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.
Do investors simply provide you with loans that you pay back? Do they co-sign loans and become part owners of the properties? Or do they put in all the purchase/rehab money and you act as the property manager?
We work with private investors in a number of different ways depending on the type of project we are working on. For short-term projects where we either intend to sell the property or refinance in under a year, we typically work with investors that are simply lenders — they get a guaranteed rate of return and they receive all their capital back within a year. For more long-term projects such as long-term rentals on apartment buildings or commercial properties, we typically look for equity investors who would be part owner of the building and share in the profits of the property (this structure can be somewhat cumbersome on short-term deals, so we try to keep equity for longer-term deals unless there is some other specific reason to do it short-term). There is a myriad of ways to fund a project; these are just a few simple examples that have worked for us.
With the new West Bergen – East Lincoln historic district going into effect last year, have you had any experience buying in that neighborhood (or any other historic neighborhood), and if so, was it difficult to perform renovations? Did you rehab the outside at all of any of those properties and was that cumbersome? Many thanks!
We have not renovated any homes within the new West Bergen – East Lincoln Park Historic District, not to say that we are avoiding it, just the opportunity has not arisen for us. The historic district does have the potential to increase the cost and timeline of performing exterior renovations. For example, a stock size vinyl replacement window can be picked up the same day and cost about $90, but a historically appropriate custom order window can take eight weeks to be delivered and cost $350+ (not including installation). A majority of the houses in the downtown historic districts are very similar in construction and somewhat simpler in exterior design (brick, row house, windows, steps, and cornice) while the West Bergen district’s houses are a bit more complicated (mostly free-standing, wood siding, many more windows, porches, visible roofs, etc.) which can further exaggerate the cost and timeline of an exterior renovation.
With such low inventory, are there any good “buys” in Jersey City that would provide sufficient ROI to make good investments?
If you have been watching the price trends in Hudson County, you’ve noticed that the prices have increased significantly over the past few years. This may lead you to believe that there are no good investments out there but the question of what is a good Return On Investment is a personal opinion. Personally, if we are not making a monthly profit on rental properties after ALL the expenses and paying a fixed rate mortgage at a reasonable Loan to Value are taken into account, then we wouldn’t touch it. How many years do you want to hold onto a property with a negative cash flow hoping that it increases in value so that you can potentially sell it for a profit? People seem to be doing this a lot right now, but that’s not for us.
The best place to start looking for properties is within your own circle — people you already know that might be thinking of selling. I know this may seem somewhat limited, and it is, but right now in the Jersey City market, there is really low inventory and really high demand. It’s yet to be proven, but with the property tax revaluation taking effect soon, some owners downtown might be more willing to consider selling especially if their taxes have increased 200%. Be sure to include GreenPen Investments on your list of cash buyers, we can be reached through this column or directly at [email protected].
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.