Time to invest? A Post-Sandy caution
Today's improving economic environment has created a rare opportunity for small investors to make their moves. And, financial experts say, with some hard work and meticulous preparation, they actually might turn a profit.
"This is a phenomenal time to invest in real estate for buyers in the right circumstances," says Gregory C. Frank, a vice president of Business Development with Guaranteed Rate, an independent home loan company headquartered in Chicago. He adds an important caveat. "There is no get-rich-quick scheme. You've got to buy smart."
Walter Malony, a spokesman for the National Association of Realtors, says he also believes this is a favorable time for the little guy. He, too, issued a warning for those entering the field.
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"Someone doing this really needs to do their homework," he says.
One factor is that the weak economy has placed a larger supply of homes on the market than normal. Short sales -- that is, homes being sold at less than what's owed on the mortgage -- and foreclosures have enlarged the inventory. The ranks also have been swelled by houses damaged by superstorm Sandy, although buying such an investment can be tricky since some may be damaged beyond reasonable -- or profitable -- repair. It's unclear, says Frank, how the state buyback program and rising flood insurance costs will affect this niche.
But there are bargains to be had. Some, for example, come from people whose extended unemployment has forced them to sell at a lower than optimum price. Also, there are more neighborhoods around with undervalued homes. This happens when someone is forced to sell quickly at a low price, reducing the appraised value of surrounding properties.
Historically low interest rates are another plus, a situation that could change if the economy continues to improve. Then, there is the pent-up demand for homes from young people living with their parents who now are looking for their own residences.
But it's still risky, with no guarantees, says Melissa J. Gagliano, president of the Long Island Real Estate Investment Association, a trade group that brings together beginners and professionals for networking and educational meetings on the second Tuesday of every month at the Hilton Long Island/Huntington in Melville. "The first 11 rehabs I did I didn't make any money," she says. "But I kept doing it until I got it right."
Here is some advice for those who want to break into the field.
FINDING THE MONEY
The first thing to do here, financial experts say, is to get your own financial house in order. This includes making a budget and paying off debt.
Cash is the optimum choice for buying a property because that avoids interest payments, the delays of applying for bank money, plus it helps you get the jump on the best deals and close them quickly, Gagliano says. The money could come from savings or funds borrowed from family or friends. Other sources include a home equity line of credit or a self-directed IRA, which allows the owner to make investment decisions using retirement plan money.
That said, a variety of conventional loans are available from lending institutions, ranging from fixed- and adjustable-rate mortgages to jumbo loans. Banks have become more flexible these days, Frank says. Some, for instance, are dropping requirements that borrowers pay for private mortgage insurance by covering the cost in a slightly higher rate, thereby lowering the total monthly payment, he says. Previously shunned construction loans, in which a bank provides interim funds to build or renovate a home and later turn that into a permanent mortgage loan also are back on the table.
GET READY TO JUMP
For an initial move, investor experts say, assemble a real estate team -- a banker (or someone to provide financial support and advice), a real estate attorney, plus an agent or broker who can help spot bargains and sell them after they are fixed up.
Also, get preapproved for a loan so you can move fast if a deal is found.
WHAT TO LOOK FOR
When searching for an investment house, check with a local agent to see what kinds of residences are selling in the area where you are looking. Then, find one that needs work but is structurally sound. This could mean things like needing an updated kitchen or new carpeting and wallpaper -- enough effort to discourage buyers but not more than your budget can handle.
Choose a home on a quiet block in a good school district with an appealing number of bedrooms and bathrooms. Frank says he likes residences in commuter neighborhoods close to railroad stations.
Also, he adds, see if the home's taxes have ever been grieved, since a lower tax rate would put more money in your pocket either by making the home more appealing for resale or, if you are going to lease it, netting you a larger rental income. Professional property tax grievance companies do this for a fee that is based on savings in the first year, Frank says.
AND DON'T FORGET
Always get a title report. An uninformed buyer can inadvertently purchase a home involved in a lawsuit, pending divorce or any number of liens, Frank says.
Saving a few bucks by not getting a house inspection can be another critical error, no matter what you are told about the home's condition by the seller or real estate agent.
Another thing newbies sometimes overlook when hoping to flip a property is carrying costs. These expenses accrue before the home is sold and include utilities, acquisition costs, mortgage payments, property taxes and selling costs. Make sure you've budgeted enough, Molony says.
"The conventional wisdom is to have a six-month cash reserve," he says.
Bay Shore $149,000
LISTING HISTORY. On the market for a month with one price change
WHAT'S FOR SALE. This is a one-story ranch with three bedrooms and one bath. It has a master bedroom, eat-in kitchen, dining room, finished attic and a detached garage.
THE HISTORY. The home's first floor was flooded by Sandy, but its exterior remained undamaged. Its pre-storm appraisal was $285,000.
LISTING AGENT. Diane Betz and Rick Ramsay, Eric G. Ramsay Jr. Associates, 631-665-1500.
LISTING HISTORY. On the market for one month with one price change
WHAT'S FOR SALE. This is a canal-side ranch with four bedrooms and three baths. It has a kitchen, formal dining room, large den in the basement and attached garage. In the back is a patio and upper deck that overlooks a saltwater pool. The home comes with deep canal docking rights.
THE HISTORY. This is a short sale with a recent $85,000 price reduction. Water damage from Sandy has been fixed, including the addition of a new gas burner and hot-water tank.
LISTING AGENT. Tillie Russo, Sailing Home Realty Corp., 516-639-8892
LISTING HISTORY. On the market for three months with no price changes
WHAT'S FOR SALE. This is a Colonial on a third of an acre with views and access to South Oyster Bay. It has four bedrooms and baths, a great room containing a living room and dining room, large den and eat-in kitchen. It also has a finished attic office and an attached two-car garage. Every room in the house has a water view.
THE HISTORY. This is a bayfront home with access to a canal. The first floor was destroyed by superstorm Sandy. Owner and Realtor Ellen Kulik says this was the first time the home received water damage in the 21 years her family lived there. It could be renovated and resold, but also could be turned into a rental property either long term or as a summer rental, she says. "We never went away in the summer because we felt like we were permanently on vacation here," she says.
LISTING AGENT. Ellen Kulik, Douglas Elliman Real Estate, 516-795-3456