Ok, we have gone through the pros and cons of being a landlord and you make the decision to jump in. But, what type of property? Let’s take a look at each form.
Co-op. A cooperative or co-op is where a person owns shares in a corporation but has a leasehold interest in the unit he or she owns. I don’t own a co-op but the general consensus I hear is that co-op boards are stringent and don’t want investors renting out apartments. One thing to note is that you can only own a co-op in your name and not an LLC. Co-op boards also typically require 20% down and I have heard a year or two of mortgage and maintenance payments in the bank. So, while with an investment property you usually have a higher downpayment, in theory, you could get away with a lower down payment in certain cases. So, you are looking at a big cash outlay upfront. Also, a co-op might only let you rent out your apartment for a year or two and that is after you have lived there first. Co-op boards by law have the right to turn down buyers of apartments for any reason once the board acts reasonably. So, you could be perfectly qualified to buy an apartment and still get turned down. Thus, a landlord has some hurdles to overcome. First, you have to find an investor friendly co-op. Second, you have to have enough cash to buy and adhere to the co-ops requirements. Third, there could be sublease restrictions. Forth, you have to make sure the co-op is financially sound. I have heard of financially strapped co-ops and condos that have deferred maintenance and that could be mean special assessments.
Condo. Unlike a co-op where you own shares of a corporation, owning a condo is like owning a house. You own the condo in fee simple or some other form of traditional real estate ownership. You can also own a condo through an LLC giving you both privacy and a layer of legal protection(if done properly). Traditionally, you can finance a condo with ten percent down. Now, if it is an investment property, you might have to put more down. But, let’s say you bought a condo, lived in it and then moved out, you aren’t putting down 20% like in a co-op. Also, there is no board with wide power like a co-op. If you take the long term view, foreign investors prefer condos over co-ops. One thing to note with condos is that you would be paying common charges and property taxes on top of your mortgage. In a co-op, you pay maintenance which covers property taxes and upkeep. I have looked at condos as investments and found the common charges were like financing a more expensive property. So, for a condo, you really have to get in at a good price or think it is a value buy for it to make sense.
Single Family Homes. To start off, NYC is not chock full of SFH’s. The SFH’s that exist are mostly located in Queens. If you can get one for the right price, I guess it can be a good buy. Property taxes in NYC are low. Your tenant has to pay all the utilities. I guess like a co-op or condo, your exposure is to one tenant. So, if the tenant loses his or her job or gets in some sort of financial distress, you as the landlord could be in trouble. I grew up by the Queens/LI border, I noticed that a lot of SFH’s in Queens have lawns. A landlord would have to think about maintenance like mowing a lawn, etc. Do you let the tenant do everything? I would think financing is 10-20% down.
Multifamily. Not to give my site a plug but I am only talking up to four units! The biggest hurdle here would likely be the price and financing. Figure a 20% down payment at a minimum. However, NYC property taxes are low, especially for two family properties. I guess I like the fact with a multifamily a landlord has multiple rent payments that drive down your mortgage principal. Also, if you “house hack” as they say on Bigger Pockets, you can have your tenants pay a significant portion of your living costs. Downsides are more tenants and more personalities to deal with, and more maintenance issues potentially. Also, if you have a three family or more, then you might have to deal with items like water sprinklers. But, think about it, unlike a co-op, condo or single family, one tenant being a flake doesn’t force you to pay the mortgage yourself while you get rid of the tenant.