What would you offer (NYC 8 Unit Reidential) No Value Add... $63000 NOI
Breakdown of the NOI

Rents $137000 and rent can only be raised up to 3% due to genius regulations...
Expenses $74000 ($38000 taxes)

One unit needs a complete gut including electrical and plumbing kitchen and bath.  Estimated cost between $35000  - $40000. 

Besides that there is minimal deferred maintenance. (Paint and common area Flooring) 

Ask is 2 Million. 

Am I mad to think the a .5 DSCR is just unreasonable.....
[{"id": "is5d8g2", "text": "Residential rental in NYC is scary.", "replies": [{"id": "is5eupb", "text": "It\u2019s been some of the most valuable real estate for hundreds of years so it\u2019s clearly not scaring enough people \u2026", "replies": [{"id": "is5syk8", "text": "I don\u2019t think they\u2019ve ever had sweeping eviction moratoriums lasting over a year on their history. Not sure tho", "replies": [{"id": "is5t9nu", "text": "Maybe not, but between several world wars, previous pandemics, and previous depressions/financial crises it has always held up. There is only so much developable land in the world, and places which are the center of political cultural and economic activity are generally everything-proof", "replies": [{"id": "is5tf28", "text": "but as a landlord, you gotta make sure you can weather those storms", "replies": [{"id": "is5tj8k", "text": "If you can\u2019t then you can always sell and walk away with generational $$$. That\u2019s the beauty of real property rights.", "replies": [{"id": "is63ayo", "text": "After the Great Depression, values for multi-fam took until the late 50s early 60s to recover. If you bought in '29 at 30 yo you'd be 60 before you'd experience no capital loss upon sale.  Brutal regulations.  Meh.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "is5fide", "text": "The demand is really insane there, you got bidding rent wars. The moment a lease is not going to be renewed, 3 weeks before it ends, plenty of showings that week, and people are seeing it as is and submitting their applications.\n\nIn terms of the full gut, did you do an inspection? If you can stay in that budget I say $1.8m for it, get a counter or if you have cash offer $1.7m 10day closing firm.\n\nI\u2019m pretty sure you can take a look and see where you can cut and add value. \n\nWhat\u2019s the scoop on the 3% increase story? I\u2019m looking to buy a condo for my parents", "replies": [{"id": "isaek3k", "text": "We have rent stabilization on buildings over 6 units in NYC. They set the rates every year currently its 3.25%  for 1 year lease renawals or 5% on 2 years. And it's a guaranteed renewal", "replies": [], "depth": 2}], "depth": 1}, {"id": "is5wswe", "text": "It always seems to me that DSCR is ignored in New York and California. They don\u2019t care cuz people want the long term appreciation of the big cities and \u201cmore desirable\u201d places people want to live in.", "replies": [{"id": "is6083w", "text": "CRE lenders do not ignore DSCR in NYC. In fact it\u2019s pretty much always the DSCR that sets the limit on NYC loans, never LTV.", "replies": [], "depth": 2}], "depth": 1}, {"id": "is6a823", "text": "Numbers are great and all, but have you looked up comps?\n\nThis isn't a local sub, so you're getting people like me who aren't familiar with your market. In Seattle I would say a 5%+ cap rate if you don't have to put much work into it and it's in a good location. Did you include vacancy into your expenses? Are these your expenses or are you taking the owner's numbers?\n\nAssuming that the numbers include everything, a 5% cap rate would be $1,260,000 minus the expenses of $40k along with an extra $10k for you to do the upgrades. So you're looking at $1,210,000 for a 5% cap rate deal.  \n\n\nAt 2 million this is one of the worst deals I've seen.", "replies": [], "depth": 1}, {"id": "is6ld9k", "text": "Does NYC reassess when you buy for 2 million? How are the taxes $38,000. Isn\u2019t the NYC property tax rate like 1% or less?", "replies": [{"id": "is8gdrc", "text": "no reassessment", "replies": [{"id": "isajpwo", "text": "Oh that\u2019s a good thing then!", "replies": [], "depth": 3}], "depth": 2}, {"id": "is98jyu", "text": "There are also protected building tax classes that can\u2019t be raised/ reassessed above a certain percentage per year", "replies": [], "depth": 2}, {"id": "isadq9w", "text": "It's a class 2B... 12.235% assessed value.... joy", "replies": [], "depth": 2}], "depth": 1}, {"id": "is6oefr", "text": "Interest rates came up quick and nobody is in a rush to devalue their property.  3.2% cap rate on rent controlled is hard to make work if you are borrowing.", "replies": [{"id": "is6rwzj", "text": "Not hard, virtually impossible", "replies": [], "depth": 2}], "depth": 1}, {"id": "is6sqt6", "text": "Assuming you do not pay cash, you\u2019d be negative leverage for several years and your CoC return is basically 0%. This isn\u2019t the type of asset that would command that kind of pricing. Beyond that, a 3% cap rate is really not feasible anymore. That is early 2022 peak pricing and aspirational even by those standards. \n\nHard pass", "replies": [{"id": "isa91p5", "text": "He or she just needs to have a L&amp;T attorney pour over the DHCR reports. If some of those units are close to being decontrolled, then it might be worth it to take it on the chin for a few years for immense upside in the future.", "replies": [{"id": "isad0px", "text": "Nothing is close to decontrol. I reviewed the DSCR and the current owner has 2 apartments at preferential rents and the apartment needing the gut job last rent according to the DSCR was $897 even with a 3% vacancy I'm caped at recouping $15000 over the course of 30 years. Rent Stabilization FTW....", "replies": [{"id": "isadkv6", "text": "So all there is to do is negotiate down to a number that works for you, and then walk away.", "replies": [{"id": "isavzd1", "text": "I am going in $1.4.", "replies": [{"id": "isb2j3l", "text": "God speed", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "is6wkwo", "text": "I\u2019m a nyc commercial mortgage broker and I also work at an investment sales firm. There\u2019s a lot to unpack here\n\nIf you are buying a fully rent stabilized property then your going in cap rate should be higher than your cost of debt capital. For example, 5 year MF rates are 6% so you should pay no less than a 6% cap - certainly certainly not a 3.15% cap rate. \n\nIt looks like $2 million is a 14.5x GRM which like someone else said, depends on other market comps which I can also help you get. \n\nYour expense ratio at 50% is very high (but also not odd for a fully RS building). \n\nYour taxes are protected and limited to an 8% YOY increases by virtue of its 2a/2b tax status which is good. A client of mine got their taxes increased 25% YOY for another fully RS building in Harlem. \n\nPrepare for NONE of that cap Ex to be pass through to tenants or derive you any immediate rent increases. \n\nRegarding the rents, you need to review the DHCR rent roll to make sure the rent registrations were perfectly and immaculately done going back 6-10 years (if not all the way to the 1980s) or you open yourself up to a massive amount of risk including but not limited to lawsuits, rent freezes, and treble damages. \n\nIf any of this sounds super daunting, then maybe find a FM multifamily building instead which I can help with. \n\nIf not scared away, PM me and let\u2019s connect so I can find you some comps.", "replies": [{"id": "isachcz", "text": "Thanks for your expert insight.  Your confirmation is spot on and I'm pretty sure that now I want going crazy over something thats not there. The major contention is that the apartment needing the gut job last rent according to the DSCR was $897 even with a vacancy increase and the $15000 renovation cap. It can be only rented at 1/3 of the actual value. The RSB really needs to rethink their strategy.", "replies": [], "depth": 2}], "depth": 1}, {"id": "is7l3jq", "text": "Ask at 2mm equates roughly to a 3cap.  You can get a higher return in US govy backed assets \"risk free\" - why would you pay a 3 cap?  Also to pile on what is your cost of capital to do this deal? At a minimum you're looking at a cost of YOUR capital of AT LEAST 6-7% but probably higher. \n\nGlass half full argument...are the rents significantly under market? On a forward cap basis can you materially increase NOI? Again you need to develop a strong thesis how you think you can atleast get to a return profile equal to your cost of capital or higher.\n\nEven if you like the deal with the minimal facts given it seems this is a stretch in a bullish environment...if your gut says this is the one then be very confident in your DD and how to ramp NOI to get returns that equate to your cost of capital. Or just look for a better deal.", "replies": [], "depth": 1}, {"id": "is8gn8f", "text": "Gotta get that cap rate above your financing rate for it to make sense. Also, rent increases aren\u2019t set at 3%, sometimes they\u2019re more, sometime they\u2019re less. \n\nThat being said, your downside is almost nil. \n\nTalk to a mortgage broker, DSCR is just one factor.", "replies": [], "depth": 1}, {"id": "is92njj", "text": "Fascinating thread.", "replies": [], "depth": 1}]