking in Property Shark after the closing that I actually paid $768,770. If you are ever researching past sales and the final sales price is a really weird number, it could be that the seller allowed a seller's concession and the price wasn't the true price for the apartment.
I wasn't that surprised that the Gramercy didn't take my offer. The developer is not negotiating on anything right now because the apartments are selling so quickly. You may wonder how the whole "brokers buying new development for themselves" thing works... It depends on the building. The Gramercy (and 212 E 47th, for example) does not allow brokers to represent themselves (meaning I can't buy for myself as a broker so that my company gets paid a commission, I get my normal cut of the deal, and I save money on the transaction). It was actually suggested that if I wanted to "save money," that I use a different broker at my company and work out a deal with them so I can get back some of the commission! I was going to save money by using a broker from my firm rather than my negotiating directly. It's crazy. On the other hand, some companies pay brokers 4% commission even when they buy for themselves. So there is an incentive for us to buy for ourselves in some buildings over other buildings.
Anyway, I digress. After my negotiating tactics failed, I decided that paying the full asking price at the Gramercy wasn't quite the deal I would feel good about since I am planning to hold the property for 10 years and I may not ever even live there. A friend of mine reminded me that Donald Trump probably wouldn't buy a one bedroom in new construction in Manhattan right now as an investment property (you certainly can't make positive cash flow).
I turned my attention back to Bed-Stuy again. I looked at another 8 or so properties (on top of the 15 or so that I have already seen) and found one that I absolutely love! It needs TLC but the "bones" are there - it has mouldings, fireplaces, original light fixtures, pocket doors, and the floors are lovely.
I figured, why take the easy route and buy something new where I won't have to do ANY work at all? Far better to make myself crazy by buying something built in 1899 that needs at least $75K of work! At least it will be a great learning experience! But as I did the walk through with my contractor and the home inspector/engineer tonight, I realized that I am in love with this house in a way that you can't fall in love with new construction. It's beautiful - it is just crying out for a little attention - and it will be absolutely gorgeous when it is finished. So I feel great about my decision.
After the contracts are signed I will give you the breakdown, but here are a few notes that you may find interesting...
Expenses of owning a 2 family townhouse/brownstone (if you own one and my #s are off, please don't hold back!):
Taxes - taxes in Bed Stuy are very low - taxes for a two family range from $1,700 - $2,200. Contrary to popular belief, these are not reassessed when you purchase your house. They are reassessed on a larger scale and have nothing to you with what your particular home sells/appraises for. Taxes for this home are about $1,800/year, or $150/month.
Water - runs about $1-$2/day, or $30 - $60/month
Heat (oil) - $200-$300/month
Insurance - $1,500-$3,000/year, so estimate $200/month.
Total Expenses: approx $700/month (not including any maintenance issues)
These figures are comparable to common charges and real estate taxes for a studio/one bedroom condo in Manhattan. There will be more upkeep in a house than in a condo, though! The roof needs to be replaced approximately every 10 years (and I hear that's about $7-$10K), then there's the boiler...
What have I gotten myself into!? More to follow after contracts are signed...
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Comments (16)
Congratulations. What block is it on? Anyway, I think a townhouse with details is an investment even donald trump would consider. Like pre-war, they just are not making them anymore, and with the sub-prime fiasco there seems to be some good deals in bed stuy right now.
The thing is whether or not you can afford the upkeep which i think new buyers always under estimate. A rental tenant would help a lot with that, though!
Posted by justin | July 9, 2007 3:55 PM
Mazel Mazel Toes! Good things! Now dammit, sign the contract so we can see what you bought!
Posted by Noah | July 9, 2007 3:57 PM
Toes, what was the asking/offer price on the place you are looking at in Bed-Stuy?
Posted by Dave | July 10, 2007 2:50 AM
Congrats, how much would you think you can rent that place for ?
Posted by james | July 10, 2007 9:35 AM
Hi Toes and Noah,
It's probably irrelevant but I am a first time home-owner, signed contract to buy a mid-town west new condo in May and have since had issues with my mortage.
The mortgage people I've been dealing with have been outrageous although I've tried to keep everything in writing. They first hiked up the closing cost in the GFE $950 higher than what we initially agreed upon and confirmed in email. Then, in the commitment letter, despite we already confirmed a 6 month rate lock-in, they again hiked the interest rate for another .5%.
I hope you guys could give me some advice. Do you know some reputable mortgage brokers that I could work with? I have excellent credit and am seeking to borrow around $200,000.
Much appreciated,
Daisy
Posted by Daisy | July 10, 2007 10:42 AM
Daisy - ouch! Try Michael McGivney
MICHAEL MCGIVNEY
Private Mortgage Banker
Office: (212) 805-1637
Mobile: (646) 872-3722
Fax: (212) 428-6733
Posted by Noah | July 10, 2007 12:03 PM
Thanks so much, Noah, I will give Michael a ring!
Daisy
Posted by Daisy | July 10, 2007 12:24 PM
The first place I bought had great bones. it was absolutely stunning. Built in the 1800's it had all the original molding, wood floors gorgeous windows etc. One problem the area it was in wasn't great.
Lesson don't ever fall in love with a building just because it has great bones.
Posted by Anonymous | July 10, 2007 2:10 PM
just curious I checked craigslist and there appears to be a boatload of rental available in the bed-stuy area. I don't thinking renting this is going to be a quick walk in the park. Also how much are you planning to rent this for? I am not trying to be negative but I do believe i appreciation in NYC in better in than bed-stuy particularly in a down market. Not that familiar with where you bought bure you close to the bushwick area?
Posted by Anonymous | July 10, 2007 2:28 PM
bed stuy starts on the edge of clinton hill which is one of the hottest brooklyn hoods now, there are very nice blocks and not so nice, but you can walk into clinton hill easily from almost anywhere in the stuy.
There are a lot of rental listings in bed stuy because, duh, there are a lot of renters, and a lot of rentals. The neighborhood doesn't have many single family homes for obvious socio-economic reasons. The landlords market will remain strong through any sub-prime collapse because people need a house, whether or not they can no longer afford their mortgage, and realistic rents were never going to cover mortgages anyway. Someone who can't afford an 8% sub-prime loan can still afford a good rent. Owner occupied brownstones with a floor rented usually use that money to pay their taxes and repairs and upkeep plus a little bit extra.
Bed stuy might go sideways for a while but it is a great long term bet. The real value is especially if you can put some elbow grease into your brownstone that needs some TLC. For every dollar invested intelligently in restoring it you get several back when you come time to sell..
I think its a great decision. Homes dripping with detail go for the prices of empty lots in prospect heights! Only a recession (which would screw up over-heated nyc values anyway) and a forced sale could screw this up.
Posted by Justin | July 11, 2007 10:57 AM
Not sure if I agree with the above post as to why there is a boat load of rentals available on craigslist. Using the word "Duh" l is quite obnoxious to say the least.
On the other side of the argument if their were so many people advertising rentals on criagslst one would think that there is more supply than demand.
Just appears to me that getting emotionally involved in building because of the architecture and moldings can prove to be not the wisest investment. I prefer location to Architecture. Having both is the best but I'd rather invest my hard earned cash in Manhattan at this time.
Posted by Anonymous | July 11, 2007 3:12 PM
"lots of rental listing dud because lots of renters". Try lots of rental listings because lots of owners wanting to rent.Usually when this is the case renters have more to choose from and renters can get lower rent. Yes nice to have a great looking place but most renters are looking a price particularly in Bed-Stuy.
Posted by Anonymous | July 11, 2007 8:28 PM
Good for you! Bringing the place back to its glory days will be beyond gratifying. Good, solid choice.
Posted by Anonymous | July 12, 2007 4:21 PM
Congrats --takes a lot of guts to buy in this area --Bravo
Posted by Anonymous | July 13, 2007 7:01 AM
Toes - i would get a lot more invested in fighting back on the comments posted when Harlem, Washington Heights, Crown Heights and any other "fringe" neighborhood gets slammed. Now that you'll be owning inBed-Sty you too will see how racist and horrible people will be about your very smart investment.
Posted by Anonymous | July 17, 2007 1:28 PM
Thanks for all the comments guys! Contracts should be signed today on my investment in Bed Stuy and I will write all about it as soon as they are signed!
Posted by Toes | July 23, 2007 3:35 PM