Property Grunt

Sunday, May 08, 2005

A fire in Brooklyn and Tourists running amok.

Once again Joyce Cohen hits on the nail with her Hunt Column After a Fire, a Family in Turmoil. This is a profile of lovely family in Brooklyn who nearly lost their home and had to find a rental for 6 months till their home was repaired.

Keypoints of the article that the Grunt found interesting:

On March 4, their renter left a candle burning. It was apparently knocked over by her pet rabbit, Snowflake. He was the only casualty.

Damn rabbits. Always up to mischief. Seriously, one of the hazards of owning investment property especially one you live in is the unpredictable hazards that tenants bring to property. A rented apartment is a leasehold estate so a tenant can do pretty much what they want as long as it does endanger the building or the residents inside. As a landlord there is only so much you can do. If you want to know the specifics talk to a real estate lawyer.

Their tenant, uninsured, lost everything - she even had to borrow shoes from Ms. Phillips - and returned to her parents' home in New Hampshire. Mr. Dechert had always kept his renter's insurance, required by a former landlord. As a condition of the mortgage when they bought the house on 15th Street, it became a homeowner's policy. They never thought about it, until the fire trucks appeared. Their plan, from State Farm, covered everything: building repairs, property loss and living expenses.

The fact that they got renter's insurance when they first started renting shows their awarenes of dealing with the worst case scenario. Whether you are an investor or private owner get your insurance. It costs a lot but it is better to have it and not need it than need it and not have it.

She stopped into Coldwell Banker Innovation Real Estate in Park Slope, where Jeff Winter rallied to the cause. He showed her a few places that seemed amenable to a six-month lease. She loved a huge duplex with a deck on 13th Street for $3,000 a month. She and Mr. Dechert returned to their charred house to dredge up the needed financial documents.

"We get a green light on Friday," Mr. Winter said. "On Monday, I get a call saying somebody else has an application in front of us." He suspected that two different people at the management company gave the go-ahead to two sets of tenants. The other ones had already signed on.

This is the unfortunate fact about landlords is that they will always side with the tenant who will benefit them the most. And yes. It is completely legal. I can't blame the landlord for choosing the other party since they need to hedge your bets as best as possible since they do not know how the market will be in the future. If the landlord had taken a 6 month lease then they would have to find another tenant upon expiration and that could take a day or another 6 months depending on how the market is. Why push your luck when you can get somone for at least a year or two?

The family moved in for about an hour. After setting down their bags, they noticed that peeling paint covered the many windowsills. A hardware-store test kit confirmed their guess: lead-based paint. "The windowsills were my daughter's height," Ms. Phillips said. "It was not possible. That was the lowest point of the whole experience. They offered to paint over it, but lead abatement is a serious project. I said, 'No, we want out of the lease.' I felt bad; they were very nice to us."

I really love these people since they are being so responsible in their housing needs and would definitely rent from them. As for their friends, if I were them I would take care of the lead paint any way they can since they are entering the land of lawsuits.

Meanwhile, Ms. Phillips's hunt turned up another large duplex with a deck, for $2,700. It was just a block from their house, "which was nice because we wanted to keep an eye on it," she said. She wanted it so much she offered $2,900. Then she called back and offered $3,100. The landlord agreed but, before she signed the lease, rented it to someone else.

This is also another example of how insane the rental market has become. Remember, the first thing you see and fits your parameters put in an application. If you find something better than walk away but at least you are in the running if you are accepted.

And she was sick of hotel living, which she found "totally exhausting." She got lost taking her son to school. There was no Internet connection. The kids were going stir-crazy. Though Mr. Dechert didn't mind as much, "toward the end it started to wear on me, and anxiety about getting a place started to set in," he said. And, despite the insurance coverage, he worried about the mounting cost, around $270 a night.

These are the stresses you deal with as a client trying to find a place to live. Get used to it.

In the meantime, the four are relearning that "renting is definitely a simpler way to live," Ms. Phillips said. They find themselves taking more family excursions. "As homeowners we didn't do that," she said. "We were always working on some house project." They see their landlord doing yard work and say: "That used to be us. The projects never end."

Exactly. Those of you who want to play rich dad and want to throw your hand into investment real estate you will find it quickly gnawed off if you are unprepared for the unending amount of work that lays ahead of you.

If you want to read about more apartment hunting madness check out this out previous entry.

Pat Healey has proven to be no slouch in the real estate reporting field since, I believe, was his debut article in the New York Times on Closing Day Disasters and scores with another great article Welcome, Shhhh... on how residential owners have utilized creative yet illegal business models to create cash flow with disasterous consequences for all parties involved.

I have heard of illegal sublets but the bed and breakfast model is the first one I hever heard of but it sounds like a great business model.

The short-term market has spawned brokerage services that marry travelers with apartments and Web sites where homeowners hawk their places. With city tourism officials saying that hotel occupancy rates are now 87.5 percent, the patchwork of improvised hotel rooms is also bursting .

The demand is definitely there and according to one owner it worked quiet well.

His share was about $100 a night. Even in a slow month, he had little trouble covering his $400 monthly maintenance costs.

"I made about $1,300 to $1,500 a month, on average, with the bed-and-breakfast," Mr. Fetterolf said

However there are consequences for their actions

The board sued Mr. Fetterolf last July, calling the bed-and-breakfast a "security risk" and seeking an injunction to disband it. The filing includes a statement from the superintendent, a copy of the advertisement for the apartment and a catalog of those who came and went, including a student, a Brazilian woman, couples and babies.

The co-op and Mr. Fetterolf reached a settlement by the end of the year. He would sell the apartment, and the board would drop the suit. In March, Mr. Fetterolf sold the studio for $280,000. He lives in North Salem in Westchester County now, and says he is happy with his $250,000 profit.

The building's co-op president would not comment on the case, and its managing agent referred calls to Dan Dermer, whose agency began managing 92 Horatio a few months ago.

"It happens all the time," Mr. Dermer said. "You try to be nice the first time and say, 'We'll work it out with you.' Then we say, 'Full steam ahead.' We notify the lender. We start a court case. There's no middle ground anymore because you blew it on the first try."

However big time investors also play the bed and breakfast game.

In West Midtown, the condo board at 150 West 51st Street and an investor named Yoav Rubinstein sank into a dispute that metastasized into four lawsuits. Mr. Rubinstein owned about 40 units and rented them to corporate travelers, and clashed with the board when it passed a resolution prohibiting "transient tenants."

The Grunt knows of one owner who routinely played a game of chicken with the co-op board by renting out his units and the reason why the owner won everytime was due to his power on the board which is now waning slowly.

The Grunt is not a big fan of the whole bed and breakfast concept. First of all its illegal because co-ops and condos are not zoned for hotels, there are an ample amount of uhhh "special people" who live in those buildings who make things interesing for everyone living there in the first place. No need for more idiots coming in.

But the arrangements often violate residential zoning codes and roil buildings, pitting homeowners who feel entitled to rent out their property against co-op boards and condo associations angry about the streams of itinerant interlopers. Several disputes have ended in court.

"Since Sept. 11, people are more security-conscious, and they get more concerned when they see transient occupancy," said Robert Braverman, a Manhattan lawyer who represents co-ops and condos. "With the increasing number of condos and the escalating market, it's a bigger issue now."

The Grunt would like to take this a step further. Let's say you have a transient tenant comes in drunk one night, slips in the lobby or gets into a fight with the doorman resulting in lawsuits. Or you get a transient who likes candles and rabbits and the next thing you know you got yourself a couple of engine companies flooding the entire building with gallons of water doing their own version of parting the red sea. End result is that it devalues the property since any repairs comes out of the buildings reserve fund or passed along to the residents which means assessments. Banks do not like to do mortgages for buildings that have less that 50% owner occupancy. Can you imagine how they would feel about lending to a building that was getting nailed with lawsuits due to a rogue resident playing youth hostel and had a mile long list of assessments?

Those of you who are thinking of playing fast and loose and hoping to make out like Mr. Fetterolf, I really don't advise it. Boards whether they are condo or coop have very. very long memories. For the inconvience you have caused they may respond in kind by screwing up your plans to sell or rent. For instance they could initate a rule that you are only allowed a certain amount of open houses or they may even go further and reject every buyer or tenant you bring in wasting you and your broker's time and money. These variables couls also force you to sell at a lower price.

There is plenty of nastiness they can conjure up to inflict upon you so that everyone in the world can see the scars that you bear. Its not worth it. Of course this is all perfectly legal on their end because what happens in the board stays in the board.

Happy Mother's Day!