Bedford Stuyvesant Townhouse Update

At the Urban Digs "bar night" two weeks ago, a few people asked me how my house in Bed Stuy turned out. Thanks for asking!

If you'd like to catch up on how / why I decided to invest my money in a two family house in Brooklyn instead of a one bedroom condo in Manhattan, please check out a few of my earlier posts:

A Broker's Search - Where To Buy
A Broker's Search Has Ended - Sort of
My Townhouse in Bed Stuy
Townhouse Renovation Tips

I am really happy to report that although it wasn't easy, my purchase on MacDonough Street in Bedford Stuyvesant, Brooklyn, turned out really well! Of course, none of my projections worked out as the "best case scenario" but none of them were "worse" than the "worst case scenario," either. I did my research & my numbers turned out to be almost "spot on."

I had hoped to have the construction finished by early December, but it was finished in mid December (NYC DOB permit issues set the work back by almost 2 weeks). I rented out the 3rd floor apartment for a Dec 15th move in, but had some trouble renting out the "owner's duplex" in the middle of the holiday season (which I was afraid would happen). The 2nd apt was rented out for a January 15th lease start.

I thought I would get about $1500 for the 1.5 bedroom and about $2550 for the owner's duplex, and my projections were very close. I offered a small credit for my tenants to postmark their rent by the 25th of the month before the rent is due. So far, my tenants have all sent in their rent early. I asked my tenants to sign leases that expire in the summer so that I don't have to worry about renting an apt out in the middle of the holiday season again. Summer rents are higher also, so my cash flow should continue to increase over time.

All in, I am covering the mortgage, taxes, homeowners insurance, heat & hot water expenses with the rent roll and I am slightly cash flow positive. Rates have actually come down since I purchased, so I will be working on a re-fi soon. As soon as I have paid off the $75K home equity line of credit on the house, I will be making more cash flow.

The project took time and money, though. I had hoped to spend $110K on the construction, but budgeted $130K "just in case." After 2 new kitchens, one new bath, two upgraded baths, painting, floors, new windows, upgraded electrical, two structural changes, a new closet, etc... When everything was said and done, I spent $135K. Part of that was my fault, though - I decided to add a washer dryer in the basement. In addition to adding the water line, there were additional expenses to convert the 110 power to 220 in order to support today's washer-dryers.

Of course, the heat stopped working in half of the house about 2 weeks after my tenants moved in. I tried to find someone through the grapevine to fix the problem because I prefer using vendors who are referred to me. Despite recommendations from other homeowners and brokers, it took me 2 weeks to find someone reliable to diagnose & fix the problem. The job was too small for my contractor's HVAC guys. One vendor that was recommended to me didn't do forced air gas heat. One vendor only did oil heat. One vendor kept saying he would go over and check it out and then never made it to the house, or arrived at the wrong time & the tenants weren't home. I offered to reimburse my tenants for space heaters. Finally, I Googled "boiler repair & Brooklyn" and just started calling numbers off of the internet. $1100 and half of a day later, the problem was fixed.

Buying a townhouse, renovating it, and getting it to cash flow is certainly not a "get rich quick" scheme, at least not in NYC. But if you are undertaking this kind of project as a 10 year (or in my case, longer) plan, I am confident that it will be more than worth your while.

Of course buying a one bedroom condo in a new development would have been a lot easier! But (so far!) my townhouse in Bed Stuy has been a hell of a lot more interesting. As a complete real estate addict (some would say "nerd"), I have to admit that it has been really fun.

My next adventure? I'm currently studying up on foreclosures:)

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My Brownstone (TWNH) in Bed-Stuy

It's been a while since I posted about my decision to take my $200K and use it to buy a $750K two family townhouse in Bedford Stuyvesant, Brooklyn instead of an approximately 640 sq ft new development condo in Manhattan.

Side note: Many people use the word "brownstone" as a generic category to describe all rowhouses or townhouses. The term "brownstone" refers to a brown sandstone which was a popular building material in the late 1800s and early 1900s. In the same vein, limestones are made up of... Limestone. Rowhouses that are not made of brownstone or limestone are generally referred to as townhouses. I bought a townhouse.

After the New York Magazine article yesterday cited Bedford Stuyvesant & Crown Heights as the highest risk areas to purchase in NYC, a reader asked how I was feeling about my purchase. I'm still feeling good about my purchase. I was able to get in before rates went crazy, so I got a 6.125% 5 year interest only ARM instead of the 6.5% I *might* be able to get today (I question whether I would have been able to get a jumbo mortgage on this purchase right now. I own another property and my *net* income as a real estate agent doesn't look all that great on my tax returns. So I probably wouldn't qualify for this mortgage right now).

My payments for a 5 year interest only ARM at a 6.125% loan are $3,646. At a 6.5% rate, they would be $3,742, which would decrease my cash flow as well as my purchasing power. So even if I could buy the same house right now for $20K less, it's probably a wash.

I've been keeping my eye on the market to see if I missed out & could have gotten something nicer. 585 Macon looks promising. It's larger than my house and has original details, and could probably be had for the same price. I like the location of my house better, it's a closer to the subway. But I could have received higher rental income by having the extra floor. I'm not sure I would have been able to afford the higher taxes and 4 floors to renovate instead of 3. I will save my "contractor" stories for another post.

When I saw 576 Monroe listed, I had a moment of panic... The blocks between Stuyvesant and Lewis are gorgeous and depending on the exact location, are in the Stuyvesant Heights Historic District, which has some "cache" to it (although then owners have to abide by the landmarks rules, which can be a pain when renovating). It turns out that the house doesn't have any fireplaces and most of the original details have been removed. So I wouldn't have been interested in this property, despite the attractive price. When you buy a Brooklyn townhouse/brownstone, you want all the glorious pre-war details: fireplaces, mouldings, original light fixtures, the works!

The New York Magazine article cited a lot of recent price reductions in Bed-Stuy/Crown Heights. The price reductions in the type of property I purchased are almost all on Hart and Halsey streets, or on other blocks really far from the A trains at Nostrand and Utica (most of them are near the G train which goes practically nowhere), or they are on blocks that aren't as nice. The price reductions are $10K - $15K price reductions on $685K - $850K properties, which doesn't exactly indicate to me that the sky is falling. Even still, keep your eyes open, because there will probably be more good deals to come! If a lot of people did get into risky ARMs a few years back, the foreclosures predicted could really happen. The buyers of the potential foreclosures could bring some new blood with more money into the neighborhood, though.

The block where my house is, MacDonough Street & Malcolm X, is mostly families. There aren't any young people hanging out on their stoops playing loud music, which is a misconception a lot of people have about Bed Stuy. Bed Stuy is VERY location specific. Everyone on my block meticulously manicures their front lawns with shrubbery and flowers. I'm actually a bit nervous because I don't have a green thumb at all - the one plant in my apartment has been half dead for months - and I'm not sure I will be able to keep up with the Jones'! There is no indication (at least not yet) of people foreclosing on their properties. Frequently when there are impending foreclosures you start seeing poorly maintained houses, broken windows that haven't been repaired, lots of trash, etc. If I start noticing a change, I will let you know, but my block two streets over (MacDonough between Stuyvesant and Lewis) was recently voted the "Greenest Block in Brooklyn," so I am really not worried. And the 2006 commercial winner was also just a few blocks from my house, where my favorite coffee place, Bread Stuy, is.

The other thing to consider in the New York Magazine article is that it is looking only to 2010, which is only 2 - 3 years away! I bought this house as a ten year investment, and I am hoping to keep it forever. Although I can't be certain until the work is done, I will probably live in the top floor apartment & rent out the owner's duplex. Then at some point in the future, when I need a larger space, I will move into the owner's duplex and rent out the 3rd floor rental.

When you look at the "frightening" numbers in the NY Magazine article, it looks like there is a worst case scenario chance of a 25% decline in prices in the next 3 years. What would that mean for me? Pretty much nothing because I'm keeping the place for 10 years and who knows where the market will be in 10 years. My rental projections indicate a small loss for the first 2 years as I pay down the home equity line, a break even for the next year, and I will be cash flow positive for the next 7 years or however long I keep it.

I never recommend that my customers go into buying an apartment with a 3 year timeframe. I always recommend that they plan to buy and hold for at least 5 years. The entry and exit costs of buying a condo or townhouse (closing costs of 3-6% when you buy and then costs of hiring a broker, etc. when you sell) are too high to plan on keeping something for only 3 years.

My grandfather's stock strategy when he worked at General Electric Company was to invest the same amount every quarter, no matter what the market was doing. With 18 years of $10,000 gifts of stock to each grandkid, he paid for four grandkids' college tuition and my sister and I had enough money left over for a down payment on our first homes. It's great that GE did so well & I am SO lucky that my grandfather was so consistent about saving. But it kills me a bit that my parents could have bought a BUILDING on 9th street and Avenue A for $10,000 thirty years ago when they lived there! But they didn't. Can you imagine what that would be worth in value and cash flow today? The people with a "buy and hold" strategy who select their purchases with a careful eye towards value, cash flow, and their own needs & personal financial situation will do well no matter what. This is New York Friikin City and people will pay to live here. Did I take a risk by buying in an "up and coming" neighborhood? Absolutely. I'm only 30 years old and if I am going to take a risk, the time is now. Everything in life is "risk vs. reward," right? Would purchasing that 638 sq ft one bedroom at Gramercy by Starck have been a good 10 year investment? Of course! But now I have two rental units instead of one. And I wouldn't be learning this much about townhouses, construction, and emerging neighborhoods. Only time will tell whether my investment strategy pays off, but I feel as if my life is so much more interesting by having taken the road less traveled by.

So here are photos of some of the parts of my house that made me choose this one over others on the market:

And these parts need some work (I'm renovating both of the kitchens):

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A Broker's Search... Has Ended! (Sort of...)

So I decided to forgo buying a new development condo in Manhattan in favor of buying a townhouse! I finally found it - a gorgeous pre-war two-family townhouse in Bedford-Stuyvesant, Brooklyn. The asking price was $785K but due to a seller that had already picked out a new investment property and a broker who really knew how to make a deal happen, I am in contract for 470 MacDonough Street for less than the asking price. When we close, I will let you know exactly what I paid for the property. Here is why I suspected that the price was negotiable:

4/18/07 - property is listed at $899K
5/19/07 - price reduced to $815K
6/17/07 - price reduced to $799K
6/22/07 - price reduced to $785K

Talk about a serious seller (see Noah's post on "Timing A Low-Ball Offer" where he discusses what to do if a seller reduces multiple times in a short period)! So on 7/12/07 - before I thought there might be another price drop generating new interest in the property, I made an offer below the asking price.

My potential new home/investment property is only a few blocks from the A train at Utica and is only 4 blocks from Bread-Stuy, my favorite coffee shop (they have the best red velvet cake!). The townhouse has gorgeous and very unique looking fireplaces, moldings, stained glass and the original light fixtures.

Even though the sale was broker to broker, which is usually a very easy/smooth transaction because everyone knows what they are doing, I have never bought or sold a townhouse before. So I had no idea what the home inspection would turn up. Based on numbers other agents had quoted me regarding the condition of their properties, and the description of the property being that it needed "mostly cosmetic work," I thought the house would need about $75K of work. Included in this figure was:

1. Window replacements ($500 each) for 15 windows - $7,500
2. Stair rail reinforcements, etc. - $3,500
3. Remove and replace cellar floor slab - $6,500
4. Paint, refinish floors - $10,000
5. Bathrooms, kitchens (basic upgrades, we aren't talking SubZero here!) - $40,000
6. Restoring ceilings, fireplaces, misc other - $10,000

GRAND TOTAL (So I thought!) -------> $77,500

Then I got the home inspection report back (the cost of the inspection was $750). I almost had a heart attack & I thought about pulling out of the purchase. In addition to the renovations I thought were needed, the home inspector dropped a bomb on me with the following expenses that I was not anticipating...

Trade Area Approximate cost

1. Electrical re-wiring / upgrading - $20,000
2. Re-lining of fireplace chimneys (typ.) if desired - $15,000
3. Replace roof hatch - $2,500
4. Replace roof membrane and install proper flashing - $5,500 (property description said that it had a "new roof" so this was a complete surprise)
5. Install insulation at cock-loft - $6,500
6. Correct water damaged surfaces, various - $5,000
7. Check / clean main chimney - $1,000
8. Install fixed ladder to roof - $1,500
9. Replace cellar hatches with steel hatches (each) - $1,500 (x 2)
10. Remove and replace cellar ceiling - $3,500
11. Foundation wall pointing - $5,000

GRAND TOTAL ------------> $78,500 !!! (not including my $77,500 estimate)

On the surface, the home inspection indicated that the house needed DOUBLE the amount of work I thought it needed. I went back and tried to renegotiate the price, but found out that the broker had already significantly cut her commission to make the deal happen (she was more than generous!) and the seller had come down to his absolute rock bottom price. They also had someone coming back for a 2nd showing and an open house scheduled. I quickly took a look at 3 more properties that had come onto the market, which only reaffirmed my decision that I wanted this house.

Then I:

A. Went into a temporary depression because I really love the house but thought that it might not turn out to be the great investment that I thought it would be.
B. Called the home inspector to find out exactly what work HAD to be done right away, and
C. Had a sit-down with my contractor (who fortunately had come to the home inspection) to see what he thought really needed to be done right away, what could wait until later, and how much it would really cost me.

After speaking to the home inspector and my contractor, I learned that the chimney stuff can totally wait, the basement ceiling doesn't need to be redone, its more of a cosmetic thing, (eventually I will want to refinish the basement anyway to increase the value of the property) the ladder can wait, the celler hatches can wait, and if I downgrade my expectations for the kitchens and baths, $100K should cover everything.

My contractor also promised to have the owner's duplex done in 3 months and the one bedroom rental done a month later. I had budgeted 5 months for the property to sit completely vacant during the renovations, so hopefully this will help my bottom line (although I know realistically construction never happens on schedule).

I had also highballed my expenses, (which of course, can fluctuate):

Taxes = $1700
Insurance = $2400
Water - $50/month = $600
Heat - $300/month (installing insulation should help keep this lower) = $3,600/year

And I had lowballed the rents I am expecting:

Owner's duplex $2,300 (I really should be able to get $2,500)
One bedroom rental $1,300 (I really should be able to get $1,400)

So I am hoping the expenses and rents come out in the middle of my projections and don't turn into the "worst case scenarios."

Then I called my mortgage banker and asked how much the extra $25K - $50K (in case it costs more than expected) home equity line would cost.

Basically, before I knew about the extra work needed, I was looking at a break even cash flow the first year, and depending on taxes and expenses and how much they increased, I should have been cash flow positive after year two.

My assumptions were based on a 5/1 interest only ARM at 6.125%. I want to tie up as little cash as possible so I can have my money working for me elsewhere. I also want to have as much cash in reserves possible in case my numbers turn out to be wrong. Based on the additional home equity line I will be needing, I am going to be cash flow negative about $200 a month. After my accountant works her magic depreciating the property, I will be cash flow positive.

When I really think about it, aside from the mortgage payment, everything is pretty much speculation. If I think too much about how many unknowns there are in this investment, I start freaking out a little bit. The good thing is that I own my current apartment on the UES and can always sell it if it looks like I am going into the poorhouse.

I feel strongly that you can't get an amazing return on an investment with your money sitting in an on-line savings account making 5% interest. You have to take risks in life or you won't be rewarded; 'you have to be in it...to win it!'. I'm 30 years old and if I am going to take a chance on something, the time is now, not when I'm 60. In doing my research to select a neighborhood, Bed Stuy is the last place within a 15-20 minute commute to the city where you can buy a two family property with charm for under $785K that doesn't need a complete gut reno.

The streets in and around the Stuyvesant Heights historic district are beautiful and tree-lined and the neighborhood block associations even put out large flower pots on the sidewalks to make them look even nicer. Almost everyone meticulously maintains the landscaping in the front of their homes. The house I am purchasing is one and a half blocks outside of the Stuyvesant Heights historic district and there are talks about expanding the district to include my block (which some people are fighting because of the restrictions that come with owning a landmarked house).

Even if I am slightly negative on the cash flow for the first two years, I will "make" money by depreciating the property for tax purposes. I am betting on the area appreciating in value as people seek out neighborhoods with affordable town homes. My number crunching indicates that I will be cash flow positive in 2 years. Since this is a ten year investment for me, and possibly longer, I am confident that I am making a good investment. I will eventually move into the property and rent out the second unit when I decide that I need more space.

Next up: the Termite Inspection (cost = $150). If it turns out that the entire house is being eaten alive, I can back out of the contract. There is also a clause in the contract that if the tenants don't move out as they are supposed to (the house is supposed to be delivered vacant and broom-swept), in time for a Sept 1st closing, I can back out of the contract. I don't want my 10% deposit sitting around in a non-interest bearing escrow account while the current owner spends six months to a year evicting his tenants.

I will keep you posted on my progress and I look forward to reading your comments! Thanks!
- Toes

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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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A Broker's Search...Where to Buy (Part IV)

Today I visited 212 E 47th street and if you are looking for a primary residence and don't have a ton of money for a down payment, this might be the building for you. Here are the details:

Building Overview:
- Converted from rental
- 260 apartments; 35 floors
- Closings anticipated Nov '07 - Jan '08
- Market rate tenants are on month to month leases & have option to buy
- Only about 15 apts left on market now, more units coming available mid-July when market rate tenants decide whether to purchase

Amenities:
- 24 Hour Doorman
- Roof Deck
- Fitness Center w/ Yoga Studio
- Screening Room
- Library / Conference Room
- Laundry in Basement

Apartments:
- Three types of finishes; finish style depends on the floor you are on
- Sq footage measured to mid-point of the wall
- Approx 8'6 ceilings
- Customized closets, towel bars, toilet paper holders included (sounds silly, but some new developments have these in their model units and then you find out they aren't included in the apartments)
- Shower rod in baths (not shower doors)
- Kitchens have Jenn Air & Bosch appliances
- Some apts have windowed kitchens and/or baths
- Some apts w/ balconies

Pros: Good price per sq ft for a brand new apartment/building. For example, 25A is a 628 sq ft one bed for $680K ($1,082/sq ft). No two bedrooms currently available but 3 bed, 2 baths are $1,230/sq ft (18F is 1,160 sq ft for $1.427M. 1,160 sq ft is about the same sq footage as a lot of two bedrooms, though).

Cons: No tax abatement (you may wish to read the UrbanDigs post Noah wrote on why he dislikes the 421a tax abatement. In my case, I would find it helpful in keeping my monthlies low), no w/d in units

Assessment:
I loved 24H, a 642 sq ft one bedroom with an open kitchen and a balcony with a sliver of the river as well as Chrysler Building views for $743,000 (at the time of this post, someone else in my office has a contract out on this apt for one of his customers, so evidently I wasn't the only one that thought this was a great apartment!). Condo sublets of a similar size (also with outdoor space) are renting at the Highpoint, a condo building on 40th st with similar amenities (although it also has a pool), for $3,300. The Vanderbilt is also in this area. 800+ sq ft apts sublet for $3,600 but 650 sq ft one bedroom apartments there sublet for about $3,300. So unfortunately there are a LOT of one bedrooms in condo buildings for rent right now in this neighborhood.

With a 5/1 interest only ARM (lowest payment) and 20% down payment, my monthlies are $4,417. Yikes. After tax deductions (still undecided as to whether I will live there or sublet it out for a while, etc.), net monthlies are about $3,250. If this were definitely going to be my primary residence, I would buy this apartment because of the open kitchen, the balcony and the views. After tax deductions, it's cheaper than rent, and the price per sq ft is great for a conversion.

But I am leaning towards renting the apartment out, which means I will be losing $1,000 a month depending on how creative my accountant can get with depreciating the property. I almost crossed this off of my list of potential purchases, but then I checked the rental history for the building. Churchill (a short-term furnished rentals company) is renting out the 630 - 700 sq ft one bedrooms for $6,150 - $6,300, which would explain why some of the apartments are on a month to month lease. To get a company like Cort Furniture to furnish the apartment (renting furniture for a one bedroom is about $600/month), all I would need to make is $5,000/month to break even. Or I could furnish it myself, but I'd need to replace the furniture every few years, which could be a pain. There is more of a hassle dealing with short term rentals because you have more turn over and you have to include utilities, cable, internet, local phone charges, and sometimes weekly or bi-weekly cleaning service in the rent (this probably adds another $400/month). When I have rented short term furnished rentals to customers, there was this pesky hotel tax for anyone staying under 120 days, so I would need to look into that as well.

There is also a risk that once the condo board is formed, they might set a minimum lease period (some buildings have a 6 month minimum lease), which would kill the furnished rental idea. If I could rent the apartment to a corporation, the situation becomes more promising. Some condo boards will not allow corporate leases, but it's possible I could have a corporate lease approved before any of the "House Rules" are set. 47th and 3rd is very close to the UN and Grand Central, companies like JP Morgan at 250 Park Ave, and an easy commute for anyone on the E line (like all of those attorneys in Times Square)...

I also really like the new Phillippe Starck building, The Gramercy. Let's compare (assuming $150K down payment on each apartment and an Interest Only 5/1 ARM at 6.125%):

25A at 212 E 47th St
$680K
628 sq ft
$1,082/sq ft
CCs - $514
RETs - $762
Total monthly - $4,075
Net monthly - $3,013

8F at The Gramercy (340 E 23rd st)
$765K
638 sq ft
$1,199/sq ft
CCs - $550
RETS - $65 (10 year tax abatement)
Total monthly - $3,754
Net monthly - $2,792

One bedroom apartments at the Post Luminaria, a luxury rental building right next to the Gramercy, are renting for $3,900 a month. Stuyvesant Town's one bedrooms rent for $3,000 - $3,400 based on how close you are to 1st Avenue. Despite the great price per sq ft at 212 E 47th street, I think the Gramercy wins out for my personal investment needs. Besides Crossing 23rd, there isn't much inventory in the way of luxury condos in the area.

However, look how this plays out for a first time buyer who doesn't have that much cash to put up front, but who makes a great salary:

212 E 47th:
$680K w/ 20% down - $136K down payment
Closing costs - budget 5.5% - $37,400 (in a new development you have to pay the sponsor's transfer taxes. Sometimes you can negotiate these but it depends on how quickly the units are selling)
Total cash up front = $173,400

The Gramercy:
$765K w/ 20% down - $153,000
Closing costs - $42,075
Total cash up front = $195,075

That's $20K extra cash up front for the same apartment. So you have to also look at a. whether you have the extra $20K and b. the opportunity cost of that $20K. Some buyers in this price point may need the extra tax deduction that 212 E 47th street provides because of the higher real estate taxes. The Alternative Minimum Tax (AMT) is killing some young traders and iBankers, so it's possible that they would actually NEED these extra taxes as another write-off. DISCLAIMER: I'm not an accountant. You should always consult your accountant (and don't forget your attorney and mortgage broker!) before making any real estate purchase.

I look forward to reading your comments!

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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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A Broker's Search... Where to Buy (Part II)

As I mentioned yesterday, I am on the hunt for an investment property. I plan to rent it out for at least 2 - 3 years and then potentially move into it. I plan to hold the property for at least 10 years.

Yesterday I visited 90 William.

90 William Overview:
- Conversion from a commercial building
- 113 units
- 16 stories
- Opened 5 or 6 weeks ago - already 60% sold
- Approx December 2007 closings

Amenities:
- 24 hour doorman
- Indoor Lounge w/ fireplace, pool table, etc.
- Sky terrace w/ fireplace & BBQ
- Private storage rooms available
- Fitness center

Studio Pricing:
- 15E - $615K for 640 sq ft ($961/sq ft)
CCs: $542/month; RE Taxes: $265/month (after the abatement kicks in 1/08 or 7/08)

Loft Homes:
- 10F - $698K for 845 sq ft ($826/sq ft)
CCs: $715/month; RE Taxes: $341/month
- 14D - $751K for 845 sq ft ($889/sq ft)
CCs: $715/month; RE Taxes: $348/month

Pros: Price per square foot is super low, high beamed ceilings (8'6 - 9'6), 14 year tax abatement would help with cash flow

Cons: No washer/dryers in any units, all studio and loft apartments face north right into another building, so there is no view and light is limited on the lower floors.

Assessment: Although the price per square foot is attractive, the 825-900 sq ft lofts at 15 Broad that face directly into another building have been renting for $3000 - $3500. With a 20% down payment and a 6% (interest only) mortgage, my payments are $4,407, so I am out of pocket $900 - $1,000 a month. However, after the tax write-off for the interest-only mortgage and the real estate taxes (assuming a 40% tax bracket), my net monthly cost is $2,924, so I am actually cash flow positive, especially when you count depreciation of the property.

My only issue is that I personally can not live in an apartment with absolutely no view, which makes me wonder how many other purchasers bought in the building as an investment. How many people will I be "competing" with when closings begin in order to find a tenant since the entire north side of the building is studios/lofts, and one bedrooms with lofts? And the building will be closing in the dead of winter when it can be hard to find renters. Even still, the price per square foot is tempting...

I looked at 88 Greenwich ages ago and I keep comparing everything I see to the building because of the river views... I might have to revisit it to see what their availability is. At the same time, a lot of renters really don't care about views since they are only there for a year or two and space is more important to them. I would appreciate your thoughts! Do renters really care about views? Or is getting a huge apt at a great price more important? For example, you can rent a 625 sq ft one bedroom in the Financial District for about $3,500 with light & a view, or you can rent an 850 sq ft open loft with no view & not much light. Which would you prefer?

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What The Agents Are Buying: 1 Carnegie Hill

A: I am starting a new category titled, "What The Agents Are Buying", to bring to light the buildings across New York City that the professional real estate agents are buying into. Personally, I think that it is interesting information to know although I'm not sure how much data brokers are going to be willing to disclose to me for these posts; i.e. Purchase Price. In any event, lets start out with Eddie Siso of Citi-Habitats who recently purchased a pre-construction unit at One Carnegie Hill.

Eddie Siso has been a Top Performer at Citi-Habitats for the past 2 years and continues to produce even as the NYC housing market slows. You may have heard of Eddie as he has been covered in The Real Deal, Real Estate Weekly, The NY Post, & The Mann Report over the past few years in recognition of his achievements and reputation in the NYC brokerage industry.

Eddie bought a JR4 on the 40th floor of One Carnegie Hill, a new condop by Related that is located at 215 East 96th Street. Here are some details:

One Carnegie Hill: 215 East 96th Street

Floor: Apt. 40A
Total Size: 872 Sq. Ft.
Building Type: Condop (Co-op w/ Condo rules)
# Beds: 1
# Baths: 1
maintenance: $1,025/Month
Exposures: N/E
Purchased: 1st Phase of Pre-Construction Last Spring
Expected Occupancy: Fall 2006
Building Amenities: Rooftop Entertaining Suite, Fitness Center, 50-Foot Lap Pool, Landscaped 43rd Floor Rooftop Sundeck, Spa w/ Massage Room and Mens & Womens Locker Rooms, Hi-Tech Home

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