NEED EXTREME HELP BEFORE I MAKE A VERY COSTLY DECISION

[jaydigital]

NYC Owner Occupied Underwater Multifamily Property.
There are plenty of foreclosures in my area, underwater properties will be stagnant for years to come.

3 level multifamily
Purchased Price 680K Before Economy Crash
50K in renovations (liquid Cash) majority for my apt.
Worth 500K-550K now
Unpaid Interest Only Mortgage Balance, 580K balance due to my 20% down.
My rate is going up to 5.75% in feb due to the F****'up loan modification.
Original rate is 6.25%, this rate takes effect in about a year or so.
Basically, the bank is placing the difference on the back-end of my balance.
I expect this added balance to be around 25k. My new unpaid balance would be around 600k.
My rent roll covers all expenses including mortgage. I'm able to rent my apt for an extra $1700/month. All three apt $5100.

Should I walk away and just collect rent until foreclosure or do a shortsale? I'm not certain if I'm eligible of a shortsale due to my income. Or payoff mortgage with my 500K Liquid cash for cashflow.  I'm desperately need a way out of this f****** rat race. I truly live the MMM way of life. I grew up very poor (Welfare Kid) from the south bronx and worked my butt off to obtain a masters degree. Presently, my professional career has taken a toll due to many changes in the industry, so my job is not secure.


Thanks you,
Jason

[TerriM]

Very strange question here, but could you convert it to condos and sell to the individuals for enough to cover your remaining cost?

[john c]

I think we need a lot more information to make an informed recommendation.

We have information on the income, $5100/month if all three units rented out, or $3400 if your unit remains owner occupied.

What are the expenses, in detail?  How much property tax, maintenance, water, garbage, electricity and gas?

How much do you love/hate being a landlord?  What are your other options on places to live?  What are your other assets?

Do you like your apartment?  How about your tenants?

[iwasjustwondering]

Also, how much money do you have?  You say you have $500K that you could use to pay down the mortgage?  Do you have any other money?  401K?  If the $500K is all you have, then I wouldn't put it all in the house.

[jaydigital]

Converting each apt to condos are not allowed.
Allow me to rewrite.
Multyfamily - 3 apts
Original Purchase Price: 680k
Out of Pocket Cash: 100k  plus 50K in Renovation( 150K cash invested in this property)
Today Vale: 500k
Unpaid Loan Balance_ 580K
Have an Interest Only loan that matures to 6.25% in a year due to loan modification.
Rent Roll
Apt 1: $1700
Apt 2: $1700
Apt 3: $0, I live in this apt
Mortgage (5.625%) plus taxes: $3,234.50
                                       water $100/month
                        electric and heat $175
                 insurance with Fema: :$200


Expensis:                        $3710
Rent Roll:                        $3400
Out of Pocket expense:     $310

I'm paying for an underwater property that will not appreciate for years to come. There are many foreclosures in my area. A buyer can simply come in my neighborhood and purchase a similar home for 500k with 4% interest rate. Should I Shortsale? Foreclosure? Don't do anything and start investing my money (500K) in the stock market? paydown the mortgage for cashflow?
Hope everyone understands. Thank you

Tenants are great and always on time, reasons why I have not raised their rents. I love my apt but not the neighborhood. Better Neighborhoods, One bedrooms range from $3,500-4000/month.

401k's around 150K

[looking for FI]

The way I see it you are paying $310 per month for an apt in nyc. Where would you be able to live for such a low amount out of pocket per month?

[rpr]

Does the Interest-Only period end in a year's time? What would the mortgage payments be then?

[MsPeacock]

Agree w/ PP - sounds like you are paying $310 per month for rent, unless I am missing something. Why the urgency to sell? Is there something else that is pressing you to sell? Otherwise, you could potentially refinance to a lower rate and put some additional money into the mortgage... ?

[nora]

Depending on your other personal expenses it seems like you could pay your 500000 to the mortgage and be FI tomorrow albeit with a small remaining mortgage balance.

[former player]

You need to stop thinking about the decrease in value that has already occurred: it's gone whatever you do and is not coming back.

What does your neighbourhood have that is good?  Are there investments going in to make it better?  Community actions?  How about you getting involved in making it better?

Your major worry seems to be the terms of your mortgage.  Could you put in enough cash to refinance at a better rate? Then you have cheap housing in NYC, should you want to stay there.   Anyone who has cheap housing in a place like NYC should always be able to earn enough to have a good life there - there will always be work opportunities provided you have housing.  If you don't want to stay, rent out the third apartment and move on with a bit of income behind you.

[jaydigital]

Urgency because of career stability. Yes, my living cost is close to nothing but that is due because of my 20% down payment on the house. I brake even about 7-8 yrs with my initial investment. By the time the house come close to what I paid for, it will be old and I just don't see anyone paying top dollar for it. Maybe I'm missing something here, reasons why I'm looking for advise.
I have 500K in savings, about 175K in 401k's,  I figure why pay for a sinking ship (my property), I could collect rent until foreclosure or do a shortsale to recoup some of my investment. Invest all of my funds into investments (stock market, lending club, etc) for monthly cashflow. I'll be able to live outside of US, places like the Caribbean and live comfortable, NO MORE RAT RACE! I'm 38yrs old and would love to just retire. thanks in advance.

- its not fair for banks to not lower principle balance and interest rates to current rates
- as mentioned before, buyer can purchase a home like mine for 500K with only 4% rate

[Eric]

Jay, you seem to be all over the place here.  If your career is unstable, about the best thing you could do is to keep living in a place for $300/mo.  If you're ready to stop working and move somewhere in the 3rd world, well, that's a totally separate question that doesn't have much to do with what you were originally asking.

Also, please read about the Sunk Cost Fallacy.  You keep referencing getting your initial investment back and trying to peg your progress on things that have happened in the past and are out of your control.

[jaydigital]

I am deeply appreciative, I thank you all for great advise. I look forward in reading the suggest link. God Bless

[coffeehound]

Jay, stop. Stop. Stop. 

Yes, your career may be unstable, yes, you may want to escape to an island paradise, but making a hasty *business* decision based on what you're going through emotionally will only add to your worries.  None of us can tell you what to do, but what I can tell you is this:

You've got a piece of investment property, in NEW YORK CITY, that brings in enough income that your mortgage is nearly covered.  EVERY month.  Heck, you can live there darn close to rent-free! 

Why not sit down and run some scenarios/talk to a mortgage broker?

1.  How much would you need to pay, of that $500K you've got, to bring the property value up to where you can get a reasonable, fixed-rate mortgage?

2.  How much, realistically, could you earn if you had to find a new job, given that you only need to earn $300/month for housing? 

3.  What would your finances look like, if, instead of choosing between the extreme of staying in an anxious situation at your job, or taking off for the third world, you used whatever portion of the $500k you need to get, again, a realistic, fixed-rate mortgage, rather than an interest-only [oooh, small face-punch there] one, and took the rest of the money, and put it into an index fund?  Where would you be then?  And how much would you need to earn to reach your FIRE goal?
 

[john c]

I also think that, regardless of the price paid for the building, you locked in $300/month rent in perpetuity for only $100k.  Since you are getting $1400 ($1700 market value minus $300 paid) in rent that you don't have to pay, and you'll get this basically forever, at the 6.25% you're paying on your loan, that's worth $268,800 in present value.

I work professionally in finance, and I see what Jay is going through all the time.  Folks seem to focus solely on equity ("Aaargh! My house went down $700k!) or cash flow ("What's the cheapest loan I can get?  A negative amortizing, interest-only loan?  I'll take it!").  In real life, there is a tradeoff and balance between the two.

You seem focused on the equity, and not seeing the cash flow.  The cash flow on this property is reasonably good.

[SwordGuy]

Jay, you seem to be all over the place here.  If your career is unstable, about the best thing you could do is to keep living in a place for $300/mo.  If you're ready to stop working and move somewhere in the 3rd world, well, that's a totally separate question that doesn't have much to do with what you were originally asking.

Also, please read about the Sunk Cost Fallacy.  You keep referencing getting your initial investment back and trying to peg your progress on things that have happened in the past and are out of your control.

This.  Exactly.

Right now you have a NYC apartment to live in for almost nothing.   And the renters are paying off your mortgage, correct?   That's pretty good!

If you get yourself a roommate you can have positive cash flow on your apartment, too.

You have cash to handle repairs as they happen.   

If you need to move elsewhere to work you'll still have a positive cash flow from the property.

Post your apartment management expenses in more detail so folks can give  you ideas on how to cut those.

[john c]

Excellent point, Coffeehound, about figuring out how much additional equity is needed to refinance into a low, fixed rate mortgage.  One important thing with mortgages is that you generally need a job to qualify for one, so Jay should get on this now before his job evaporates.  Once you're in a 4.25% loan, you can quit your job and figure out what's next for you.   When you're 70, you'll appreciate the rent from your paid-off building while you're spending January in Boca Raton.

[justajane]

 I just don't see how this is a sinking ship as you describe it. Even if you decide to move elsewhere (either locally or even abroad), you could make some decent cash by keeping the property and hiring a company to oversee it for you.

The prices will rebound. I don't understand why you would choose short sale or foreclosure when you are not losing money on the property. What its theoretically worth doesn't really matter until you sell, and I don't understand why you need to sell right now.

[horsepoor]

Unless I'm missing something, it seems like you could pay $180K towards the condo to get to an 80% LTV, refinance at 4%, lowering the monthly payments.  Then if you wanted to move somewhere else, you could rent out your unit for a $5100 total income.  You'd still have a $320K nest egg plus the 401K.  Not going to run all the numbers for you, but seems like that would make you FI or close to it.

[rpr]

Unless I'm missing something, it seems like you could pay $180K towards the condo to get to an 80% LTV, refinance at 4%, lowering the monthly payments.  Then if you wanted to move somewhere else, you could rent out your unit for a $5100 total income.  You'd still have a $320K nest egg plus the 401K.  Not going to run all the numbers for you, but seems like that would make you FI or close to it.

+1. Exactly. I was about to post the same thing.

[TerriM]

I might be worried if Jay were in Detroit, but not in NYC.  Hold onto it.  In a couple of years, with tenant rent increases, you might be paying $0 rent.

You could work at Starbucks, have health care, and be living free and easy.

And don't worry about the condition of the house--you probably paid mostly for the land, not the house.

[aj_yooper]

jaydigital, you have received a lot of good ideas about your property.  Try to separate your worries about your job, your property, and hopes to retire early elsewhere.  To me, not a landlord, you are doing pretty well. 

Best wishes.

[brooklynmoney]

As others have posted, this does not seem like a dire situation at all, although I'm puzzled where in NYC this building could be that it hasn't been inflated in value by this bubble/recovery/whatever we are having.

[Static Void]

Oops, I posted in one of the other places this same post was started. I'll move it to here. :-)

I'm paying for an underwater property that will not appreciate for years to come. There are many foreclosures in my area. A buyer can simply come in my neighborhood and purchase a similar home for 500k with 4% interest rate.

Clearly, looking at the local market is bumming you out. Which is only human... But you can't change the past. You do have the mortgage, and that is the current market. Someday the market prices will go up, but it might be in the far future.

How much could you get an apartment for, for yourself, assuming this is the area you like to stay in? I'm guessing that $1700 is probably market rate. :) So in some sense, right now you have a $1400/month positive cash flow. If the apartment is what you need to live in.

You seem to be in a lucky spot, since you *can* afford the mortgage & expenses. Hooray! Nothing immediately desperate.

Some more specific options might include, assuming the market value of your property is now $500k:

1. Do nothing. You have a heavily discounted place to live as a result.
- if housing prices depress further, then you'll regret not selling now. Because of the loan, in a year, the costs go up (or the discount lessens).
+ Prices stay the same or improve, over time (both property value, & rental prices)

2. Sell, for market rate ($500k you mentioned for comparables?), and pay off the mortgage ($80k more).
- You still need to live somewhere, and you're locking in your loss
+ Clean slate, known starting point, nice and simple.

3. Refinance at market rate. Get $400k loan on $500k property at 4%, pay $180k into it.
- Ties up more of your cash now, definite regret if prices depress further
+ Lower mortgage, and again a known starting point, simpler. And perhaps now is market bottom?

4. Combination of 2 and 3 -- sell this one and buy a different one.
+'s and -'s -- same, if in same area.

5. Stop paying mortgage, let bank foreclose on you
- Ruins your credit, you need to find a new place to live, probably won't get much cash out (these things don't often go well for the defaulter, it's been rumored)
+ Um, squirrel away a few months rental income that you can hide in a mattress... that is, in a futon, in the van you'll be living in?

A lot of folks got foreclosed on with a double whammy of a mortgage they just can no longer afford due to job loss, and the need to sell fast. Sounds like that's not you. The "loss" is just on paper for now. Except for the lousy loan that's about to get more expensive.

[Letj]

I might be worried if Jay were in Detroit, but not in NYC.  Hold onto it.  In a couple of years, with tenant rent increases, you might be paying $0 rent.

You could work at Starbucks, have health care, and be living free and easy.

And don't worry about the condition of the house--you probably paid mostly for the land, not the house.

Agreed and his place will always be rented. I don't see a problem at all. I owned a 4 family in NYC and my out of pocket cost was zero. It was a sweet deal and I bought the house with the tenants who were there forever with no intention of leaving. It is not easy to find good places to rent in NYC. What better position can Jay be in than his current situation?  If he lost his job, his living expenses are essentially covered. In fact with a 4% withdrawal, he does not have to work again. He can even rent the whole building out and along with his WR can go live in the Caribbean to see how he likes it.

[Mazzinator]

Hell, i even vote buy another one ;-)

[UnleashHell]

so you already have monthly income from the rent.

if you moved out then you'd have more.

rent out your apartment as well and its a positive cash flow - instead of cheap living in nyc.


Then you have positive cash flow plus another 500k that you can use at a 4% swr while your tenants pay your mortgage.

that's 20k a year and the positive cash flow from the apartments.

that's not too shabby.

OR take money from the savings, add it to the mortgage and get a far better rate. that way you get lower savings but a positive cash flow.


If you short sale you'll get nothing financially and your dredit will be trashed and you'll be at the mercy of the banks. DO NOT DO IT (unless you really have to - I did a short sale and the long term effect is no fun). Plus you have savings - the bank may well come after them anyway.  better off to refinance.

Its an appreciating asset that you can chuck some money into and have a positive cash flow. with free housing you might be FI anyway.


deep breathe. you in this for the long term. view it from a distance. income generating assets are what you want. you have them. now address the cash flow.


and yeah - buy another!

[DeltaBond]

What in the world is an underwater property?  I couldn't find an answer on the net, believe it or not.

[Phil_Moore]

What in the world is an underwater property?  I couldn't find an answer on the net, believe it or not.

I assume he means the value of the property is less than the mortgage outstanding. In the UK it's called negative equity.

http://en.wikipedia.org/wiki/Negative_equity

[DeltaBond]

Oh, ok, thank you!  Sorry for derailing the thread there.

[arebelspy]

What in the world is an underwater property?  I couldn't find an answer on the net, believe it or not.

[Guesl982374]

I view the situation as below and would most likely do the following:

Current value: $525K (you claimed $500-550K; you need to let go of the purchase price)
Current mortgage: $600K
Current Expenses: $3710/mo
Current Income: $3,400/mo + personal apartment ($5,100/mo total)

I would most likely do the following:

Refi the mortgage to a 30 year fixed at 80% LTV (or whatever the max LTV the bank is willing to lend without PMI, extra fees, etc)
New mortgate = $525K * 80% = $420K @ 4% interest
New mortgage payment = $2,000/mo AND amortizing
Paydown amount: $180K (out of your $500K on hand)
Reduction of Expenses: $8-900/mo. (Assuming old interest only payment was $600K * 5.75% => $2,875/mo)

New Expenses: ~$2,850/mo
Current Income: $3,400/mo + personal apartment ($5,100/mo total)
Net Cashflow: $2,250/mo minus maintenance (I didn't see this detailed anywhere) or $500/mo plus your housing if you stay put

Life Options
1) Stay in NYC and continue working:
   -You'll have $500/mo in cash flow, plus $320K investments, plus salary
   -If you get layed off: $320K @ 4% SWR = $12K/yr or $1k/mo. Total Income would be $1.5K/mo which would be tight

2) Move out of NY and work/retire
   -Cash flow of $2K+/mo plus $320K investments gives an estimated income of $3K/mo which should be plenty for a mustaschian to live on a year

Seems like your situation is much rosier than you give yourself credit for. Don't get caught on the higher purchase price/"alternative reality that you wished happened", like others have said, the building is still mildly cashflow positive and you have the equivalent of a rent controled apartment if you choose to stay. I would say theres a chance you could be semi or fully FI most mortgage refi depending on your expenses.


Hope this helps.

[DoubleDown]

What in the world is an underwater property?  I couldn't find an answer on the net, believe it or not.

That looks like an interesting place to live, even if you owe more than it's worth!

[arebelspy]

That looks like an interesting place to live, even if you owe more than it's worth!

Until you can't afford the roof repairs.  Then "drowning in debt" takes on a whole new meaning.

[TrMama]

I view the situation as below and would most likely do the following:

Current value: $525K (you claimed $500-550K; you need to let go of the purchase price)
Current mortgage: $600K
Current Expenses: $3710/mo
Current Income: $3,400/mo + personal apartment ($5,100/mo total)

I would most likely do the following:

Refi the mortgage to a 30 year fixed at 80% LTV (or whatever the max LTV the bank is willing to lend without PMI, extra fees, etc)
New mortgate = $525K * 80% = $420K @ 4% interest
New mortgage payment = $2,000/mo AND amortizing
Paydown amount: $180K (out of your $500K on hand)
Reduction of Expenses: $8-900/mo. (Assuming old interest only payment was $600K * 5.75% => $2,875/mo)

New Expenses: ~$2,850/mo
Current Income: $3,400/mo + personal apartment ($5,100/mo total)
Net Cashflow: $2,250/mo minus maintenance (I didn't see this detailed anywhere) or $500/mo plus your housing if you stay put

Life Options
1) Stay in NYC and continue working:
   -You'll have $500/mo in cash flow, plus $320K investments, plus salary
   -If you get layed off: $320K @ 4% SWR = $12K/yr or $1k/mo. Total Income would be $1.5K/mo which would be tight

2) Move out of NY and work/retire
   -Cash flow of $2K+/mo plus $320K investments gives an estimated income of $3K/mo which should be plenty for a mustaschian to live on a year

Seems like your situation is much rosier than you give yourself credit for. Don't get caught on the higher purchase price/"alternative reality that you wished happened", like others have said, the building is still mildly cashflow positive and you have the equivalent of a rent controled apartment if you choose to stay. I would say theres a chance you could be semi or fully FI most mortgage refi depending on your expenses.


Hope this helps.

This is exactly what I'd suggest. Although I'd seriously consider life option #1. Once you free your mind from the perceived albatross you think this house is I bet the "rat race" will feel much more pleasant and you won't care so much about whether you get laid off or not. You'll be able to find a much lower paying (and lower stress) job in the city and still live comfortably.

I get that seeing the depreciation on paper sucks. We live in a duplex that we paid a similar amount for and it has done nothing but depreciate for the 4 years we've lived here. We'd be lucky to get $550K for it. You know what? I don't give a fuck. We're not planning to move so all that "depreciation" is just numbers on paper.

As long as we don't sell and realize our loss it doesn't matter. When the stock market dips do you sell everything? Or do you just wait it out, maybe rebalance a bit, and continue on your merry way to FI?

[jaydigital]

All of you guys ROCK!!!!!!!, I am so thankful, breakdowns of numbers and suggestive scenarios helped me tremendously. Overall, this allows me to look at this objectively, bringing my crazy ass too reality. That underwater apt pic is fucking hilarious.!

[former player]

One thing that perhaps hasn't been said enough is that at 38 you've gone from welfare kid in the Bronx to a master's degree, a professional career, $500K in savings and a 3 unit building that gives you virtually free accommodation in NYC.  That is pretty bad-ass.

[MBot]

One thing that perhaps hasn't been said enough is that at 38 you've gone from welfare kid in the Bronx to a master's degree, a professional career, $500K in savings and a 3 unit building that gives you virtually free accommodation in NYC.  That is pretty bad-ass.

+1

[SaintM]

As a landlord, you should be able to depreciate the portion of your property that generates income. This will most likely wipe out any tax on the rent AND some of the income from your job/investments/etc.

If you don't want it let me know and I'll put in an offer:)

[Westoftown]

Also note that, if you have substantial assets, you can't just short sale or foreclose this property.  They'll come after your assets for the difference, unless they are in retirement accounts which can't be touched.  You'll get a nice tax bill from uncle Sam too. Talk to a tax advisor before trying to get cute with a foreclosure or short sale.

[Letj]

I believe New York is a non-recourse state.

[rmendpara]

Are you trying to leave NYC?

Regardless of whether you are "underwater" or not, your property is cash flow even with you living in it and definitely positive by a solid margin if you rented out the 3rd unit. Your  savings on rent if you were to move out and rent your own apartment vs the $310 you currently pay is your additional income.

You will likely be able to increase that rent by 2%+ per year which is likely to outgrow any expenses assuming it's in reasonable condition. If you have good credit and are willing to put a bit more down, I would strongly encourage you to refinance. The lower interest will likely bring you down to cash flow positive while you are living there. You might get paid to live there!!!

[jaydigital]

I was trying to get cute:), someone mentioned to me that i should try to get a short-sale. Have someone I entrust to purchase the property for me at the current value (500k). Purchase the property back with my 500k savings. I've heard banks don't really go after assets because they claim their losses to their insurance companies. Banks get more profit in short-sales or foreclosures, Reasons why banks only negotiate interest rates when underwater homeowners put up the cash.

- I was trying to recoup my losses (original cost 680k) for overall cashflow.

 -  According to everyone, my best option is to refi, hand over (100k+) to bank
- My next door neighbor  (identical home to mine, attached townhomes) is in the shortsale process, appraised for 495k. Two days ago, pipes burst due to cold weather and caused extensive damages. Should I buy it? Rent roll is basically the same.

Thanks again

[capital]

I would guess you're in the Bronx or maybe Jamaica by the prices you're throwing around and the fact that there's a lot of foreclosures? I wouldn't bet so hard on the neighborhood not appreciating— the way prices have been shooting up in so much of Brooklyn and Queens, people are going to be looking in more and more neighborhoods soon.

[jaydigital]

Yes, the property is the bronx, (good neighborhood, all houses with restaurants in the area). Eventually it will appreciate due to Donald trump golf course being constructed. My experience and way of thinking.

1. I have owned and lived in downtown Brooklyn condo. Purchased condo for $630k before market crash and sold condo for $620 w/ no broker years later. Yes, I regret selling it, condo appreciated to 1 million as of today.
Hard times back then, developers in the area were not selling condos so they offered condos as rentals at very discounted prices. My condo was $3,800/month that included maintance fee. I had paid this for at least 5 years on my own,( sacrificing many things to afford this). identical apts were rented for $1k less. During this time I had lost my job so I was kinda forced to move out to my bronx property. In the upcoming years, BROOklyn has exploded where my bronx community stood stagnant.
My reasoning for this is because, white collars prefer luxury style condo living so the demand is there in Brooklyn so it appreciates. In my Bronx community, there's no luxury condos and the makeup of workers are blue collar. Another situation is when the economy sinks, neighborhood such as mine in the Bronx suffers the most because tenants who occupy these homes lose their jobs. Tenants stay long as they can due to the fucked up laws here in NYC, ultimately landlords suffer. My neighbor onced owned 25 homes and because of what I mentioned, he owns only three now and in the process of a short sale, ( house attached to mine). All of this has impacted my way of thinking.

[capital]

Yes, the property is the bronx, (good neighborhood, all houses with restaurants in the area). Eventually it will appreciate due to Donald trump golf course being constructed. My experience and way of thinking.

1. I have owned and lived in downtown Brooklyn condo. Purchased condo for $630k before market crash and sold condo for $620 w/ no broker years later. Yes, I regret selling it, condo appreciated to 1 million as of today.
Hard times back then, developers in the area were not selling condos so they offered condos as rentals at very discounted prices. My condo was $3,800/month that included maintance fee. I had paid this for at least 5 years on my own,( sacrificing many things to afford this). identical apts were rented for $1k less. During this time I had lost my job so I was kinda forced to move out to my bronx property. In the upcoming years, BROOklyn has exploded where my bronx community stood stagnant.
My reasoning for this is because, white collars prefer luxury style condo living so the demand is there in Brooklyn so it appreciates. In my Bronx community, there's no luxury condos and the makeup of workers are blue collar. Another situation is when the economy sinks, neighborhood such as mine in the Bronx suffers the most because tenants who occupy these homes lose their jobs. Tenants stay long as they can due to the fucked up laws here in NYC, ultimately landlords suffer. My neighbor onced owned 25 homes and because of what I mentioned, he owns only three now and in the process of a short sale, ( house attached to mine). All of this has impacted my way of thinking.

White collar folks prefer a lot of things. You can't always get what you want in the NYC housing market, even on a six-figure salary. Beyond that, white collar have been on a townhouse tear lately, with house prices in much of Bushwick and Bed-Stuy shooting up to $1M+. Townhouse neighborhoods seem to gentrify faster, since tenants don't have rent stabilization with fewer than 6 units. I'd guess your neighborhood might well resemble Bushwick a decade ago demographically, although it isn't right next door to a hip arts district. But if you're in it for the long haul, I would be very surprised if you didn't see appreciation.

I do have a friend with an art studio in Port Morris, and have come home from parties there pretty late and felt comfortable walking the streets— make of that what you will, but at the speed that Brooklyn has been gentrifying, I would be surprised not to see some arts venues and the like opening up in the South Bronx pretty soon. Which can be the first stage of the rest of the cycle of gentrification. You have this thing coming too:
http://newyorkyimby.com/2014/12/permits-filed-for-bronx-general-post-office-redevelopment-560-grand-concourse.html

[Fishingmn]

Doing a short sale isn't really an option if you have $500k in assets and decent income.

A short sale isn't a device that's used to get out of a bad investment. It's a solution for people that have had a hardship that won't allow them to continue to pay their mortgage and have no assets that would allow them to absorb the cost of selling their home for less than they owe. If you try to get a short sale approved a bank will look at your income and see no hardship and they will look at your assets and decide you can take any loss.

A foreclosure could be an option but you'd also be leaving yourself open to the real possibility that the lender will sue you for their losses (called a deficiency judgement). Just because you went through a foreclosure doesn't necessarily absolve you of the debt.

In either case you will suffer a severe hit to your credit score.

Personally, I'd say just live there.

[Mazzinator]

- My next door neighbor  (identical home to mine, attached townhomes) is in the shortsale process, appraised for 495k. Two days ago, pipes burst due to cold weather and caused extensive damages. Should I buy it? Rent roll is basically the same.

Thanks again

How much do you think it will cost to renovate/fix damages?
My best guess is that you will need 25% down payment, and an investor mortgage is usually slightly higher rate. (Unless you want to move there for owner occupany terms)
And i think everyone agrees to a fixed rate long term mortgage.
At ~$500k with $5,100 rent, that meets the "1% rule" and you already have experience in this neighborhood.
Plus, you have the cash for the DP and reno...so, i'd probably take a more serious look at this. Crunch your numbers, look at the damage, etc etc