Category: U.S.RentalProp

Anthony.Lin rentalProp hearsay story #divStock

Posted on by tiger40490

 

Around 2011, I met my PWM ex-colleague A.Lin in Midtown a few times. He told me he had about 5 rental properties in Brooklyn [6]. What I remember he said is now mixed with what I imagine he said…

  • I think he said he bought fixer-upper[1] properties and “worked my butt off”[2] to make them usable again — FHR improvement.
  • I think he said his parents ( in-law? ) helped in some big way, perhaps renovation or rental mgmt[3].
  • I estimated that his[4] gross[5] rental income could be 10k/M but he didn’t confirm.
  • I have no clue about his mtg and haircut [pTax, maintenance, vacancy]

This is one of my biggest moments of FOLB on my path as an investor. He became one of the role models at the back of my mind. However, as I told HF.Sun, we outsiders don’t know some of the key facts of each deal, and should not assume its value.

[1] Risk: judgment risk. In this game, High return seems to entail high judgment risk.

[2] sacrifice. No pain no gain? But such sacrifice may not be worthwhile. I feel my HDB rental yield of 4% is not so high, but my effort is much lower. My Blk 177 realized rental yield was above 6%.

[3] Risk: legal risk, as Edward experienced.

[4] the rental income, the asset ownership ,,, is not 100% his. In contrast, I did all of my rEstate investment single-handedly, without family help.

[5] Q: what is his GRY and NRY assuming no mortgage on any property. I tend to assume GRY close to 10%. NRY is around half, up to 5%.

[6] Risk: concentration risk. Brooklyn is where he lived and knows well. In comparison, my overseas rental properties are more risky and higher costs.

— enviable ptf? How about div stock ptf?

Q: which portfolio is more enviable — AA) $1.5M cash deployed in 4~7 rental units with 50% loan + 7% NRY + leg work, BB) $700k in div stocks, no loan no legwork, 7% DYOC, diversified over 70+ stocks
A: most people would envy AA

Q: which one is more risky? AA due to legwork, delinquent tenant, LIR

luxury homes have poor NGRY

Posted on by tiger40490

Background — A Luxury home (including most SDXQ homes) is comfortable and built for the affluent family, not for multiple blue-collar families. Most tenants in the market are blue-collar people, not affluent families.

  • Eg: Big homes near Bayonne parks have very poor NGRY. If 43R has NGRY of 15%, then here is probably below half. To rent out at 15% of 600k, we need to charge 90k/Y.
  • Eg: big homes in top school district also suffer similarly. 15% of 800k means 120k/Y rent for a single family!
  • Eg: Big homes at Scarsdale suffer similarly. 15% of a 1000K, we need to charge 150k/Y. Note there are only up to 5 bed rooms. It’s a SFH. A single family will not want to pay 150k rental a year.
  • Eg: luxury condos at Newport also suffer similarly.

— absolute sqf size

A luxury home has slightly higher psf pricing than regular homes, but twice or even more in sqf size. A 3000 sqf home can house 4 families but only if built as a MFD. Luxury homes are not MFD, therefore very low rental yield.

— For rental yield,

  • SFH is lower than 2FH, but SFH is more comfortable for the resident.
  • Luxury condo like BGC One Uptown or Chris Ma’s is worse than SFH for rental yield, but sometimes even more comfortable than SFH.
  • 2FH has lower rental yield than 3FH, but more comfortable.
  • Multiple small rooms in a house has possibly the highest NGRY but is least comfortable with least privacy. Even in Singapore. my rental agents told me small rooms in an HDB flat generate the highest rental yield.

purchase property under my corp #DavisWei

Posted on by tiger40490

Suppose my corporation earns c2c 250k and buys a 250k property as company asset.  (This is actually quite unthinkable as usually you can only use part of this money.)

Using the 250k cash receipt my corp could get a bank loan.

Every month the mtg cost + pTax + utilities + maintenance cost could be 3-5k. I as am employee will pay that same amount as rent to my corp. The corp would have no profit and therefore pays no tax.

Alternatively, my corp can provide the 12M free accommodation as employee benefit, so my salary is reduced by 3k.

[19] 43R: create rooms: feasibility of 7+rooms

Posted on by tiger40490

I see Guang created many rooms. I will need to do the same. I discussed with 冯凯, Kyle and GregR.

Bayonne — I saw a few 2FH units

  • $325k 71 West 13th — 7 rooms realistically
    • 2nd floor same layout, but a small room (with window) can be created, with private entrance.
    • ground floor 3 spacious rooms if I convert the living room
  • $500k 712 Ave E — 9-10 rooms realistic, excluding finished basement
    • 2nd floor 5 rooms if I convert the sunny living room
    • ground floor 4 rooms if I convert the living room
    • Both floors feature a narrow space big enough for a bed and wardrobe, but I can’t remember the windows.
    • basement can open another window towards backyard.

— Attic is most valuable

  • cheaper to implement
  • often has windows on four sides 🙂
  • creating window — presumably easier since the wall is thinner?
  • xp: I have lived in attics twice.
  • need to provide fire escape

— HIGH basement is valuable

  • I think if height is right, then fix-up is affordable.
  • I have seen many basements with some windows .. promising
  • backyard walk-in basement is a rare find and valuable. Kyle grew up in such a house. He agreed that there are more windows in such a basement.
  • two exits required, probably front and back.
  • https://www.hunker.com/12614558/how-to-legalize-a-basement-apartment-in-new-jersey has details on legal requirements

— living room (carve-out)?

  • I prefer less elongated rectangular shapes, because the living room is too big and unusable as tenant rooms.
  • I prefer non-existent living rooms
  • 🙂 If there are windows on the side, then carving out a room is easy, according to Feng Kai.
  • Avoid townhouse and condo completely, due to windows.

##43R: top 2 cashflow burdens

Posted on by tiger40490

#1 mtg installment — Hurts credit score … I need a contingency reserve for a few months. I also need the longest maturity to keep monthly commitment low, then pay down aggressively.

#2 pTax — there are penalties for late payment. I need a reserve for a few months. I will also dispute the tax assessment

#3 utilities

Given these cash flow burdens, I don’t plan to take on multiple mortgages as Youwei suggested.

43R: top 2 factors #loc..

Posted on by tiger40490
  1. rental demand, probably dependent on location, among other things
    • For reference, top 3 factors in appreciation is location, location and location.
  2. BCP Ratio := bedroomCount to price. For 350k, I hope to get 7 bedrooms including attic and basement.
  • –Top 4 challenges:
  • efficient renovation to improve my room offering and hopefully to create more bedrooms in living room, attic and basement. The best BCP often requires major fix-up
  • — secondary factors, dependent factors .. critical thinking!
  • vacancy? Depends on rental demand and my price
  • tenant delinquency? Well-known issue. Poor low cost locations tend to attract problem tenants.
  • legwork? I think Guang shows a good example.
  • average rental price in Bayonne or JC? easily verifiable.
  • feasibility of having many small rooms? I can buy a house with that many rooms, to reduce the uncertainty
  • asset depreciation? rental income seldom declines in a down market.. U.S.home price cycle #Wallace

43R: location is key #decent tenants

Posted on by tiger40490

I feel location is the real deciding factor of rental demand. I think I really need to stay close to the rail stations. Deepak CM said the same. Location could mean 10% vs 50% vacancy rate.

Dropping your asking price may not work. Bargain hunter tenants might be fine people, but there’s a higher probability of problem people.

The low-rent tenants often don’t have a car. I guess 10 minutes walk is the max. Most won’t use a bike.

Streets need to be relatively clean and safe.

Close to park? not important to most tenants.

43R model requires renovation know-how

Posted on by tiger40490

I think anyone following the 43R model need to be serious about renovation. The best bargains are usually unwanted houses that needs lots of fix-up. The non-bargains will also be 2nd-hand houses.

Also we may need to carve out bed rooms in living room or attic and improve the basement.

I need to start acquiring knowledge and network.

[18] 250k 1st buy: choices

Posted on by tiger40490

Consider H.Yi’s strategy (9710 62nd Drive, Rego Park, NY 11374), and 43 Rockledge hotel model

I sacrifice [home size; SD; CC2; full appreciation with land] and bet on connectivity, which hopefully provides [RD; partial appreciation; liquidity ]

Suppose I have 150k spare cash and a budget of $200k-350k for my 1st rental property, I could choose

— Option 43R: small wood house with 3 to 6 rooms, in a popular rental location. Rental yield would be much higher than Option C, but more legwork.

At Bayonne, I could buy a 350k two-family-home with $600 x 7 rooms including the attic+basement for 50k/Y gross rental income. At 10% vacancy rate, it’s still 45k/Y. Tax 11k/Y is easily taken care of. Assuming 5k annual maintenance cost, my NRY = 25~30k

Foreclosed property (viewable, unlike pre-foreclosure) can be a bargain.

— Option R: At 250k, I hope to buy a SFH with 3-4 bedrooms including attic and basement. No math done yet.

— Option C (inferior): tiny family home in a popular location (like Bayonne, JSQ, Weehawken) with good CC1 and RD. Probably not great school district 🙁

  • small house

This option feels safe as long as … reasonable income or appreciation and high liquidity, so I could sell any time. In the interim, the rent would be a big bonus if net positive cash flow.

— Risks and concerns:

  • Right after buying, bank balance basically wiped out, a bit dangerous
  • risk is much lower if i can live there myself
  • risk is smaller if I can divide into small rooms but it’s harder if condo and remote-managed.
  • pTax is even worse than mtg interest (which I could pay down), so Option 43 yield can hopefully offset that.