Buying Rental Buildings
Are multi-family buildings a good investment? What’s the process?
If you’ve been trying to purchase a condo for investment purposes in NYC, you’ve likely been experiencing intense competition over availabilities the last several years, particularly under $3 million.
Further, condo prices have increased much quicker than rents, and common charges, rates and taxes have trended upward with the cost of living. This leads to a lower return for an investor.
Multi-family buildings have drawn interest from our single-unit investor clients as an alternative with stable returns, especially in Manhattan and Brooklyn where 4-10 unit buildings are plentiful. But, is it a good fit for you?
That depends on your available capital, and your patience in dealing with more tenants, regulations, and logistics to running the property.
It will also depend on your comfort in dealing with commercial bidders with more capital, and paying for detailed due diligence pre-contract and on spec.
When working with investor clients considering multi-unit properties, we make sure to thoroughly examine cash flow by seeing leases. We refer them to attorneys to review regulated situations. Open permits, air rights and building department violations must be explored. Inspections and surveys are key.
Most importantly, city zoning laws and rent regulations must be examined as they may apply to a particular property and affect how much money you can make for years to come.
When structuring deals, a higher recording tax of 2.8% and higher investment rates may be in play. More equity, sometimes 50%+, is required. And you may need to go “all-cash” to compete with institutional buyers.
Simply put, the stakes are high and competitive, and there are more things for which to keep an eye out.