This article is part of our “Ask an Investor” series with Jerome Fazzari and Lorna McManus of GreenPen Investments. After working on dozens of properties, they are now here to answer your questions about real estate investing, home renovations, property management, and real estate in general.
Hi guys! Is it a viable strategy to buy low priced condo units, make light cosmetic repairs and rent them out? I’m thinking because of association dues it might not be worth it.
That really depends on what you are paying and how much rent you get. Just like any other rental property you want to analyze the cash on cash return but with condos you do have the extra costs of association dues or amenity fees etc. to factor in every month.
Typically, we do not invest in condos for rental income because we have found that in our local investment area we can make better returns on different property types. But, we are looking at condo investments to expand our rental portfolio into new areas where we don’t already have a management team in place.
Either way, make sure that your due diligence is solid, condos come with a few additional factors to consider: percentage of owners to renter in the building can have an effect on value, the financial health of the association is very important to consider, condition of common areas or any large expenses that are anticipated. Your construction schedule and costs may also be different than if you were working on a single family since a lot of condos restrict the hours that work can be performed and may require architects to sign off on everything (even cosmetic renovations).
How do you finance your buy & hold rental properties? Are you using business loans to buy them or conventional mortgages under your personal names?
We typically hold title to our properties in LLCs and get the mortgages made directly to the LLC, this doesn’t mean that we aren’t signing a personal guarantee for the loans. It’s fairly easy to find lenders that will finance income producing properties that have 5 or more apartments so long as the numbers make sense for the bank.
Most lenders that provide loans for 1 to 4 residential units and condos will want you to own the property in your personal name and get the mortgage in your personal name. This is not ideal for us because this is our full-time business and owning in our personal names doesn’t leave our assets very protected.
One thing you may consider, if you have several properties, is looking for a blanket mortgage. A blanket mortgage is basically a commercial loan against several properties. This allows you to keep the ownership of the buildings in LLCs.
What methods have you found best to find properties in NJ that are great prospects for a fix-and-flip scenario?
In northern NJ there are many buyers looking for properties, so there is not really one particular place that you can easily acquire leads from. You will have to figure out what works best for you. For example we don’t personally do bandit signs but for some people that strategy works very well. You have to find the strategies that fit your personality and business. For us, the relationships we have built over the years with other people in real estate have worked the best.
I want to begin investing in residential properties for either buy/rent or flip, but I can’t afford the opportunities around me. Would you advise against looking for out of state opportunities that are more affordable and still provide the appreciation and/or cash flow, or would you recommend partnering with a higher net-worth individual and do a project closer to home?
When you are getting started it can be very helpful for your investment business, long term, if you are hands on throughout the process. The saying “you don’t know what you don’t know” is very true. A lot of little things come up during purchase, construction or management and if nobody is there to catch them they could get missed and end up costing time and money later. If you don’t learn from the mistakes you make, you will keep making them (even if you are not there to see the mistake).
Until you have your systems in place and have proven consistent results you should definitely be close to your investment properties. We are only starting to feel comfortable with the idea of investing out of state after more than 10 years in business and completing dozens of projects and we still may not be able to perform as efficiently as someone local.
When we first started out the numbers didn’t make sense in our local area and getting a partner with money didn’t work for us, so we decided to move to a market that did work financially and it has been one of the best decisions we ever made.
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The information provided in our “Ask an Investor” series is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs.