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All Forum Posts by: John Errico

John Errico has started 7 posts and replied 120 times.

Post: Newbie investor with questions

John ErricoPosted
  • Attorney
  • Rutherford, NJ
  • Posts 132
  • Votes 168

Hey @Adiel Arvizu I will take a stab:

1. Re: Jersey City--my suggestion would be to (start) investing near where you know and/or live. Jersey City heights has gotten quite expensive in my opinion and, as a result, there may be fewer good deals, but you're surrounded by a lot of pretty attractive areas to start investing in: deeper into Jersey City, Union City, North Bergen, and basically the rest of Hudson County. Having said that, even in very expensive/pricey areas there still are good opportunities for investing (just that the barrier to entry is higher)... but you'd really have to be looking at a specific deal to be able to analyze it in the context of the market. I don't think there are any "good" or "bad" areas as a rule, just that it may be more or less challenging to find good deals in certain areas, and more or less difficult to purchase them.

2. If you're not planning to move into the house as your primary residence you're basically limited to conventional mortgages or to other creative financing options, like loans from friends/family or non-traditional funding sources. If you're planning to flip properties you may more easily have access to other types of funds (like hard money loans), but from the context of your question it seems like you're planning to buy and hold these properties. A mortgage broker or anyone at a bank could tell you what you might qualify for in the conventional mortgage sense given your income and debts.

3. This is entirely up to you. Obviously, 2 families properties will be cheaper on average than, say, 4 family properties in the same area, but this doesn't necessarily mean they are a better deal. At least in the Hudson County area, properties at the lower end of the market are very competitive, mostly because the barrier to entry is so low: as in, anyone who can afford even a small down payment (3.5% down, for example, for an FHA loan if they're moving in) can potentially purchase the house, and so can every other class of investor/fund/foreign buyer etc. if they're so interested. So for a 2 or 3 family home in the $300k range, you're competing with a ton of people who could potentially buy the house. More expensive properties eliminate people that don't have access to funding/FHA buyers, so the competition is likely less numerous, though likely more sophisticated in general.

On the flip side, depending on what sort of property you get, there is a lot of complexity in the entire process, including in renovating, renting out, and managing a property. I started out buying a 2 family that had been abandoned for several years, and just getting that up and "running" led me to learn a lot and I found it very challenging. I think it'd be harder, though not impossible by any stretch, to start with a, say, 4 family property. There are also rent control issues to consider with larger properties, but that's another story and depends a lot, at least in NJ, on the city you invest in. If you search rent control in New Jersey on BP (or in specific cities like Jersey City, Union City) you'll find a fair amount of information.

4. Again it's hard to calculate expense without knowing the specific property, but there are lots of resources on BP to guestimate this (search "50% rule" or "calculating rental expenses" for example). If you have a specific property you're considering in the northern NJ area, I'm sure I or others who invest here could give you a sense of what we'd expect.

5. Tons of options: broadly, you could use the money you generate with that property, and additional money you've saved up, to buy a second property. You might be able to (hopefully) encourage friends or family that see you've done well with your first property to invest with you and branch out from there. Additionally, once you've owned the property for some time, and/or if the property increases in value to do work you put in or the general market appreciating, you can take money out of your first property by refinancing your mortgage (as in, taking advantage of the equity you've built up or now have in your current property) to invest in additional properties. Again, there are tons of posts on BP on this if you search around.

6. Obviously depends on your student loans, haha. One thing to consider, though, is the interest rate of your loans: given that interest rates are generally so low (right now) it might be worthwhile to consider refinancing. If some or all of loans are or could be at very low interest rates (< 5%, for example), it might be less financially savvy to pay back those loans as fast as possible then, say, invest the extra money in other ways that might generate > 5% returns (stocks? real estate? etc.)... or it may not be, depending on your financial goals, on your current income or projected future income, and so on. Not really specific to real estate though but there are obviously tons of resources on this online. Having extra income generated from an investment property would certainly allow you to pay back loans faster, but you'd also have to consider the amount of money you'd need to save up to buy the property, fix it up, rent it out, and so on.

Best of luck!

Post: New to BP from Bergen County, NJ

John ErricoPosted
  • Attorney
  • Rutherford, NJ
  • Posts 132
  • Votes 168

Hi @Kevin Buckley welcome and congrats on the properties! There are quite a few northern NJ investors around BP (I live and invest in Hudson County). Where do you own your current properties? Hope to see you around!

Post: Potential 2 to 3 family conversion in Union City NJ

John ErricoPosted
  • Attorney
  • Rutherford, NJ
  • Posts 132
  • Votes 168

Hey Ryan, I don't want to discourage you, but I can tell you from personal experience it's an absolute nightmare. The Union City building department is one of the most difficult entities I've ever encountered and now several months into my similar project as the one you proposed, I still haven't accomplished much of anything. I don't want to intentionally denigrate anyone who works there since they are likely trying the best they can, but, as someone who has attempted to work with the building department on numerous occasions, it is frustrating at a level I've never before experienced.

You first issue will be zoning: it's likely if it's a 2 family currently, you'll likely have to apply for a change of use, which requires a separate legal process to have the city permit you to construct a third unit. I luckily did not have to go through this in my (ongoing) project for complicated reasons, but it's conceivable that you could be denied at this stage, due to parking concerns or other concerns. This will be an added expense and will likely require an attorney. I am trying to convert a non-basement unit, however it's conceivable that converting a basement unit is even more restrictive, perhaps due to restrictions on the depth underground a bedroom can be, regardless of egress windows (not sure about Union City's interpretation of laws like this).

Second, the actual permitting and construction process is and has been beyond insane. You'll first need to hire an architect to design the unit. At minimum, the city will require you to sprinkler the whole unit, if not the whole building (this is one of several ongoing issues where it appears that the city has as different and/or more restrictive interpretation of the law regarding this than mandated by New Jersey). Sprinklering the whole building is a large expense, likely requiring running a new, dedicated water line to the house. You'll also likely require putting additional sheetrock on the ceiling, and a rear egress from the unit that discharges to a public right of way/street (if you don't have this--like your building is connected on both sides--you'll need an easement from the neighbors, which is another additional expense). My architect, a rotating series of contractors, and others involved in the project have been attempting to determine why our permits for this work have been continually denied, but it is extremely difficult to get answers. For example, you'll submit a permit with the required information, and receive the permit back from the city, asking to provide the information that, if they had turned a page or read what you had written, is amply provided.

There may also be additional complications with the state (you'll need to obtain a green card and be inspected by the state for 3+ family occupancy), and complications with the city. For example, if the city see a finished basement, even if it is unoccupied, they will threaten to fine you and impose violations if you don't return it to its unhabitable condition (particularly if there is, say, a bathroom there)--I have no idea of the legality of this, but I have had this occur to me.

In short: I've come to the conclusion that the city has no interest in you doing this, and will attempt to actively impede your progress at every step. I budgeted $50k for a project that did not require zoning approval and was not a basement, and I think I'll probably end up a bit less than that, but still substantially more than your estimate. If you're going to undertake this, I would highly recommend having an experienced attorney who has worked with the zoning department before, an experienced architect who is familiar with how Union City works, and, most crucially, a contractor who knows how to work with the building department. Particularly on the last point, if you have a contractor who thinks that he/she can file a few permits with the city and that's it... that is NOT what will happen. You or your contractor will be required to personally meet/call/otherwise communicate with the inspectors at be for whatever building code subdivision you are working with, to see why your applications are being rejected, what it is that they are actually looking for (and then if that is actually legally permissible to be required or not!) and so on. This is a many, many, many month process. I'm 5 months in on this and still haven't gotten anything approved by the city, with no hopes of that happening anytime soon.

Frankly, the only reason why I even attempted to undertake this project was that the property cash flows and is a good deal as a 2 family, and I didn't have to go through zoning for the 2-to-3 family issue (it actually already has a green card from the state, as well). I would never have purchased this property if I relied on it being converted to a 3 family to make money.

Post: What do I need to have inspected?

John ErricoPosted
  • Attorney
  • Rutherford, NJ
  • Posts 132
  • Votes 168

Hey @Michael Abate congrats! Around where in Union City will you be?

The prices and things to be inspected seem reasonable to me. I've always (separately) done an oil tank sweep unless I'm absolutely positive it's impossible that there is or was an underground oil tank on the property. I'd be happy to recommend the company I used, or your inspector probably could recommend some as well, but that will run you a few hundred dollars more and would be a separate inspection (likely also requiring access to the house).

In addition, if your inspector identifies any particular issues of larger concern to you (roof, mold, etc.) you can do further inspections. Not sure what the details of the deal are, but the market right now in Union City is fairly competitive so you may not have a ton of leeway to negotiate concessions (although for things like a abandoned underground oil tank I would probably walk away directly unless the seller agrees to remove it).

A few other BP members and I run a meetup group monthly for Hudson County/northern NJ investors that you're more than welcome to come to, feel free to PM me and best of luck!

Post: New Member from Northern New Jersey

John ErricoPosted
  • Attorney
  • Rutherford, NJ
  • Posts 132
  • Votes 168

Hey @Aquila Leon-Soon welcome! There are a good number of investors in northern New Jersey here on BP (I live and invest in Hudson County mostly). Best of luck!

Post: Bayonne prices went down in last 10 years(worst performance0

John ErricoPosted
  • Attorney
  • Rutherford, NJ
  • Posts 132
  • Votes 168

I think that the article you're referencing is a little deceptive. It suggests that housing prices in Bayonne (and some other areas in Hudson County) are down compared to 2005. That's probably true, but most of the area has still not entirely recovered from the Great Recession--only recently have home prices in most begun to approach 2005 levels, and those prices are still way off from 2007/right before the collapse. So the full picture would be a huge increase in prices starting in 02/03, culminating in 07/08, then crashing in 08/09 and now, in 2016, approaching prices in 2005. I also feel like a lot of those numbers are skewed by new construction, which has vastly favored Hoboken/Jersey City/Weehawken, but less so the rest of the county.

For what it's worth, home prices in 06/07 in this area were at what I think most would consider irrational levels: like, wouldn't make sense as an investment unless you were anticipating rapid appreciation or a rapid increase in rent prices (neither of which happened). I suppose owner occupants might have been willing to pay those prices--but I don't think most of the buyers in this area bought intending to live there.

A lot of investors I am familiar with in the area consider Bayonne to be sort of its own thing. It's not super accessible to NYC compared to most of Hudson county and the demographics are much different than Jersey City/Union City/West New York/North Bergen, etc. You could probably commute to NYC from a number of places in Bergen County and deeper into NJ faster and with less hassle than most areas of Bayonne, despite its geographic proximity. Not to say it won't happen there, but I think there is a lot more excitement surrounding towns that are directly on the PATH, or that are within accessible bus distance of NYC through the Lincoln Tunnel (Union City, North Bergen, Weehawken, Guttenberg, etc).

Post: Raising rent on inherited tenants. Advice needed ASAP!

John ErricoPosted
  • Attorney
  • Rutherford, NJ
  • Posts 132
  • Votes 168

Hey @Rikako W.: I would keep them on a month to month lease throughout the winter season, and consider what you want to do next year, assuming they're paying their rent on time and etc. You could try to increase the rent by, say, $100 in the interim. If this is your first place and/or first tenant, the process of you guys moving in, possibly renovating the place, finding a tenant, etc. all within a month or two is going to be an absolute ton of work and stress, particularly in the slowest time of the year for renting in this area. It's probably better to have below market money coming in for a while as you get your bearings, particularly if the tenant isn't problematic. If you find out that their illegible lease agreement entitles them, in their opinion, to stay in the apartment for some term, I might consider honoring that agreement, even if the lease itself/its illegibility/etc. would mean that you don't have to--but again, a lot depends on how they are.

Good luck and congrats!

Post: Northern New Jersey Real Estate Happy Hour!

John ErricoPosted
  • Attorney
  • Rutherford, NJ
  • Posts 132
  • Votes 168

Hey guys! We're having our monthly meetup for investors or soon-to-be investors in northern New Jersey on Tuesday, October 25 starting at 7 PM at the Houlihan's in Harmon Meadow Plaza (700 Plaza Drive) Secaucus, NJ (ask for John or the real estate meetup at the front).

We've had great turnouts in the past with a lot of BiggerPockets members and are hoping to see more this month! As with our meetups in the past, everything is very informal: we'll be networking and exchanging tips and stories over drinks near the bar. We usually have people with a very wide array of experience, ranging from people curious to get involved in local real estate investing, to developers and real estate professionals. Many of us invest in the local markets (Jersey City, Union City, North Bergen, Hoboken, Hudson County generally, and so on)!

Please message or PM me with any questions. If you can't make this one, we do it every month on more or less the last Tuesday of the month. Looking forward to seeing everyone very soon!

@Nick Intrieri

Post: Atlantic City, NJ Real Estate Networking Meetup

John ErricoPosted
  • Attorney
  • Rutherford, NJ
  • Posts 132
  • Votes 168

Awesome! Hoping to be there too!!

Post: Please help me analyze this deal!

John ErricoPosted
  • Attorney
  • Rutherford, NJ
  • Posts 132
  • Votes 168

Hey @Ryan Cheung: not sure if you're still working on this deal, but it may be the case that 203k is the only way to go if you can't get "normal" FHA financing due to whatever reason (rents too low, or even cosmetic issues can tank FHA deals). Again, a lot depends on the appraiser and lender as to what is going on. If you do need to loan money to do more cosmetic-like repairs, just conceptually loaning money at ~4% or whatever your interest rate is sounds like a good idea to me, however, I know there are added complexities with 203k loans. I've never been down that road myself. In addition, this is definitely not a buyer's market, so you may need to overpay to have the "luxury" of doing an FHA loan or 203k loan, as sellers and their agents are wary that you won't be able to close, and likely to go with people that have a higher downpayment, etc.

It's going to be quite difficult and challenging to convert the basement into another apartment as @Paul Ashworth has suggested. Notwithstanding whatever requirements the state may impose, the Union City building department is an absolute nightmare to work with, and will impose a range of sometimes insane sounding requirements (that are arguably not legal or in contravention of what you would assume is the law). I'm currently dealing with a 2 to 3 family conversion here, and it's been n nightmare (and this is not for a basement apartment). Several years back, Union City had a leniency program where basement apartments could more easily be converted into legal units, however, this it no longer the case. Although many, many homes here do illegally rent out their basements, I wouldn't recommend this for all sorts of legal and liability reasons. 

In my opinion, the time/effort/money that you'll spend converting the basement into a legal unit, if Union City will even allow it, is probably not going to be worth it, and renting it out illegally is probably a bad idea.