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Yes TODAY it is hard to buy a building and have positive cash flow..but we are talking about LONG TERM, and back in the day there was plenty of cash flow..prices TODAY are out of wack with income, which makes being a large RE owner impossible UNLESS you have backers/deep pockets that can take losses for years in the HOPES of a positive return/appreciation. As for the current topic of Manhattan, I do not believe in anyway shape of form that appreciation is maxed out. In the 70s when the city was being burned to the ground, crime spiraled out of control, and businesses and people were fleeing the city in droves, the city STILL bounced back years later, as did RE prices. The city survived that....so considering that, I think the RE appreciation is not maxed out, it is just at a lul, which is normal and healthy.
Yes TODAY it is hard to buy a building and have positive cash flow..but we are talking about LONG TERM, and back in the day there was plenty of cash flow..prices TODAY are out of wack with income, which makes being a large RE owner impossible UNLESS you have backers/deep pockets that can take losses for years in the HOPES of a positive return/appreciation. As for the current topic of Manhattan, I do not believe in anyway shape of form that appreciation is maxed out. In the 70s when the city was being burned to the ground, crime spiraled out of control, and businesses and people were fleeing the city in droves, the city STILL bounced back years later, as did RE prices. The city survived that....so considering that, I think the RE appreciation is not maxed out, it is just at a lul, which is normal and healthy.
Thats why regardless of my loses now, I hope and pray that a couple of factors get better in a few years that will make everything worth while. So I'm willing to ride out the storm for now.
As I foresee a few things in the pipeline that can benefit my rental business but at the same time I also foresee certain bad things that might happen as well now with the new democratic senate and city council (pro-rent stabilization politicians) that could really hurt my business.
I have already taken measures to minimize any possible upcoming stricter rent stabilization laws that might pass such as the possiblity of THEM abolishing de-regulation. (Lets hope thats not the case though)
I have about 5 or 6 tenants that are arrears with their rent.
I brought the building back in '79 where rent income and expenses where balanced and you can actually make a decent profit. As oppose to today.
The building is free and clear so luckly I no longer have a mortgage. If I did..........I wouldn't be a landlord now.
i made the mistake with one of the apartments with not bothering to renew the tenants lease when it was up we just kind of went to a month to month thing... worst thing i ever did was not give her a lease..if you dont issue a lease its perfectly okay however new york implies one for you........ so my tenat fell behind on the rent and i was going to take her to court.. big problem, how do you prove what the rent was..... other issues i had were that you need to go to court with enough evidence of non payment in order to get the judge to open the case. the judge cant just say to the tenant show me you paid may ,june and julys rent.
nope, thats not how it works, you need to give the judge a reason to ask the tenant to show proof they paid since your bringing suite you need enough evidence to get the ball rolling.. you need to have swapped receipts at rent time, the tenant gets a receipt for payment and you get a slip back with payment .
you now bring your slips to court and show the judge, look i have march and aprils slips but no may ,june and july. you may very well have thrown those slips away yourself but it gives the judge the leeway because you showed a pattern to now ask the tenant for proof he paid.... since i gave the tenant a receipt but i didnt get anything other than payment on my end i had nothing to bring to court..
we ended up taking the apartment back for my son and getting her out on those grounds but no back rent.. even this can be a major ordeal if not handled to the letter of the law,and we are talking non stabilized apartment.
becareful dealing with tenants, every law on the books deals with protecting tenants.. what i want to know is where are the laws protecting landlords except for what you manage to squeeze in a lease...
if anyone feels the need to start a thread "the pitfalls of landlording" we can all add our expieriences and knowledge so maybe it wont happen to you but if there is not enough interest to do it i dont want to keep posting that stuff off topic here
Last edited by mathjak107; 12-24-2008 at 03:35 AM..
Well here's our family's investment background. Dad bought a building in UWS for $300,000 in around 1990. The building is now valued at around $2.5 million to $3.5m based on identical buildings right next door that were bought and sold. The other building is also on the UWS, purchased for $600K, no idea of the value but its probably worth around what the first one is worth. The buildings give great tax benefits from interest as money was pulled out of one to buy stocks in the market, plus lots of other expense write offs to shelter his normal work income. The other one has been paid in full for years. Luckily Dad started thinking around April of this year (I think) that it was time to pull those investments out and pay off the equity loan on the second building. So he cashed the stocks in while the market was still pretty hot. The buildings generate quite a nice income, despite having a few rent stabilized tenants left. Its a good income to retire on. That income is still there and apartments are still getting rented out for exhorbitant amounts (an outdated studio on the ground floor-yuck-just went for $1850).
my buddy once told me his grandmother did awesome in the stock markets. all she did was buy a bunch of blue chips and throw them in a draw for 30 years and she did great... i said joe how do you know she did great, he said because when he cashed them in he got a pile of money...
just for laughs i compared the s&p 500 index to his grandma.. she actually lagged the s&p by almost 80% and did quite poorly although joe thought it was great before he actually measured the performance against a benchmark..
point is becareful when figuring your return on real estate , that 600,00 building may have cost you 2 to 3x that with interest payments. remember your spending 3 extra dollars to get 1 dollar back as your big coveted tax deduction. where are decades of real estate taxes,repairs, renovations,legal fees, no rent for periods of time, etc .... is your rental looking profitable because that cushy depreciation allowence you take is giving it the edge each year... bad news is it all gets recaptured when you sell and gets paid back at full income tax rates....
the real deal is never look at what you think you paid to what its worth today, you may find you barely made a penny and are really in a hole once the full accounting is looked at.
our first co-op i bought as a rental cost us about 1000 a month maintaince and mortgage on a 75,000 dollar unit with 20% down. . .rent back in 87 was about 850 a month.. i tried raising it as time went on but the markets were very competitive and i lost 1 tenant and had to rent it for the same 850. the 850 held for about 4 years ..... i thought we were doing okay because depreciation each year when added in made it look like a slight profit.
i was shocked when we sold it to find out that great deduction all got paid back... reality was we actually lost money all those years and even figuring in the appreciation we gained when we sold it gave us a pretty dismal return when all was said and done....
Yes true...but when you have income from Tenants hat pay your mortgage and interest..who cares about how much is spent? Furthermore, your stock investments can go up in smoke in a matter of weeks..POOF all gone, as we have recently seen..and all you have left of stories of how much you HAD. RE takes work, but if you think you can just buy stocks and sock them in drawer for 30 years and cash them in, you will soon a hard lesson: you have to manage your money, stocks, RE, whatever. Those "blue chips" , many of which were financial industry stalwarts..are now gone! POOF. I would rather have a hard asset that has INSURANCE backing it, than just paper stocks of companies that can go POOF overnight. But hey..they just me...I have BOTH however.
yes and no, the income from tenants may be a loss compared to expenses and mortgage and taxes and building equity can vanish way below even 100% as it has for sooooo many when you owe a mortgage... the worst lose is negative cash flow when expenses go higher then rent, your not just limited to what you put in,your losses are endless . believe me if the s&p500 or wilshire index funds ever go poof i wouldnt worry about anything as all life is over as you know it along with everyones job and real estate.
never forget any investment is about making returns that are decent and worth the risk and grief.. any investment is bad if there are not enough long term gains or gains that surpass a less riskier, less grief , less time required type of investment...
i consider my self quite succesful at it as i cover all asset classes from stocks to commodities to real estate... each has it benefits,its negatives and its returns that vary under different conditions.
while each business cycle has something else taking a hit or in some cases all asset classes except treasuries now taking a hit each prosperity cycle has some other class of assets rising above all the others... limiting yourself to just one is a sure fire way to under perform
I have about 5 or 6 tenants that are arrears with their rent.
I brought the building back in '79 where rent income and expenses where balanced and you can actually make a decent profit. As oppose to today.
The building is free and clear so luckly I no longer have a mortgage. If I did..........I wouldn't be a landlord now.
woah 50 units, no mortgage, and you are still just eeking by
Do you have a lot of old people with rent control then?
hope you do not mind me asking
My boss bought a place in inwood not too long ago, and it is pretty much in the bronx, still has a mortgage, has much less units, and it is a cash cow, and we do not charge a premium rate because it is in inwood
woah 50 units, no mortgage, and you are still just eeking by
Do you have a lot of old people with rent control then?
hope you do not mind me asking
My boss bought a place in inwood not too long ago, and it is pretty much in the bronx, still has a mortgage, has much less units, and it is a cash cow, and we do not charge a premium rate because it is in inwood
are you managing yourself, or hire someone else
Luckily I dont have anymore rent control tenants but half the building is paying about $1,000 below market rent. I have this one guy who pays $692 for a 3 bedroom apartment and he has no kids or wife...just him alone. Plus I have other simular situations too with other tenants. Yes, I manage it myself and my wife.
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