Fliperati

Although I didn’t discover many of the sites on my blogroll until after I had gotten started on my first property, I’ve found reading about the experiences of other investors extremely helpful as I make this first foray into the real estate investing universe.  One of the best things about these individual blogs is that they are generally free of the usual REI guru cheese (“buy now and I’ll include the 8^th CD free along with an autographed copy of my patented low-income rental agreement!”).  Plus, they offer candid, personal insights into what other investors are doing and how they integrate investing into the rest of their day-to-day lives. 

I keep stumbling upon more and more of these sites and the standard blogroll format doesn’t do them all justice, so I am planning to add an “REI Blog Directory” page to Fliperati with a more comprehensive list of relevant sites I’m aware of.  I would like to include a summary of the following info for each blog listed:

• Blog Title / URL
• Author
• Location
• Blog Focus (wholesaling, rehabbing, rentals, etc)

If you have a favorite blog that’s not on my current blogroll (or a site of your own), feel free to e-mail me (viridian@fliperati.com) with some or all of the above info and I will add it to the list.  I was also thinking of creating a podcast directory, so please send suggestions for those as well.

Big thanks!

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As I’ve vaguely touched on before, I won’t have much time to work on my newly acquired property until July.  That’s because my current Wall Street job barely allows me enough time to eat and sleep at my Manhattan apartment and it would be almost impossible to do any real work on a property in New Jersey except on weekends and holidays.  Fortunately, my last day of investment banking is June 30th and I will have all the free-time in the world to work on the house once I’ve cleaned out my desk and left the office for the last time.

However, simultaneously abandoning a lucrative banking career and taking on a mortgage and a major renovation project is not nearly as radical a transition as it may appear.  I’ve been planning to leave my current job for about a year now because I’m weary of the Wall Street lifestyle, so that move is only loosely correlated with this first project.  I have a solid network of contacts in my current industry and I’m confident I would be able to get a new finance job with relative ease if I should need to, although I hope it doesn’t come to that.  If do decide to rejoin the regular workforce in the near future, I would like to get a more relaxed position in public service or research where I could still pursue real estate investing and other activities in my free time.  Also, I feel good about the purchase price of my first property and I think it would be difficult to lose money on this project, assuming the market doesn’t crash catastrophically and that my renovation costs don’t spiral out of control.

This could all be terribly naïve, but the wheels are already in motion and time will tell how good my assumptions and planning really are.

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Not a lot of activity on the real estate front today.  I didn’t have an attorney so I just had my agent forward the documents to a guy he recommended.  I trust my agent a great deal so I’m not at all concerned about the quality of his referral, but I felt a need to do some due diligence before diving right in and hiring the guy.  Fighting back the urge to be lazy, I took a few minutes to call him up this morning and get some info on his experience and his billing structure.  He sounded very much like a dry, lawyerly sort of guy based in Piscataway, NJ.  That was fine with me, though, because I suppose it’s good to have a lawyerly-sounding lawyer.  When asked about his experience he told me that he had been working on residential real estate transactions since 1975, joking that I was probably in diapers at that time.  He also quoted me a flat fee of $850 – assuming no issues arise that will force him to spend an inordinate amount of time on my purchase (such as a title dispute).  I don’t have much to compare this to, but it was less than the estimates I got from Manhattan lawyers that were referrals from friends.  It was also in-line with what my agent estimated for the average fee on a residential purchase like mine, so I went ahead and hired the guy.  Hopefully he will make a solid addition to my growing real estate investment team.

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I did countless web searches for all varieties of real estate investment information in the months prior to the point when I was actually ready to seek out and purchase a run-down property.  The limited (or weak, spammy, expensive and misleading) sites I found are part of what inspired me to start my own blog and develop a better forum for new and experienced investors to share their questions and insights.  However, I never specifically searched the many existing blog directories for flipping and real estate investment materials over the course of this research.  Only when I began submitting my own blog to the many directories and feed aggregators did I accidentally stumble across other blogs with a very similar mission.

While my first reaction was “WTF! I’m not the first person to start a candid real estate investment blog?!?!,” I quickly got over myself and began poring over the materials in some other good blogs (which often included links to other good blogs, and so on).  One of the first blogs I came across, Shaun’s Real Estate Adventures, is worthy of specific mention because it is exactly the kind of resource I wish I had come across months ago when I first started thinking about delving into real estate investment.  Shaun’s blog is packed full of detailed, real-life experiences that you can’t easily find in most of the published literature on these subjects because all those materials have been distilled down into generalized formulas for success and motivational gibber-jabber.  The play-by-play case studies available in blogs like Shaun’s are, in my personal opinion, much better motivational tools because they demonstrate how a regular person can successfully execute the strategies that you find in all the real estate investment books and seminars.  Even better, blogs are free and they provide glimpses into the thoughts and lives of their authors that no other medium has been able to match.

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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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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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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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That’s right: cash money bling bling.  Houses don’t finance themselves and I’m not of the “zero money down” camp (this approach seems to be particularly impossible in the NYC area), so that leaves me in need of some serious cash.  Fortunately, several years of soul-sucking work in finance have left me with a decent-sized savings account and I have always been a stickler about paying my bills on time, so hopefully lenders will be bending over backwards to give me a $300,000 - $450,000 mortgage on an ugly property in an up-and-coming neighborhood.  Lots of recommendations on area mortgage brokers (most literature suggests they’re the way to go vs. getting a loan direct from a bank, right?) available here.  I’m a sucker for a decent website with good information, so Manhattan Mortgages seems like a good place to start.  I’m going to pay them a visit as soon as I finish compiling my personal financial statement and gathering recent tax returns, bank statements, etc.

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