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Investment Properties and the People Who Love Them

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Curbed University delivers insider tips and non-boring advice on how to buy, sell, or rent a home or apartment. Additional questions welcomed to Up now: let's talk about investment properties.

When it comes to buying an investment property, there are basically two options for you: buying an entire building (whether a rental building or townhouse with multiple units) or buying an apartment that is easy to sublet. Going the sublet route brings fewer responsibilities as a landlord, but no matter what sort of property you’re going to be adding to your family, there are a few things to consider:

Location: (x3, of course) Figure out where you’ll be buying and what sort of things are located around there. The price range and size of the apartment will also narrow down the types of renters you’ll have. One bedroom in Morningside Heights? You’ve got yourself a Columbia student. Speaking of schools, if you’re renting to families with younger children, you might want to consider getting a place in a good school district. But wait! Back up. When renting to anyone, you (and your broker) have to be incredibly careful about how you’re marketing the property. These are (Warning: PDF) the words you cannot use. Some of them are very important to keep in mind so as not to discriminate. Some of the words are borderline ridiculous (you can’t try to keep out those Alcoholics), but you have to follow the rules, people.

However, no matter who you end up renting to, the most important thing is finding a property that balances your financial situation with yielding you a good profit!

Take a look at this handy dandy calculator. If you’re a first time investor, speak with a broker or someone who can help you decide what’s best for you.

Now for a visit from the peanut gallery. “To me its all about positive cash flow and its potential upside through improved management,” says Jonathan Miller. “We are now seeing a bubble form in the investment property arena as buyers, after a year of hoarding cash, all jumped back in the market...looking for distressed real estate despite there being limited availability of properties.  As a result these investors paid significant premiums due to the lack of supply and concern that they would be left behind.  In other words, the herd mentality still reigns and we learned little if anything from the credit bubble we just left.”

Jacky Teplitzky adds a list of things to consider:
· If the building has a tax abatement, calculate what the full tax will be after it ends to determine your future net income or when should you resell the property before taxes go up.
· Make sure you don’t have a lot of rental units available in the building. If you plan in renting yours, you will have a lot of competition and rental values will go down.
· Check also the inventory for rent in the neighbor buildings and make sure you don’t have too many rental buildings in the immediate area where you are purchasing. Remember landlords who own rental buildings will do whatever it takes to rent the units, and for you as an individual owner it's very difficult to compete.
· Common charges should be in line or lower then comparable units as they usually only go up.
· Buy an investment unit in a building that has at least basic amenities – such as a full time doorman and a gym.

· Mortgage Basics (And When to Just Pay All Cash) [Curbed]
· Curbed University coverage