Maybe the real estate types out there can help me with this one. So, we've all seen this two-story four-apartment place on the southside of Lefferts, right? Say I'm in the mood to make some money. Do I buy it with the current rent roll as listed? I believe a building this size is not subject to rent regulation.
Or, do I think big? It looks like it's only using 1.17 FAR out of 3.44 potential, so it appears I can build something quite a bit bigger by tearing it down. Right?
Just trying to see things the way the smart money does. This understanding will come in handing if we ever get to rezone.
11 comments:
There are often advantages to keeping a few walls, then build higher and/or into the backyard.
Then, as opposed to new construction, your project will be known as an "alteration", which does not have to comply with some of the modern building codes.
This block is R6, I think. Is that particular lock R7-1 for some reason?
That is not the current rent roll, those are "potential rents." I assure you the tenants there now are paying much less.
I'd definitely want it and its attached twin - tear 'em both down and away we go! And no rent regulation on under 6 units (and this house is legally a two family house, so I don't know how that would play out in any case).
Per PropertyShark, that lot and the adjoining one at 22 Lefferts are C1-3/R7-1. The zoning map shows that R5 starts just on the next lot, so 50 Lefferts is R5. Note that once you cross Rogers the north side of Lefferts is again R7-1, while the south side is R6. Thank goodness for landmarks protection! http://www.propertyshark.com/mason/ny/New-York-City/Maps/Zoning-Areas?star=1&zoom=9&x=0.504232920650007&y=0.610993129000779&report=1
This has 12 month flip potential. Forget the tear down. Forget the complications. You absolutely can snag this for 1.5M all cash. Put 50k into each unit to upgrade and polish. Thats 1.7M. Throw an extra 100k on top for coverage. 1.8M all in. Say you push total sq ft to 3300. Make em condos (forget renting). Sell em at 775 per sq foot. You'll be pulling in 2.55M. 750k minus broker fees aint too shabby.
- Abe
Here are some rough numbers to consider. It looks like a terrible idea for an investment property to me. Adding an additional 25% to the house leaves you with a net loss of almost $700K. Because of the loss, there is no tax reduction for what the gain would have been.
Note that I would estimate approximately a year of ownership before renovation begins (e.g., to get tenants out, pull permits, etc.) and a year of construction, but I expect that it is very aggressive. Also, bringing the building up to code for a 3+ family (e.g., sprinkler system) is not included as an expense.
Costs Total Net Loss (so no tax on gain)
Purchase Related Expenses
Purchase Price $1,750,000 Downpayment on Mtg 350000
Fee Title Insurance 6500
City Transfer Tax (Mansion) $17,000
Attorney Fee (Bank/Buyer) $3,000
Mortgage Tax (1-3 Family 1.925% of loan amount) $25,000
Out of Pocket Costs for Purchase -$401,500
Finance Costs
24 months @4% (with 20% equity) $112,000
City RE Tax (2-Yrs @ ~5K) $10,000
-$122,000
Improvement Costs
Tenant Related Expenses $6,000
Architect/Structural Engineer/City Permits for Construction $75,000
City Permits for Conversion? $20,000
Renovation of Existing 3,000 Sq feet @ 150/sq foot $450,000
Potential Addition 25% @ 400/sq foot $300,000
-$851,000
Sale Costs and Gross Revenue
Sale Price for 3,750 Square foot 3 Family
"@ 600 Sq ft $2,250,000
Assuming @ 700 Sq ft it would be 2,625,00
Brokers Fee @ 5% $112,500.00
Lawyers Fee 3,000
NY State Transfer Tax $32,062.50
NYC Transfer Tax $9,000.000
Net Sale Proceeds less sale expenses including loan payoff $693,438
Net Loss -$681,063
In one of her many inaccurate missives, AB used this block (my block) as an example of one that would be HARMED by contextual zoning. She claimed it would lead to higher structures.
Could she have been more wrong, considering that part of the block is R7-1 with a commercial overlay?
APV: But what if you're paying cash and leaving everything as is? Couldn't you expect to sell in a couple years for significantly more than the current price? That is, if you're feeling optimistic.
And what about a teardown? Can that be done? In other words, is the land itself worth the purchase price?
This existing building has some value, because it provides income and could serve as a base for an expanison that avoided modern building codes.
If I was looking for a teardown, I'd find an old wooden house.
I expect that this one is more likely to be bought by a family who uses the 2 family status to help subsidize their mortgage payments and may be eventually turns it into a 3 or 4 family. I might be wrong, of course.
The cost of new construction is prohibitively high to make a tear down worthwhile at this price. Is any new construction selling for much more $560 square foot in the neighborhood? That's what you would be paying, before tear down and build expenses, outside of transaction costs, etc.
The interest rate is a good proxy for what makes sense as an investment generally. Having $2mm cash tied up means you can't do other things with your money, which would generate better returns. I wouldn't expect paying cash to change the analysis for the better on the margin.
Speculating in real estate in a frothy market like this is a dangerous game, even when you expect interest rates to remain low for the next couple of years. When interest rates turn around (and they will) very few people will be able to afford purchasing at these kind of prices. If you wanted to buy the property with a plan to sell it, you would need to be comfortable that the improvements you make to the property will be done and sale contracts signed, before the Fed and interest rate markets turn against you. Of course, you would also be speculating that the current positive sentiment about the neighborhood doesn't reverse, the trend to move to Brooklyn doesn't stop or other neighborhoods in Brooklyn don't become more attractive on a relative basis. All of those things will impact your sale price (not to mention crime rates, restaurants, etc.).
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