There is not a single day that goes by that we are not asked the following:
"Hey Carolyn and Paul, How's the Market?"
Hmmmmm- well it is not cut and dry, but really sectioned off into 4 categories.....
Are you a buyer?
Are you a seller?
Are you a renter?
Are you an investor? Let's start today with Investor:
Three years ago investors were buying buildings or condo units with capitalization rates of 1-3%. They really were not so focused on yearly rate of return, but more on the fact that we had been in a crazy bull market and the appreciation over the next few years would produce handsome profits.
Well, we are now in a bear market and things have changed dramatically! The
Cap rates that investors are now looking for are 5-7% and the get rich quick on buying buildings is a the of the past for now......
A lot of people that bought buildings a few years back may get in trouble. Imagine you bought a building 5 years ago for $1M and took a balloon note for $600k. The balloon is about to come due and you want to refinance, but the building is now worth $800K. The bank will now loan you only $480K and you need to come up with another $120K to get the loan.
Some people are not going to be able to come up with the extra cash and that could spell opportunity for investors.... Here are 15 tips if you are thinking of buying a building as investment:
1- know what the building is zoned for
2- make sure the building is sold to you free and clear of building violations.
3-know the current and projected cap rate (if the building is vacant)
4- know what rents you can expect in the neighborhood where you are buying.
5- get an accurate annual expense report
6- find out how old the roof and boiler are.
7-think about this one- do you have thick enough skin to be a land lord?
8- if the building is occupied- do all tenants have leases?
9-can you get a loan?
10- do you have the necessary liquidity during a down market and if you have one or more vacancy in your building. (I would recommend at least 1 years worth of liquidity to cover all expenses and vacant apartments)
11- work with a knowledgeable agent who knows the area and has integrity!
12- know the buildings taxes and the last time the building was assessed.
13-what is the F.A.R of your building?
14- if there is excess F.A.R. Do you own it or was it sold to someone else in the past?
15-Read as much as possible before you get into this. It can be very prosperous or a killer if you go in blind! I am here to help: Pzweben@elliman.com