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Small owners struggle for survival.

Small owners struggle for survival

I just completed my "Income and Expense" documents for the small building I own on the Lower East Side. The information herein is supposed to be the basis on which the City of New York determines my next year's real estate taxes. A quick analysis:

It's a 15-unit building, two of the units are stores. I have been able to renovate five apartments. The rents in these apartments run from $850 to $960 -- that is market level. My non-renovated apartments run from $113 to approximately $550 for the same space.

Last year my net profit before taxes was $11,157.45. After taxes it was $3,664.39. This does not include my Mortgage Expenses! If you figure in the almost $12,000. interest and principle, I paid on my $100,000 mortgage, I lost between $7,000 and $8,000 dollars.

This also does not include major repairs which must be counted as capital improvements! I had to replace a cornice and do major repairs on the roof, and I renovated a newly vacated apartment because it's a once-in-a-lifetime opportunity. The portion that I paid for these major capitol improvements in 1990 came to around $11,000.

Therefore, I lost out of my bank account close to $20,000 for a building that I manage myself and has been a constant source of fear since I bought it. Not only am I not getting paid for all my work and trauma, I'm losing thousands of dollars. And I spend an average of 10 to 12 hours a week keeping track of bureaucratic details and filling out governmental forms like this Income and Expense form.

I am not unique. Small building owners all over the city are experiencing the same kinds of frustrations and the same kinds of losses. Last year the rate of buildings taken "in rem" for taxes increased 100 percent and is still rising.

In contrast, the non-regulated building that I own and live in -- a four-unit building with three rentals made a profit after taxes of approximately $16,000 -- plus allowing us to live rent-free in the fourth apartment. The apartments are fairly large three-bedroom floor throughs. The rents run from $700 to $740. Each apartment is $200 to $300. Below market.

Why do I keep rents below market in a non-regulated building? Because my tenants are good neighbors and good tenants. If they had been bad neighbors or bad tenants, I would not have renewed their leases. This is not an unreasonable hardship. I need my tenants, I'd be insane not to renew the leases of good tenants. Most have been with me for over a decade.

Why are my expenses so low in the non-regulated building? Because I don't have the additional taxes, fees, fines and mandated expenses that rent-regulated buildings must pay. And because my tenants are good neighbors and good tenants. They take care of their apartments.

For example, I pay between $5,000 and $10,000 a year on legal expenses for the rent-regulated building. I have never paid a penny for legal expenses for the entire 20 years that I have owned my four-unit building! Already, this year, in my regulated building, I've had to flush out the sewer lines three times. Once, a brand new, un-opened, roll of toilet paper was found to have caused the blockage. At another time, the tenant had flushed his Con Ed and phone bills. I have no leverage with this tenant. I can ask him not to do it, but that's all. In my non-regulated building I could say: "Look, if you cost me money, I'll have to raise your rent!" and that would take care of it.

New York City is in desperate financial straights. It is losing business, population and income. Two major reasons are (1) high taxes and (2) the lack of affordable housing. Rent controls add enormously to these problems. The vast quantity of housing regulations and the "micro-management" aspect of these regulations directly costs taxpayers over a billion a year for just maintaining the bureaucracies that oversee the regulations. It costs billions more to have the government step in and repair and replace what was lost because of over-regulation. And the tax base is eroded by rent controls.

Almost every large business that made a statement as to why it was leaving New York included "not enough affordable housing" in its list of reasons. This has put New York in a downward spiral that we may never get out of. The fact that New Yorkers have less money and New York is losing population results in two things: (1) higher taxes for those of us who are left and, (2) lower rents from which owners can pay these taxes. If we are going to stop this downward spiral, we have to lower taxes and allow affordable housing to survive. That means we must get rid of unnecessary housing regulations.

If we don't, my building won't survive as a rental building. I am not unique. Probably over 30 percent of small owners are in similar straights. Look at my expense figures! They are not out-of-line with the rest of New York. If I can't make it. A lot of other small owners can't make it. And if we don't make it, New York City is going to go down the tubes.

Insider Linda Jean Bloom wrote this article as an individual small property owner. She is also on the executive board of Small Property Owners of New York (SPONY).
COPYRIGHT 1991 Hagedorn Publication
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:Insider Outlook; small building owners
Author:Bloom, Linda Jean
Publication:Real Estate Weekly
Article Type:column
Date:Aug 28, 1991
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