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.
What do you think is a solid amount of capital to start off with when you are just beginning? Did/do you do all the work yourselves?
We started out with about $50K that represented our entire life savings at the time and we invested it all (completely all of it) into our first property. Having a larger ambition than your wallet can be very stressful. We lost some sleep and kept our fingers crossed (constantly) for a few months but it worked out in the end. We definitely do not recommend this approach (especially if you have a family) because you never know when something unexpected can come up.
The amount of startup capital you need will depend on what you want to accomplish but we definitely recommend that you have personal savings in addition to capital reserve for the project. Cost run over has a tendency to creep up, especially in older buildings, so if you’re getting started keep at least 20+% contingency reserve on construction. For rental properties keep at least 3 to 6 months worth of expenses (extra if you are anticipating a large expense like a boiler or roof replacement) as a reserve. Lastly, try to reinvest as much of your profits as possible – you don’t need that new car anyway.
Generally for our renovation projects we act as project manager/general contractor – hiring subs, managing progress, ordering materials and setting schedules. This may not be the right path for everyone though depending on your experience and work schedule. When we first started out we intended to hire a 3rd party property manager for our rental properties but that didn’t work out for us so we ended up managing them ourselves. It has been several years since we started doing property management and we are glad to do it, we have a much better personal connection with our properties, tenants and neighborhoods that we work in. It also helps us get a much better understanding of the business and allows us to better analyze properties and maximize profits.
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What are your long-term plans as the real estate tides are beginning to shift, mortgage rates start going up, house prices start coming down and we potentially start seeing a significant slowdown in the real estate market. Will you continue buying and flipping as you have been or do you plan on a wait-and-see approach? Any concerns about the rental market in Jersey City given the ton of new developments going up as rentals?
Here’s the part where we say what nobody wants to hear at this point in a market cycle. Everything is going well but maybe a little too good. Nationwide, half the major markets are seeing all time high prices, there are a bunch of new flipping shows on TV, everyone seems to be talking about real estate and considering getting into flipping themselves, house flipping just hit a 10 year high, we are getting offers practically every week from a new lender that is willing to do fix and flip loans, and buyers are out in droves going door to door making cash offers on properties you practically couldn’t give away 7 years ago.
There are a lot of factors that seem all too familiar. We are predicting, at least, a slowdown in the market – whether or not it will be significant has yet to be seen.
Long term, we have chosen our market and will continue to work in the neighborhoods that we always have (we are adding a few from time to time). However, we are being very cautious at this point and any new project that cannot be supported by rental income needs to have a much larger spread than we were comfortable with over the past 2 years.
The pace that the new rental units are being leased in Jersey City doesn’t seem to be slowing and the rents are getting higher with each new building that opens. At some point, there has to be a limit of new people that can afford $4,000/month rents. But as long as Brooklyn still has people paying $5,000/month at an equally commutable distance to Manhattan, Jersey City will continue to look like a bargain to some.
This has never been our market though. All of our rentals are geared towards (and priced for) low to middle-income families, so we do feel a little insulated from potential overbuilding of luxury units.
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Any recommendations on tin ceiling repair contractors in Jersey City? Had a roof leak and now we’ve got rust and spots that have bubbled through.
It sounds like you may need to replace some of the tin panels if they have gotten wet enough to rust and bubble. We use an online tin provider (there are many), they have had exact matches for every pattern that we have needed so far. The panels generally come in 2 foot by 4-foot pieces so replacing 1 or 2 panels is fairly simple for any decent carpenter. Just make sure you check for mold above the ceiling before closing up the hole in the plaster behind the tin panels (and get the roof fixed first, of course).
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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.
