What to do when you know something that others do not? Big Upside

Question

There's an extremely high-end location in Hudson county NJ that is currently for sale. The property is "blah" as far as curb appeal, etc. But there is a MASSIVE upside for the property that isn't being leveraged. The upside is sort of being advertised, but not really... and even then it seen as something that can be difficult to accomplish. However, I have information that it is far more easier to get it done. The potential upside on the property is between $800k and $1M if this attribute is leveraged. To make it even more enticing is that the parcel it sits on, if it were to join with two other parcels (the other two parcels are owned by the same person) would make it even more desirable. We are talking about expansive views of New York City, Empire State Building, etc. Totally unobstructed views from a single family detached home (extremely rare in this municipality). Dead-end street, next door to a park with the same views! I'm extremely close to putting an offer in. I have information that the plan would be approved. Worse case, if plan for the upside portion aren't approved, I would still see $400k once all is said and done.

The only thing I am a little concerned about is the over-all political and economical climate of things in New Jersey... although this particular municipality has weathered the financial turmoil of the past exceptionally well due to proximity to NYC, etc.

Is anyone on this site still playing in the New Jersey speculative market?  Or has that ship sailed?

John D. · Answer

I agree with Jay, $400k seems light for a full gut reno on a high end property in that area (although kinda hard to say without understanding square footage naturally). Even if you get the reno done around $400, and you are paying $2mil+ for the original purchase........and sell it for "close to $2.75mil", you aren't going to end up with much in your pocket after holding costs, transaction fees, cost overruns, etc.

$2.05mil PP

$400k rehab

$150k lender fees, points, transaction fees, holding costs, insurance, etc.

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$2.65m cost

$2.7mil sale, with 5% realtor commission means you lose close to $100k on the deal. Unless i slipped on some assumptions?

$2.05mil PP

$400k rehab

$150k lender fees, points, transaction fees, holding costs, insurance, etc.

----------

$2.65m cost

$2.7mil sale, with 5% realtor commission means you lose close to $100k on the deal.  Unless i slipped on some assumptions?

Joseph DiNardi-Mack · Answer

Hi Jaime,

I have done fairly well with my properties up in Jersey City, and know the area quite well. As far as the speculative market goes up here it is really all about location. For instance in downtown Jersey City i would say it is starting to get saturated and they keep putting up more and more buildings. However the Journal Square and Heights areas still have room to run.

Darren Sager · Answer

@Jaime Mack what are you waiting for?  Sounds like you have a good opportunity so go for it, or is this your first deal and you're concerned about pulling the trigger.  Not many investors get the chance to do those numbers here in NJ.

Joseph Ghobrial · Answer

If what you are saying is true, it sounds too good to pass up. You better move fast!

Jay Hinrichs · Answer

how do you do a full gut reno on a high end home an dpay 2 mil and exit at 2.7.. not sure that is a great payday

once you factor in the full gut reno and holding costs and tax's and sales cost etc.. run your numbers. not saying you cant make decent money but 400k seems a stretch

Jaime Mack · Answer

Let me ratchet down a little on my main question.  The rest of it aside:"how hot is the premiere location high-end market in Hudson County?"

Truth is, that's what I really want to know.  Limited area.  Maybe 1 house comes up per year, this would be smallest house with the most upside potential since it hasn't been restored or renovated yet.  Also, this property is on the east side of street (NYC views, or potential NYC views)

Current sale price would be in low-mid $2M -- Renovated, pending degree of renovation, it would be low to high $3M.

Thanks!

Jaime Mack · Answer

I apologize if I wasn't clear.  With renovations, you would be into it for $2.75M-ish.  Comparables are in the mid-high $3M... You'd be looking at 4800sf if you get the full benefit of the upside, and you'd you see $3.85M (Not too long ago people were paying $1k psf... but you'll never see 4.8M out of this property... at least not this go-around) ~ But I always look to add a big cushion on the reno side, hence my $800K-$1M range in initial post. If you don't get the full benefit and can only do a partial "benefit" (let's call it that) ~ you'd see something like $3.4M but the reno cost would be less.  Even if the reno numbers are off by 50% you're still seeing a nice return.  Worse case, you don't get any additional "benefit" and you just have 3600sf.  You'll still see a decent pop.  The hook is that I already know the benefit would occur.  So that's what makes it so tempting.

Regarding commission on sale:

We have an in-house agent, so a savy buyer will save all commission, worse case, they use their own agent and we're down 2.5% (or if buyer plays it tight, they can pay their agent from pocket).  Most times we have it sold before it is finished.  And that is what brought me here... how hot is the premiere location high-end market in Hudson County?...

Jaime Mack · Answer

Joseph... agree 100% on location.  And this place is, for certain, the best-of-best.

Darren... I'm very close to doing it.  I'm a little concerned with the political and economic climate in New Jersey.  However, at the level that a potential buyer would be playing at, they are more isolated.  We're talking about a $2M+ purchase and that is before full gut renovation, etc.  All together it could get close to $2.75M.  But that would be an A+ property.

What to do when you know something that others do not? Big Upside

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