You’re about to make the biggest purchase of your life, should you not ‘kick the tires?’ Often new homebuyers will do the minimum that is required before purchasing a property, like get an inspection. Inspections are good in that they cover a vast variety of items, but they often don’t look at the building from the Architect’s point of view. We recommend getting an Architect to examine structure, and look for potential problems like illegal additions that you might think are part of what you’re paying for (without acknowledging that they might have to be torn down). The following outlines many of the factors one should consider, to help you take on the view point of the developer in order to minimize your risk.

BEFORE YOU PURCHASE A PROPERTY - CHECKLIST

If you are planning a renovation, we recommend doing the following before purchasing: Not only will these inform you and protect your greatest investment, but they will be used when you file your project at the NYC DOB.

• Have an asbestos report completed to uncover any expensive issues.
• Get a survey completed with curb/floor elevations if considering expansion.
• Get a Zoning Analysis completed to understand the potential of your property.

Financial Considerations (outflow): you should have a clear idea of your expenses, including the following:

• Taxes and other city expenses like water, sanitation, etc.
• Mortgage monthly payment including insurance.
• Utilities like electrical, gas, cable, internet, etc.

Financial Considerations (inflow): you should have a clear idea of your income, including the following: A reasonable rule of thumb is that the construction budget equals between 3 and 5 years of the income inflow. If you are willing to risk it you can stretch this out to 10 years.

Generally speaking a rental unit in NYC is worth about 200k in mortgage value, so if you find a 4 unit building, combined their value is worth about $800,000 in mortgage. One can verify this with what you expect the rents to be in your given area spread out over 5 to 10 years. For instance, a $2000/month rent x 12 months x 8.3 years equals about $200,000. The bank views this as a guaranteed income to pay off the mortgage. Ideally you would plan for a 5 year turnaround, to compensate for lower than expected rents or empty apartments and downtime.

• Potential rental income. Calculate monthly and yearly. Use a low expected rent number (which will go up over time, but ensures you aren’t exaggerating and potentially creating undo risk).
• The savings of putting rental units on their own gas and electric meters.
• The potential savings of having rental units on their own heating and air-conditioning systems, connected to separate meters.
• The potential savings of having solar power.

Our recommendation is if you have rental apartments, make them nice (to attract people who care about their living space); make them low maintenance meaning you fix everything including doors, windows, insulation, etc. (so you don’t have to worry); and provide good things like washer and dryer; kitchen amenities like a large sink with spray hose and solid countertops, a microwave, a dishwasher; a nice bathroom that is reasonably large; and, excellent closets (so tenants can keep their apartment clutter free). A good Architect will mold the space to take advantage of quality light and ventilation, and minimize wasted circulation space to make each room as large as possible

Common mistakes:

• You see that a neighbor has done something and you think it’s allowed and legal.
• You assume the enclosed space you see is legal.
• You overlook cracks in the masonry which could be pointing to footing problems.
• You assume that if a floor plan says bedroom that it is a legal bedroom (must be 8 feet each way minimum, and, the window area must be 10% the size of the bedroom).
• You assume you have a legal basement which can be converted to an apartment, or bedrooms (basement has 50% of it’s height above the street curb, in general, or it becomes a cellar which can not have bedrooms, full bathroom, etc.). Even if you survey the floor and determine it is a basement, the DOB might argue that it is a cellar, so you have to fight them with proof that it is a basement.
• While you think all things are possible, your budget or the DOB will say otherwise. The DOB is notorious for questioning every tiny point and even as your Architect provides them with direct quotes from the code itself they often have trouble comprehending the meaning of the code, or zoning resolution. They will assume you are trying to cheat the code and zoning resolution and feel compelled to disallow things that you know are allowed, causing way too much frustration and loss of time.
• You think the professional process including getting drawings and approval from the DOB will take no time at all. It does, and often way more time than you thought was possible. Simple things like getting a consultant to provide information can delay a project one or two weeks… and the weeks can easily tick by without much progress. We do our best to enlist people from the beginning, but if your project is larger with more parts then expect delays to be larger.
• Hiring cheap or unskilled Contractors, thus cutting corners which results in lower rental income or an empty apartment. It is better to phase in high quality work and have high potential rental income help pay for future phases.
• Charging too much rent. It is better to keep a long term tenant than try to squeeze them for every penny. A quick calculation will prove our point. Rent an apartment for a reasonable $2500/month with a tenant who stays for 5 years = $150,000. But if you try for $2800/month but every year you have to get a new tenant with a loss of 2 months every transition (while looking for someone that is willing to pay the higher rent), the occupied months equals 51 rather than 60 months = $142,800 collected, resulting in a $8000 loss. Keep your tenant(s) happy and keep them long term, so you collect more rent.
• You think you won’t have to do anything except collect rent, but being a landlord has responsibilities, including: paying public electrical bills and having proper lighting at all times, setting out trash to be picked up, keeping hallways and sidewalks free from debris including snow and ice which could result in a lawsuit and loss of your property if someone gets hurt, keeping exterior windows clean (for the delight of your well paying renters, keeping them feeling positive about living there), pruning and other garden duties, and, periodic painting. You, as a landlord, have in your care the lives of others and should be taken seriously. If you don’t, then we at SimpleTwig do not want you as a client. We are here to help improve your life as well as theirs, and expect you to have the same attitude.
• You think that all that ugly exterior masonry needs is a coat of paint or sealer, to freshen it up. Painting masonry is the worse thing one can do, as it traps moisture inside, which can freeze and crack the masonry, leaving it permanently damaged. Also, the paint will pell within a couple of years creating a maintenance nightmare. It is better to repair and clean masonry, thus making it maintenance free for 20 plus years, and as a last resort use a masonry colored coating to change the color which will allow it to breathe.

For those who build illegally, this is what you face:

• Stiff fines of $5000 or more from the Dept. of Buildings which require an appearance in court and proof that you corrected the problem.
• Tenants who can sue you for their entire paid rent for housing them in an illegal apartment.
• Potential jail time if something happens to a tenant or any person including construction workers, due to gross negligence.
• The inability to sell your property, including coop or condo apartments.
• The inability to get a mortgage, including from potential buyers.
• The extra costs associated with trying to hire plumbers and electricians to either correct faulty work or sign-off on someone else’s work.
• The higher cost to make corrections, for window sizes, door sizes (both involving structure), or even adding required insulation inside walls.
• Getting lower rents because of shoddy material use common with quick non-work permitted projects, including thin sheetrock, ugly tile selections, horrible lighting, etc. There is an immediate loss of rental income when doing things improperly, including not being able to rent the apartment because, in reality, you spent money and time creating a lousy unit.

You’re about to make the biggest purchase of your life, should you not ‘kick the tires?’ Often new homebuyers will do the minimum that is required before purchasing a property, like get an inspection. Inspections are good in that they cover a vast variety of items, but they often don’t look at the building from the Architect’s point of view. We recommend getting an Architect to examine structure, and look for potential problems like illegal additions that you might think are part of what you’re paying for (without acknowledging that they might have to be torn down). The following outlines many of the factors one should consider, to help you take on the view point of the developer in order to minimize your risk.

BEFORE YOU PURCHASE A PROPERTY - CHECKLIST

If you are planning a renovation, we recommend doing the following before purchasing: Not only will these inform you and protect your greatest investment, but they will be used when you file your project at the NYC DOB.

• Have an asbestos report completed to uncover any expensive issues.
• Get a survey completed with curb/floor elevations if considering expansion.
• Get a Zoning Analysis completed to understand the potential of your property.

Financial Considerations (outflow): you should have a clear idea of your expenses, including the following:

• Taxes and other city expenses like water, sanitation, etc.
• Mortgage monthly payment including insurance.
• Utilities like electrical, gas, cable, internet, etc.

Financial Considerations (inflow): you should have a clear idea of your income, including the following: A reasonable rule of thumb is that the construction budget equals between 3 and 5 years of the income inflow. If you are willing to risk it you can stretch this out to 10 years.

Generally speaking a rental unit in NYC is worth about 200k in mortgage value, so if you find a 4 unit building, combined their value is worth about $800,000 in mortgage. One can verify this with what you expect the rents to be in your given area spread out over 5 to 10 years. For instance, a $2000/month rent x 12 months x 8.3 years equals about $200,000. The bank views this as a guaranteed income to pay off the mortgage. Ideally you would plan for a 5 year turnaround, to compensate for lower than expected rents or empty apartments and downtime.

• Potential rental income. Calculate monthly and yearly. Use a low expected rent number (which will go up over time, but ensures you aren’t exaggerating and potentially creating undo risk).
• The savings of putting rental units on their own gas and electric meters.
• The potential savings of having rental units on their own heating and air-conditioning systems, connected to separate meters.
• The potential savings of having solar power.

Our recommendation is if you have rental apartments, make them nice (to attract people who care about their living space); make them low maintenance meaning you fix everything including doors, windows, insulation, etc. (so you don’t have to worry); and provide good things like washer and dryer; kitchen amenities like a large sink with spray hose and solid countertops, a microwave, a dishwasher; a nice bathroom that is reasonably large; and, excellent closets (so tenants can keep their apartment clutter free). A good Architect will mold the space to take advantage of quality light and ventilation, and minimize wasted circulation space to make each room as large as possible

Common mistakes:

• You see that a neighbor has done something and you think it’s allowed and legal.
• You assume the enclosed space you see is legal.
• You overlook cracks in the masonry which could be pointing to footing problems.
• You assume that if a floor plan says bedroom that it is a legal bedroom (must be 8 feet each way minimum, and, the window area must be 10% the size of the bedroom).
• You assume you have a legal basement which can be converted to an apartment, or bedrooms (basement has 50% of it’s height above the street curb, in general, or it becomes a cellar which can not have bedrooms, full bathroom, etc.). Even if you survey the floor and determine it is a basement, the DOB might argue that it is a cellar, so you have to fight them with proof that it is a basement.
• While you think all things are possible, your budget or the DOB will say otherwise. The DOB is notorious for questioning every tiny point and even as your Architect provides them with direct quotes from the code itself they often have trouble comprehending the meaning of the code, or zoning resolution. They will assume you are trying to cheat the code and zoning resolution and feel compelled to disallow things that you know are allowed, causing way too much frustration and loss of time.
• You think the professional process including getting drawings and approval from the DOB will take no time at all. It does, and often way more time than you thought was possible. Simple things like getting a consultant to provide information can delay a project one or two weeks… and the weeks can easily tick by without much progress. We do our best to enlist people from the beginning, but if your project is larger with more parts then expect delays to be larger.
• Hiring cheap or unskilled Contractors, thus cutting corners which results in lower rental income or an empty apartment. It is better to phase in high quality work and have high potential rental income help pay for future phases.
• Charging too much rent. It is better to keep a long term tenant than try to squeeze them for every penny. A quick calculation will prove our point. Rent an apartment for a reasonable $2500/month with a tenant who stays for 5 years = $150,000. But if you try for $2800/month but every year you have to get a new tenant with a loss of 2 months every transition (while looking for someone that is willing to pay the higher rent), the occupied months equals 51 rather than 60 months = $142,800 collected, resulting in a $8000 loss. Keep your tenant(s) happy and keep them long term, so you collect more rent.
• You think you won’t have to do anything except collect rent, but being a landlord has responsibilities, including: paying public electrical bills and having proper lighting at all times, setting out trash to be picked up, keeping hallways and sidewalks free from debris including snow and ice which could result in a lawsuit and loss of your property if someone gets hurt, keeping exterior windows clean (for the delight of your well paying renters, keeping them feeling positive about living there), pruning and other garden duties, and, periodic painting. You, as a landlord, have in your care the lives of others and should be taken seriously. If you don’t, then we at SimpleTwig do not want you as a client. We are here to help improve your life as well as theirs, and expect you to have the same attitude.
• You think that all that ugly exterior masonry needs is a coat of paint or sealer, to freshen it up. Painting masonry is the worse thing one can do, as it traps moisture inside, which can freeze and crack the masonry, leaving it permanently damaged. Also, the paint will pell within a couple of years creating a maintenance nightmare. It is better to repair and clean masonry, thus making it maintenance free for 20 plus years, and as a last resort use a masonry colored coating to change the color which will allow it to breathe.

For those who build illegally, this is what you face:

• Stiff fines of $5000 or more from the Dept. of Buildings which require an appearance in court and proof that you corrected the problem.
• Tenants who can sue you for their entire paid rent for housing them in an illegal apartment.
• Potential jail time if something happens to a tenant or any person including construction workers, due to gross negligence.
• The inability to sell your property, including coop or condo apartments.
• The inability to get a mortgage, including from potential buyers.
• The extra costs associated with trying to hire plumbers and electricians to either correct faulty work or sign-off on someone else’s work.
• The higher cost to make corrections, for window sizes, door sizes (both involving structure), or even adding required insulation inside walls.
• Getting lower rents because of shoddy material use common with quick non-work permitted projects, including thin sheetrock, ugly tile selections, horrible lighting, etc. There is an immediate loss of rental income when doing things improperly, including not being able to rent the apartment because, in reality, you spent money and time creating a lousy unit.