# buyout price for stabilized apartments?

Asked by Morphaiea, New York, NY Wed Jul 23, 2008

What's the price range for buying out a stabilized lease? Is there a way to figure it out if you know the neighborhood and apt specs?

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3
There are several factors that go into what number makes sense to buyout a stabilized tenant. Mostly, what is the current stabilized rent and what is the market rent you could obtain for that apartment. Also, how much money do you need to put into the apartment to get it above the \$2,000 threshold? What are your motives - are you interested in increasing your cash flow, increasing the value of your proerpty or a combination of the two?

If you have a unit that is currently rented at \$750/month and the market rate for that apartment is \$3,000, I would consider paying upto \$40,000 to buyout the tenant. Once the tenant leaves you can automatically increase the rent by 20% (on a two-year lease). That means the new rent will be \$900/month. To get the rent up to \$2,000, you will need to increase the rent by \$1,100 and therefore will need to put \$44,000 into the unit (\$44,000 x 1/40 = \$1,100). So now you are out \$84,000. but you increase your rent by \$2,250/month or \$27,000 for the year. That is a 32% cash on cash return, which is very good. Not to mention, you increased the value of your property by at least \$450,000 (\$27,000/6% = \$450,000), assuming a 6% cap rate, which is about what properties in Manhattan are going for now that have a mix of market rate and rent stabilized units.

The above example is what I try to achieve, of course you can use this example to figure out what works for you.
It all depends on many factors. What kind of tenant do you have? Do you have a yuppy with a degree who got the apartment from his mom when she moved to florida? Well then you may be looking at \$40,000 to \$60,000. THis guy knows the market, will do research, and will not be impressed with a few bucks dangled in his face.

Or is your tenant a kitchen worker who lives with 8 other guys and struggles to make rent? Well, in that case, \$5,000 to \$10,000 well be more like ti. THat looks like a LOT of money to these guys.

I say you should float them first, by that you should find a reason to take them to court, a legit reason, and trust me, there is always a reason, no one is perfect, leases are breached all the time and you don't usually care, but take them to court over it. Be it a partition, or late payments on a regular basis, etc, or just overcrowding. When they're in court you will lose, in NYC that is the reality, 9 times out of 10 you're losing, by that I mean you're not getting an eviction, but you may get something. Then drag them into court again on something else, but have a leg to stand on legally. Do that a few times and tell them "listen man, let's stop all this, I'll give you \$5,000 to leave and we'll be done" low ball them first, see if they take it. If not, up it slowly, and they'll bite. Get everything in writing too, that is key.

Also, you may offer them free rent plus a nice bonus to leave to make it easier on the wallet.
One of the most cynical and unpleasant bits of writing I have ever read. I'm completely appalled.
Flag Mon Mar 17, 2014
Schmuck! 10,000.00 a lot? Me thinks you underestimate these "kitchen workers". They're a lot more shrewder than you think, and are always laughing behind American's backs.
Flag Sat Jan 11, 2014
It all depends on many factors. What kind of tenant do you have? Do you have a yuppy with a degree who got the apartment from his mom when she moved to florida? Well then you may be looking at \$40,000 to \$60,000. THis guy knows the market, will do research, and will not be impressed with a few bucks dangled in his face.

Or is your tenant a kitchen worker who lives with 8 other guys and struggles to make rent? Well, in that case, \$5,000 to \$10,000 well be more like ti. THat looks like a LOT of money to these guys.

I say you should float them first, by that you should find a reason to take them to court, a legit reason, and trust me, there is always a reason, no one is perfect, leases are breached all the time and you don't usually care, but take them to court over it. Be it a partition, or late payments on a regular basis, etc, or just overcrowding. When they're in court you will lose, in NYC that is the reality, 9 times out of 10 you're losing, by that I mean you're not getting an eviction, but you may get something. Then drag them into court again on something else, but have a leg to stand on legally. Do that a few times and tell them "listen man, let's stop all this, I'll give you \$5,000 to leave and we'll be done" low ball them first, see if they take it. If not, up it slowly, and they'll bite. Get everything in writing too, that is key.

Also, you may offer them free rent plus a nice bonus to leave to make it easier on the wallet.