9:31 AM 05/05/2012
I have been investing in Brooklyn real estate for years. A lot of fix and flips. There is always new situations that offer much to be learned. I am deep in one now. On Thursday afternoon i attended the foreclosure auction at the Superior Court. i was the sucessful bidder on a six family brick apartment building on Hancock St. in Bushwick. The judgement amount was $978,000. I figured market value was around $550,000. I was prepared to bid about half of that. I think everyone in the courtroom was suprised that the bank's upset bid was only $250,000. I stood up and bid $251,000 and got it at that price. Many in the courtroom offered to buy a contract assignment. I have 45 days to close all cash and that is not a problem.
Here are the two issues that i need to sort out to determine my strategy with this one. First, the property is of course rent stabalized. i contacted DHCR yesterday in the hopes that with sales contract in hand they would permit me to pull the rent roll records on this property and see what the legal rents are. The answer was no, only the 'owner' or the tenants can access those records. Does anyone have any suggestions on how i might look at these records before closing?
The second issue is that this property has been under the HPD Alternate Enforcement Program since 2009. With 170 violations and an AWOL landlord that is not surprising. I met tenants and inspected the property yesterday. I am not discouraged by the physical condition. The building is structurally and mechanically sound. The tenants are cooperative if a bit weary of this mess. Does anyone have any experience with getting a property off the AEP?
I really have three options here. First is to assign the contract for a fee prior to closing. Second is to close and take tittle and then immediatly offer it for sale at a price that will sell quickly. The third option would be to carry it for the long term, improve the property, get it off the AEP and improve the rent roll by all legal means. One tenant made a comment that the rents are all very low. This could have just been to discourage yet another inquisative investor or it could be the truth. Without the records from DHCR it is a tough call. The one great thing i have discovered in the last 48 hours is that this property will delivered free of all liens and encombrances.
I know that real estate brokers have pulled DHCR registrations. Speak with a broker that sells multi-family buildings and see if they can get the history for you.
10:49 AM 05/05/2012 | 0 Votes
HPD has this registered as a 4 Family with no B units if I am not mistaken. Where do you see that it´s rent stabilzed? http://www.nyc.gov/html/hpd/ht...
6:52 PM 05/05/2012 | 0 Votes
it is definately a rent stabalized six. It is such on DOB, DOF and it is registrered with DHCR. I may get a letter from the referee on monday which will authorize me to pull the records at DHCR. As a friend just said, "Not for the faint of heart. Let's hope that the place is not jam-packed with rent controlled tenants paying $89/month..."
10:41 PM 05/05/2012 | 0 Votes
If you were not up for adventure you wouldn´t have bought it. It is definitely for not for the faint of heart.
You can look at it like that: if you´d buy out all tenants with 50k each, you would be at your estimated market value. Not bad.
Add another 200k for legal fees and taxes, urgent repairs, insurance and surprises. (these are all just made up high numbers)
Add three years, you sell it for 900k empty unrenovated, then your profit will be around 150k, which is 60% of your investment.
That means a a profit of 20% per year. If you are a bit lucky the numbers would look better.
As I mentioned before that´s just a made up numbers game.
But at the price you paid you have quite some room for surprises.
But be prepared to say in a few years: I knew it would be bad, but not that bad! haha
12:09 PM 05/06/2012 | 0 Votes
Very interesting post. Unfortunately I can't answer your two questions. Are you positive these units are rent stabilized and not rent controlled? One option would be to assume every apartment rents for $200-300 and cannot be legally raised, and make your calculations based on that. As far as the rent roll is concerned, you would be wise to assume the worst. Given the history of Bushwick, it is entirely possible families have been living here under rent control since the 1970s and intend to pass the apartments on to their grandchildren. Good luck.
12:12 PM 05/06/2012 | 0 Votes
You should reach out to HPD: they would be happy to work with an owner who is cooperative and responsible about bringing the building up to acceptable condition; they may even provide you with rental income information if you explain that this is information you need in order to go forward with a repair plan.
10:54 AM 05/07/2012 | 0 Votes
k2d2 - The Kings County website has limited details on upcoming auctions. Do you have to go to the courtroom on the day of the auction to find out the upset price? Or is it available online somewhere?
The Queens County website is much better (pictures, upset prices etc). Sales prices are also posted to Twitter after each auction. Maybe they should talk to each other :)
11:13 AM 05/20/2012 | 0 Votes
rcc147 - i use Property Shark with foreclosures. In Kings they only provide the judgement amount. the bank is permitted to make an upset for the amount of the judgement or anything less. the upset is only annouced in the court room at the moment of the auction. In about 80% of the auctions in Kings the property goes to the bank because the upset is high and no one bids. the one advantage to bidding here is that unlike Queens and other counties, in Kings the referee must state if the buyer will be subject to any superior liens. Sales prices are available soon after the auction on property shark.
4:49 PM 05/20/2012 | 0 Votes
Hey k2d2 - how did you decide in the end?
5:00 PM 05/21/2012 | 0 Votes
it has been a roller coaster of discovery. i did finally get the DHCR records. At first glance i thought i hit pay dirt. All tenants were listed at $1200. But it was too good to be true. The previous owner, the infamous Bernard Neiderman, used that in his mortgage fraud that eventually led to foreclosure after he cashed out with a 850k loan. In reality their legal rents are around $650 which at my price of $251,000 is a 10% cap rate with a huge upside if i get any vacancies. So i have decided to close and take title and then hold and create value in the long term. The bank will pay almost 164k in city and hpd liens. They are taking a big time haircut. Some of these liens were actually for work done to remedy many of the 170 hpd violations. this will be a ton of work but it is a great building. the tenants are friendly and cooperative and they should be, they are getting a great deal and havent had to pay rent for two years. I think in a couple of years i wont have a pit in my stomach everytime i think about this property and i will be very happy for my good fortune at that auction. I learned a while ago there is no easy honest money.
5:29 PM 05/21/2012 | 0 Votes
Sounds great, thanks for the insight. It´s not easy money, and I hope you have the patience, but the potential is big. Good luck with the building.
4:35 PM 05/22/2012 | 0 Votes