Investing in Manhattan condo with tenant in place for immediate cashflow
Posted by Wei Min Tan on May 4, 2020
On some of our deals when representing Manhattan condo investors, the investor client buys a condo with a tenant already in place. This provides immediate cash flow and there is no vacancy period associated with marketing the apartment for rent.
Tenant in place can be one of two scenarios:
(i) Seller rents back the condo from my investor client. This is because the seller either needs extra time while waiting for his/her new home to be ready or simply wants to continue living at the same apartment.
(ii) My investor client buys a condo with an existing lease agreement still in effect. Buyer simply takes over the lease and terms.
Key questions when buying with tenant in place
There are risks to having a tenant in place, the most obvious is that the investor buyer doesn’t know what kind of tenancy he is taking over. The below are key questions we ask when determining whether we want to buy a renter in place condo. Sometimes, our investor may decide he does not want a tenant in place and in such cases, the condo can be delivered vacant. This often involves the seller having to work out ending the lease with the tenant.
Weimin’s article, Buying Manhattan condo to rent out as diversification strategy
How much is the rent and when does lease expire?
I ask these to the seller’s broker even before making an appointment to view the property. If the rent is very low and the lease (tenancy agreement) has a long time to go, there is no point viewing. Conversely, if the rent is attractive and produces a good rental return by Manhattan standards and the remaining lease term is also good, then I would view. In the case where seller wants to rent back the condo, the rent and rental terms will be negotiated as part of negotiating the purchase.
Deal Example: Luxury condo at 40 Mercer in Soho, where seller leased back the apartment from our investor client.
Weimin’s article, Buying New vs Resale condo in Manhattan
Tenant’s credit history
In the U.S., everyone has a credit history which can be obtained through the credit rating agencies like Experian or Equifax. This credit history includes a FICO credit score which ranges from 300 to 850 points. For a landlord, the credit report and credit score tell how reliable a tenant is in terms of debt and payment obligations. If the property is of interest to our investor, we would request the tenant’s original rental application which has the tenant’s information including credit history.
Also very important is the payment history, ie how timely rent is paid. This can be easily reviewed by asking the seller for the past 6 months’ rental payment history. We get to see what day of each month the tenant pays. For example, if the lease cycle starts on the 1st of each month and the tenants pays consistently on the 1st, then we have a comfort level.
Does tenant intend to stay?
If possible, we try to meet the tenant. This can be during the viewing (if the tenant is there). We want to ask whether the tenant is happy at the apartment and whether he intends to stay long term. If the tenant already has plans to move out after the lease expires, then it’s less desirable to our investor client than if the tenant is happy, has been living there for 5 years and plans to continue living there.
Weimin’s article, How recessions impact Manhattan property
In summary, buying with a tenant in place requires extra due diligence. We want to ensure our investor client gets smooth cash flow from the beginning. Worst case scenario is an investor buys the property only to find out later that the tenant has not paid rent for several months and is constantly fighting with the old landlord. This can be avoided with the proper due diligence.
What We Do
We focus on global investors buying Manhattan condos for portfolio diversification and long term return-on-investment.
1) Identify the right buy based on objectives
2) Manage the buy process
3) Rent out the property
4) Manage tenants
5) Market the property at the eventual sale
1) The Sutton, Turtle Bay, Midtown East. This Toll Brothers development only required 10 percent reservation deposit. Represented multiple buyers at the $2 million price point. Location, classic style windows and luxury finishes make this a good investment. Close to United Nations, Citigroup Center, Blackstone, Blackrock. Rented immediately at premium rents from the beginning.
2) 200 Chambers Street, Tribeca. Top quality building in Tribeca. Convenient location next to Whole Foods. Building is priced at premium but rents are also at a premium. This corner unit has dual exposures, maximizing sunlight. Purchased at around $1 million and has appreciated substantially since then.
3) Parc Vendome, Midtown West. Purchased at a great price and renovated entire apartment. Buy factors were south exposure with plenty of sunlight and proximity to Central Park. The photos below are the Before/After. Rented immediately after the renovation was completed.
Follow On Instagram