Tag: real-estate-investing

Vacant Land Registries

Vacant properties are not popular with municipalities. Cities create a vacant land registry to keep a running log of properties that do not host residents. Here are directions from the town of Brookhaven New York.

There is no longer a requirement to submit a notarized application or payment through the mail – it is all available online. The cost to register is $360 for the year and can be paid through our secure online platform.

Please be advised, that any owner, or agent of an owner acting on behalf of the owner, who fails to register a vacant building or to pay any fees required to be paid pursuant to the provisions of Chapter 87, within 30 days after they become due, shall constitute a violation punishable upon conviction thereof by a fine in the amount of not less than $1,000 nor more than $15,000 for each failure to register, or for each failure to pay a required vacant building registration fee.

The amount of the fine implies that full buildings are of value to the hamlet. Perhaps, in part, this is due to the services a resident will take up once they walk up their sidewalk every day to their front door. Perhaps having people come and go in the neighborhood keeps everyone more secure. Here are the benefits as expressed by the bureaucrats.

Registrant’s point of contact will be notified by phone and/or email of issues that may arise such as:

  • Property maintenance (tall grass, litter on property, etc.)
  • When the Town is notified by law enforcement of unauthorized occupancy
  • If property becomes unsecure.

When properties are registered, the Town will have contact information and will have the opportunity to notify the owner/property manager to correct any issues before taking action. This will save the property owner money.

The city of Miami goes one step further and requires the owners post a no-tresspassing sign and authorize their police force to enter the property should a need for their services become apparent.

Install No Trespassing Sign

Once you’ve submitted your forms, you’ll need to install a No Trespassing sign on the property (this can be any sign purchased any where).

Although it may never cross your mind, your comings and goings every day in your neighborhood and place of business are a public service.

Empty rental- is that rational?

On a trip to Manhattan a few years ago, my son and I noticed boarded-up store fronts along the best sidewalk shopping in the city. From the layers of flyers pasted on the brick wall and the thickness of dust perched on the window ledge, it was apparent that this state of disuse was a longterm thing. It didn’t make sense. What would make an owner prefer to leave a space empty instead of collecting rent from a desireable tenant looking for a desireable location?

If you were to think of this interms of a model, one might say, what are the negative implications of renting a storefront that zero out the benefit of incoming revenue from a tenant? What circumstances cause a property owner to be more interested in sitting on a vacant portion of a building rather than maximizing profit?

I say a portion of the building because the street level space of a NYC building is most always a small percentage of the entire building.

When an investor is looking to acquire new property there’s a lot of calculating to evaluate its prospects. The price of the building is mostly determined by how much cashflow the structure can generate. The lender (as in most cases there is financing involved) is also interested in the return their borrower will receive. This determines their comfort level in receiving payment on the debt.

With this in mind, a seller will often take action, prior to going on the market, to make the property attractive not only to the buyer but to all other parties involved in the transaction. For instance, an inspector will most probably make some rounds and look for mechanical flaws. The easy fixes are best done up front. Often there is a target renter in mind for the property and enhancement will be made to their structural preferences.

When a property goes for sale, there are lots of incentives to shine the place up and present it in its best light. Any salesperson will tell you this is how to generate the best offer.

Now fast forward twenty years, or thirty years, and the young investor with ambitions to build a portfolio has done exactly that. He or she is wealthy. There is a nice amount of equity in the property and the stress to recover every dollar in rent in order to pay the bank, the insurance company, the regulatory agencies and do repairs has eased. If the property is in a strong location, it is garnering a nice return year-in-year out. Often, it is better than other investments can offer.

Now, let’s consider the rental transaction for the storefront. It’s been a couple of decades since the property has had a full upgrade. Perhaps the paint is looking a little faded. Perhaps the interior tile work has more chips in the tile than some deem acceptable. A new younger set of folks want just that much more than what was available before. So for a bit more money in rent the owner is dealing with a lot more in either managing expectations or renovations. Renovations almost always means interacting with a regulatory entity as well. Once on the property, other issues may be brought to light.

There are two factors that go into the cost-benefit calculation of securing the lease. The rent received. And another important factor which we will call the engagement factor. When the owner takes on a new tenant they are agreeing to engage with their expectations, their payment and request idiosyncrasies. It’s not just the dollars. In the same way an insurance claim is not just about getting reimbursed for the repair work. You have to deal with the insurance rep, meet three contractors to get bids, and supervise the work. There’s an engagement factor. The street level activity also has an engagement factor. If the public has become more truant, than property damage or security issues create a cost on the owner’s time.

It gets to the point that the hastle of interacting with others starts to draw down the marginal benefit of the extra rent. Throw in a potential tax implication and that little benefit could shrink to almost nothing. An empty unit creates a tax write-off. A rented unit throws off income that is now taxed at higher rates, as many deductions have run their course.

The store fronts could be collecting dust because the engagement factors are simply too expensive.