A two-bedroom co-op in the East Village was recently listed for $487,500, extremely low for a neighborhood where the median sale price is $860,000. It's also a sponsor unit, meaning the buyer doesn't have to go through the pesky board interview process.
The apartment is a floor-through railroad on the third story with an eat-in-kitchen and nine windows letting in lots of light, according to the listing, and pets are allowed.
The catch? It's a big one: the unit comes with a rent-controlled tenant paying just $90 a month.
That's a fraction of the $1,115 monthly maintenance and little help when tax time comes around. In case the reader thought the $90 amount was a typo, the listing agent helpfully spells it out: "Current tenant paying $90 (ninety) per month."
Who would buy such an apartment? Easy: an investor willing to absorb thousands in annual losses with the bet that the current occupant will die or move out before too terribly long, making way for a renovation and resale at a much higher price.
Beyond the tenant's age and level of interest in moving, which should be easy enough to establish, there are some other crucial variables that an investor might or might not be able to account for through some thorough research. Namely: whether the leaseholder has any family members living with him or her, or who might be interested in moving in.
This is key because immediate family members have the right to take over a rent-controlled lease if they've lived in the apartment for the two years leading up to the tenant's death or permanent relocation. If the tenant's relative is over 62 or disabled, the threshold is lowered to one year of occupancy.
For more on how rent control works, including how rates on rent-controlled apartments can actually go up, see our guide here.
We also have a guide for what apartment buyers should take into account when considering purchasing a place with a tenant in residency, including how to weigh if the unit is rent-regulated. In short, it may sound cruel to reduce tenants to numbers on a ledger, but to investors, the age of a rent-regulated tenant matters, and the older the person is, the lower the discount from market price for the apartment.
[h/t EV Grieve]
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