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Read: Wow, maybe Realtors® aren’t so bad after all…

Having gone through the property viewing and purchase negotiation process for the very first time, I must say that I have a much better view of real estate agents and the value-added services they provide.  100% of the credit for the evolution of my thinking here goes to my current agent, who has proven himself to be extremely hard-working, diligent, thoughtful, honest and skilled throughout the course of my first potential flip purchase.  Beyond the basics of matching me with properties that fit my needs, my agent also served as an invaluable resource in choosing an offer price and developing a negotiating strategy to help me win the deal.  This shouldn’t be so surprising since it’s obviously in his best interest to be a devoted helper from start to finish to assure the deal closes and he gets paid, but I can’t tell you how jaded I’ve become thanks to the many lying, spineless real estate agents I’ve dealt with in NYC.  I guess it doesn’t take a rocket scientist to figure out that the purchase process in Jersey ought to be a lot more pleasant than navigating the NYC real estate market, but I still feel lucky to have found a great agent to work on my team.

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I can hardly believe it, but barely a week after seeing this fliptastic house and I am already on my way to owning it at $50,000 below the asking price.  While this sounds amazing, the truth is that the asking price was almost entirely unrealistic given the shape the house is in and I’ll still have to work extremely hard to fix it up and resell it at a decent price to make any sort of profit.  BUT, it took the sellers more than 4 months to come around to this conclusion, so I feel extremely lucky to have been at the right place at the right time on this deal.  I was further comforted to learn from the listing agent that two other investors had made verbal offers at $5,000 less than my original offer during the first week the house was on the market, but apparently the written offers never really materialized because the sellers were indignant and hadn’t yet come to terms with the likely market value of the property.  This is reassuring because it indicates that I am buying the house in the right price range for what will hopefully be a very successful first flip. 

I have to keep a lid on my excitement for a few more weeks, though.  Anything could happen over the course of attorney review and the inspection, so I don’t want to get ahead of myself in planning for a project that could still fall through – although everything is looking good so far…

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I received a counter-offer 48 hours after submission of my $55,000 below-asking offer price and I was pleasantly surprised by their response.  They countered $10,000 higher than my offer price with an “as-is” sale provision (well, removal of the inspection clause from the contract).  I’ve thought about my analysis of the property and feel comfortable meeting them in the middle with a $5,000 bump in my offer, but there’s no way I’m willing to forego the opportunity to have a full inspection of the house before the deal closes.  My agent suggested we soften the counter-counter-offer by stating that the inspection will be complete within 10 days of the contract signing, which should provide some comfort to the sellers since that will prevent them from wasting too much time if I find something seriously wrong with the house and back out of the deal after the inspection.  The waiting part of this process kills me, so I hope it doesn’t take them two days to respond again.

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24 hours have passed and no response to my offer yet.  I suppose that’s not a terrible thing, as they probably would have rejected it immediately if they thought my price was a total insult.  My agent tells me he’s sure they’re putting together a counter-offer and debating the level and terms.  I’m not sure how I would respond to a counter-offer because the offer I made is pretty much the ceiling on what I’m willing to pay for this place, but I guess I’ll just have to wait and see what they put on the table (if anything) before I stress about a response.

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A little more research into recent sales in the area and houses that are currently on the market revealed that the current ceiling on comparable homes is something like $399,000.  Armed with this information, I was able to plug away at all the other numbers (making what I’m sure will prove to be horribly inaccurate estimates on all sorts of items like a new roof, attorney fees, and shrubs with my total novice skill set) and back into a purchase price that would make me a decent profit on my first project.  Frighteningly, the target purchase price came out at $55,000 below the asking price.  This was a bit of a wakeup call because I was doing some mental math while walking around the property and came up with a potential offer price of only $25,000 below the asking.

My agent urged me to listen to what the numbers said and resist trying to “force” them into working just because I liked the property.  He also told me that the listing agent had called him and urged him to put an offer on the table regardless of its proximity to the asking price.  We speculated that the house had been languishing on the market for so long because the owners simply lost touch with reality and a lack of offers – high or low – had allowed them to continue deluding themselves about the value of the home.  With that theory in mind, we drew up a contract with the offer price at $55,000 below asking and submitted it this afternoon assuming we had nothing to lose other than the time it took to draw up the paperwork.  My agent, who continues to surprise me with his market insight and total professionalism, is optimistic about our chances even at the low offer price, so I can’t help but be a little excited myself.  We’ll see how long it takes them to get back to respond…

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Had some great luck my first day out looking at run-down properties with my real estate agent.  One house in particular stood out as a potential winner.  As shown in the pictures below, it’s pretty dilapidated, but I think it has good “bones” and lots of room for improvement in the right places.  It’s been on the market for more than 4 months and the price was recently reduced by more than $30,000 to $339,000.  We’re thinking the local market could fetch up to $425,000 after completely renovating it, but need to do a bit more diligence before making an offer.  I got the impression from the selling agent that the owners would entertain any viable offer, so I’m considering putting in $300,000 - $310,000.  With $50,000 in repairs that would hopefully leave a decent sized profit after the sale, although there are a couple of other houses lingering on the market in the area for $370,000 - $390,000 and we’re a bit concerned that those levels might be the ceiling for this particular street.  Updates to come.

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While I thought that flipping had gained tremendous popularity across America and everybody and their brother was trying to get into the business, apparently this phenomenon has not yet reached the northern New Jersey area.  Or at least it hasn’t penetrated the inner recesses of the Realtor® community there, because I received a similar incredulous response at every office I called over the course of the past week.  “Huh?  You want a run-down house to fix up?  Oh, jeez – I don’t know if I have anything like that.  Never had anybody ask for a dumpy house before.” 

Fortunately, I had a stroke of unbelievable luck when I got a great response to a “Help Wanted” listing from an experienced local flipper/real estate agent after I posted a notice describing my objectives on an area real estate website.  I got tons of spam from agents who didn’t even bother to read the details of what I was looking for, but it was well worth it to find “John” – who was even willing to share his rehabbing worksheet and serve as a mentor over the course of my first flip (perhaps not so surprising since it’s in his best interest for me to succeed and continue coming to him for new properties and to list my sales).  He has proven to be extremely knowledgeable, trustworthy and hard-working since we first started discussing my investment objectives and I couldn’t be happier to be working with him. 

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As a first-time homebuyer/investor, I’m surprised to feel like I’m in a position to be giving tips already, but I haven’t seen this recommendation anywhere else.  The tip is simple: make getting multiple bids from different banks and mortgage brokers easy by preparing all the necessary documentation electronically.  This largely involves getting PDFs of items such as bank statements, pay stubs, tax returns, etc, but I found the brokers accepted image files and Microsoft Word documents as well.  My employer provides our pay stubs electronically (same for my bank and investment account documents) and I do my taxes electronically as well, so it was just a matter of gathering all these files into a single place and e-mailing them off to the brokers.  This saved significant time and hassle with photocopiers and mailing or delivering hard copies of all these materials, making it easy for me to get several mortgage brokers on-board with little effort beyond sending an e-mail.  The broker may not enjoy this method because they will probably have to spend some time printing out all the documents, but they shouldn’t mind too much if they really want your business.

Side note: The cartoon above is from the comic genius behind toothpaste for dinner.  Pay the site a visit to peruse the many hilarious offerings, including cartoons, desktops, t-shirts, bags and a blog.  I am in no way affiliated with this site, but I figure a free shout-out is the least I can do after the years of entertainment and t-shirts toothpaste for dinner has provided me.  Two favorites here and here.

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Alright, this may estrange many potential readers, but I cannot conceal my general disdain for the real estate brokering industry and I must confess that I am loathe to seek out a New Jersey broker to help me in my property search.  To be fair, this disdain is largely due to past experiences with brokers in the New York City rental market, who are an entirely different animal from the traditional real estate agent.  However, as a strong advocate of leveraging technology to maximize efficiency and transparency, I can’t help but think brokers should be discarded as needless middlemen in a massive move toward entirely web-based property listings. 

That said, I have to confess I’m glad their profession hasn’t been obliterated yet because I know little about the northern New Jersey housing market and could definitely use the expertise of someone who is familiar with the area.  Now comes the task of weeding through all the potential buyer’s agents to find someone honest and trustworthy who understands the type of property I’m looking for…

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A weekend out with a team of brokers in Brooklyn woke me up to the realities of trying to start this enterprise in one of the five boroughs:

1)      Everything is astronomically expensive
2)      Entry barriers for purchase are extremely high because of large down payment requirements in most buildings
3)      Very limited stock of condominium units and most co-op units are non-starters because the board would be unlikely to approve a buyer like me who wants to purchase and flip the apartment in 2 – 6 months (which seems counterintuitive because I would be improving the unit and getting a higher-class owner in once I resell, which would theoretically contribute to rising property values throughout the building)
4)      Closing costs and taxes in NYC are also astronomically expensive

(Read the article)

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