So, before we get into some of the nitty gritty of being an NYC landlord, what are the pluses and minuses of being a landlord in NYC?
Pluses
Value and Appreciation. No need to state the obvious. The NYC housing market is very strong in some parts and didn't get hit by the bubble to the same extent as the rest of the country. Manhattan and Brooklyn are hot right now. Also, the rapid price appreciation in these two markets is driving people to the other boroughs which should translate into higher prices and rents. Now, perhaps, an investor should not rely on the hot market when planning for the the long term. Traditionally, property investors have looked at gradual appreciation with the benefits of tax breaks and rental income making investments profitable in the long term. Having said all this, if you got in at the right price, you are doing well.
Rental Income. Another obvious point, if you have a good paying tenant, he or she could pay a significant part of your mortgage. So, over the long run, especially when factoring inflation, you have someone else essentially paying the majority cost of your investment. If you have a small mortgage or no mortgage, your rental income can cover your non real estate bills especially if you have a two, three or four family and you live there.
Tax breaks. I will go into this more later but a landlord can write off mortgage interest, all related expenses, property taxes. Also, landlords can depreciate their property which gives a nice boost as well.
Minuses
Cost. Ok, it costs a lot to get into a property in NYC. With traditional bank financing one would have to save up for a downpayment of 20% to 35% and closing costs are expensive in the five boroughs. So, lets say you have found a $500k property. 20% is 100K. Let’s assume a 4% closing costs, that is $20,000. Insurance can be about $2500-$4000 a year. Property taxes in NYC are relatively low compared to the burbs but that still is a couple of thousand a year at least. And then, depending how you have your utilities divided, you could be paying a lot for heat and electric. So, the barrier to entry is quite high. Not to mention, you could be competing with cash buyers who are bidding everything up.
Pro tenant courts. Some will argue this but I think an objective person will say that the laws are very pro tenant. I had a tenant with no lease and it took us 7 months to get her out. She never paid us a dime despite her signing a stipulation to leave(she lied and never honored it). We had to hire the Marshal to get rid of her. Let’s hope I can get some money out of her by pursing a money judgment in court. Not counting on it. If you have a mortgage, a bad tenant could put you in foreclosure. There also does not seem to be much sympathy for the small landlord out there. I don’t know why.
NYC Bureaucracy. I had to get a Letter of No Objection from the city for one of my units(it is a Section 8 rental). It took six or seven weeks for something that should have been in a computer database and taken a day. This is not factoring the three months NYCHA couldn’t figure out to ask for the Letter. I am not saying that government people are not nice. The people were cool to deal with but it was a lot of running around. I also had the tax class for my building changed and that took a few months. I will say 311 and emailing the city was easy and I did get the info I needed but that is only the first step. You still have to get the forms, drop them off and have appointments with the city. If you have a regular job, you would likely have to take an afternoon or morning off to deal with each phase of the govt. Even getting an LLC required me to go to the Brooklyn Courthouse to find out what newspapers to use for the publication requirement.
Management. I always like to say that being a landlord is a full contact sport. Unless you have a management company, if a tenant has a problem, he or she is calling you. My tenants aren't too bad but I have gotten a bunch of text messages early in the morning. We have a guy who lets Con Ed in to read the electric meters but without him, I would have to be there. You can’t do everything on the weekends either. For our annual boiler inspection, I have to take a morning off from work. I also had an instance where I got up at 6 a.m. to go out for an 8 a.m. Con Ed appointment and Con Ed calls me at 8:30 saying that the appointment has to be rescheduled. I complained and Con Ed got there at 10 but I didn't leave till 11:30. So, I sat around all morning doing nothing. Owning real estate is not like owning stock. You have to actively manage it and it is not liquid like a stock so if you want to get rid of it, you can’t just hit the sell bottom on Etrade. Ever try to prepare your taxes? Royal pain. I have a separate bank account that I do all of the building’s business out of and it was still a hassle reconciling everything.
Tenants. Not a people person? Might be tough to be a landlord if you can't deal with people. Yes, there are landlords that are aholes and ignore tenants. But, do you really want to operate like that? Tenants can be demanding, disrespectful and not pay on time or at all. What they consider emergencies might not be urgent at all. If you have good ones, might be worth it to keep them even if can get more money. If you get a ghetto tenant or a crook or complainer, you could be in trouble. I have a good relationship with my tenants because I told them upfront what I could and could not do, they were pretty cool to start with and now they realize that they are getting a good deal. This is not to mean I have not gotten stupid text messages(my primary mode of communication) from my tenants that have not pissed me off. But, at the same time, one tenant pays in rent close to what I pay for my mortgage on my condo and I wouldn’t live where he does. So, I can handle some texts every once in a while. Treating people with respect goes a long way too. Now, the ghetto tenant didn’t deserve respect and I dealt with her through my lawyer. I’m hoping I don’t have to deal with anyone like her again.