This is Part 1 of our “Ask an Investor” series with Jersey City’s 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 was your initial investment property and what would be your advice to someone looking to invest with no prior real estate experience?
When we were first considering investing in real estate we were in the market to buy a primary residence for ourselves. Initially, we were looking at a MUCH more expensive single family but decided on going with a small multi-family instead. It was a great way to learn the business hands-on and the money we save every month can be put towards purchasing other properties. After that, the market was still very uncertain so we bought only with cash. Jerome has been working and saving since he was 14 years old and managed to save up enough to buy and renovate a small single family in the Lafayette section of Jersey City. We fixed it up and sold it to a first time home buyer and rolled the profits into the next project.
For someone inexperienced that wants to get into investing, start by honestly analyzing your personal strengths, weaknesses and finances to set a realistic goal. Start small, close to home (or move to where you want to invest like we did), seek out great advisors and make sure you have plenty of reserve capital (we can do a whole article on projecting expenses later). It might be tempting to borrow hard money and start flipping right away but it is definitely higher risk, especially when you add debt. Remember that you will never lose money if you have a positive cash flow.
How do you make money?
Our primary strategy is long term rental income. We think it is the safest way to invest and over time will produce the most consistent returns, as long as you buy right and have great management. We also “flip” (buy-fix-sell) as long as the project is conservative. Most times we buy properties that need full renovations or have environmental issues, such as oil tanks. Other times it’s strictly cosmetic and management improvements. Something we are always looking for is an “easy” fix that will have a huge impact, for example, we have bought several properties in which the pipes burst due to freezing and so there is no running water in the house. The average buyer shouldn’t necessarily take on that risk because it could be a $100 repair but it could easily turn into a $25,000 job to re-plumb the entire building. For us, it’s a calculated risk, we are prepared for the larger job and it’s a good way to add significant value.
Considering your entire process from finding appropriate properties through the rehabbing to selling or keeping and renting, what is your biggest challenge?
As investors, our challenges tend to change with the market cycles as well as personal factors.
When we were first starting out there was a lot of uncertainty in the market, the bubble had just burst and inventory was extremely high so there was practically no competition for properties. Contractors, brokers and attorneys all had tons of free time to dedicate to our projects so our limiting factor then was financing. We didn’t start out in the business with too much money, the banks were not eager to lend and we didn’t have the track record to work with private lenders yet so the amount of deals and type of deals we did were limited. Fast forward a few years and our balance sheet is much better, banks are lending at great rates and we are working with several private investors. However, competition has increased. There are so many buyers in the market that the inventory is very low and all the professionals are back to being busy again. Now our biggest challenge is finding a good project to work on.
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