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One more useful indicator, but it does not take property appreciation into account. Never looked at it before. Is 16% a good number?
Here are my calculations: rent can fetch from 4100 to 4300 per month. Mrtg+taxes+insurance=3200/mo.
Even after you factor in repairs, we are going to pocket a couple of hundred per month. I would not call this purchase a gamble
We are not going after a cash flow. We are bidding on properties appreciation.
How are you coming up with this number? I thought it could easily be in $5,000- $6,000 range. What is your down payment percentage?
Either way you are looking at annual ROI (Return on Investment) of below 5% (once you take into account expense). $51,600 rental income / $1mm (purchases price + renovation cost) = 5% (without considering vacancy rate and expenses). There is easier money to be made elsewhere, you buy brownstone because you really want one.
I am more conservative in estimating aggressive appreciation value into the buying decision. Consider you can say all of NYC real estate is appreciating in general.
20% down, have to finance 640K
if APR was 3.75% (I beleive that we could get better rate, but lets be on a safe side)
Then mo mrtg pmt $2963. Taxes - $138/mo Home owner insurance? $100 - not sure about that, did not shop around yet.
So, we have taxes+mrtg=3100. Even if insurance was $200/mo, we are looking at 3300 per month with 4000-4300 cash flow.
Oops - forgot about water/sewerage bills. Lets assume 3300+100
Now it is my turn to ask - how could you figure out 5,000-6,000 mrtg payments?
20% down, have to finance 640K
if APR was 3.75% (I beleive that we could get better rate, but lets be on a safe side)
Then mo mrtg pmt $2963. Taxes - $138/mo Home owner insurance? $100 - not sure about that, did not shop around yet.
So, we have taxes+mrtg=3100. Even if insurance was $200/mo, we are looking at 3300 per month with 4000-4300 cash flow.
Oops - forgot about water/sewerage bills. Lets assume 3300+100
Now it is my turn to ask - how could you figure out 5,000-6,000 mrtg payments?
You might want to check a bank for your estimate. The type of loan your getting is higher loan amount than Fannie Mae and Freddie Mac conforming limits in NYC area (the type of loan you seek is called a Jumbo loan). They might require higher down payment or charge you higher interest rate than you estimate. In addition, if you don't claim the property as your primary residents you will get a higher interest rate.
If you include the renovation cost into the loan, your monthly payment will be higher.
You will also need rental insurance and a umbrella policy insurance to cover yourself from damages and personal liabilities if someone was to get injured on your property.
Forgot to mention NYC Rental laws are very favorable to tenants and you plan to rent a property in the "hood". You easily run the risk someone tries to live rent free for six months on your property before getting evicted.
Half way through the cycle and still has one of the highest crime rates in the city. So in ten years you'd expect these rates to be on par with Park Slope or Williamsburg?
Yes half way through means exactly that, it's not totally gentrified and thus still has higher crime and QOL issues comparative to other areas that are considered gentrified. I use Fort Greene as a closer approximation of where Bed Stuy will be in 10 years because it very similar: demo, housing stock, transportation. Park slope started changing in the 70s so it's been 40-45 years for that neighborhood.
You might want to check a bank for your estimate. The type of loan your getting is higher loan amount than Fannie Mae and Freddie Mac conforming limits in NYC area (the type of loan you seek is called a Jumbo loan). They might require higher down payment or charge you higher interest rate than you estimate. In addition, if you don't claim the property as your primary residents you will get a higher interest rate.
If you include the renovation cost into the loan, your monthly payment will be higher.
You will also need rental insurance and a umbrella policy insurance to cover yourself from damages and personal liabilities if someone was to get injured on your property.
Forgot to mention NYC Rental laws are very favorable to tenants and you plan to rent a property in the "hood". You easily run the risk someone tries to live rent free for six months on your property before getting evicted.
The OP would need a jumbo loan. The interest rates are higher for that type. Not insanely higher but higher.
Yes half way through means exactly that, it's not totally gentrified and thus still has higher crime and QOL issues comparative to other areas that are considered gentrified. I use Fort Greene as a closer approximation of where Bed Stuy will be in 10 years because it very similar: demo, housing stock, transportation. Park slope started changing in the 70s so it's been 40-45 years for that neighborhood.
That would be wonderful, although Fort Greene was always nicer. Fort Greene is great, hope they don't completely turn it into a Park Slope.
We are taking a 15 years balloon mrtg, adjustable rate. The current rate is 3.75%, 2% annual cap on APR increase, 6% cap in total.
Found a credit union that allows 20% down on investment property.
Yes, I know a lot about tenant's rights protection law;heard lots of horror stories from landlords I know personally.Well, there is no easy way to make money our days...
If that happens, we would have to swallow the costs ....hopefully that would not happen.
As for umbrella insurance - I thought it was included to home owner's insurance. Since it is a rental property, we would have to pay more for it. Rental insurance is nice to have, but not a must. Do we have to buy any other insurance, except home owner's one?
We are taking a 15 years balloon mrtg, adjustable rate. The current rate is 3.75%, 2% annual cap on APR increase, 6% cap in total.
Found a credit union that allows 20% down on investment property.
I would just say be careful with adjustable rates. Interest rate are currently at a record low. They can only go up in the next 10-15 years. In addition, you should check to see how the credit union plans to keep record of your loan in case they go bankrupt and have sold the loan to a pool of investors.
Either way, if this is your dream property you should go for it. I would just cation that your children and their children will most likely enjoy the property more than you.
As for umbrella insurance - I thought it was included to home owner's insurance. Since it is a rental property, we would have to pay more for it. Rental insurance is nice to have, but not a must. Do we have to buy any other insurance, except home owner's one?
Speak with your lawyer who has experience in real estate. They are suppose to advice you. I believe there is normal insurance (excluding flood insurance), flood insurance, rental insurance, and umbrella policy. In addition if a hurricane hits NYC, we might all be in a bad spot once the insurance companies start going bankrupt (need government bail out). This insurance companies are not built to handle a natural disaster in which they have to pay multiple claims at the same time.
I forgot to mention you should have a lawyer write the rental agreement contract. To be honest, I was surprise to find out how cheap a lawyer services are compared to how much a real estate agent makes from selling a property.
Last edited by NYer23; 01-16-2015 at 11:00 AM..
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