All Forum Posts by: Victor Menasce

Real estate markets follow the laws of supply and demand. When demand is low, prices fall. When demand is low, you have no exit strategy. Why would you invest in something with no exit strategy?

Why not go to an area where demand is massively higher than supply? You can't lose.

Let's talk about what can go wrong in a situation like this. There are so many, it's hard to know where to begin. 1) When you purchase a property you buy insurance that covers fire, damage and liability. In this situation you have employees or contractors working on a property that you do not own. If an injury occurs, then the person who hired the contractor is basically uninsured. It's hard to see how the small advantage of a few weeks is worth the unbounded liability of operating without insurance. 2) The seller may discover prior to closing that their property has been improved. They may then look for reasons to cancel the contract since the property is now worth more. If they discover that the buyer has not respected the occupancy rules governing access to the property, they may claim a material breach in the purchase agreement. 3) cost overruns often occur in construction projects. It is possible that a contractor will put a mechanics lien on the property prior to closing. If that occurs then the transfer of title gets extremely messy. The seller could claim a breach of contract, and cancel the agreement of purchase and sale. If there is a realtor or a lawyer involved in the transaction, you can almost guarantee that a lawsuit will take place. That suit will almost certainly involve the regulator for that profession and the possible removal of their license. Problems occur in most real estate transactions. So it's not a question of if this investor will encounter a problem, it's only a question of when. The more he does this the more his chances of encountering a serious problem increase.

Real Estate investing is a business like any other business. If you wanted to start a restaurant, or a hotel, or a software company in another city where would you start? Of course you would start with a team. Real estate is no different. I currently have projects underway in six cities. In every case I started with a team on the ground in that location. A good deal badly managed is no deal. So it always starts with the management and the quality of the management. Finding deals is the easy part. That comes at the end of the process. Once you have a team you will find that deals are not usually found. They are created. That means is that opportunities will present themselves that require creativity. This is not simply finding a single-family home at a 30% discount. Finding discounted properties works to a degree. But in a competitive market as more and more people enter that market, the profit margins will shrink. So creativity becomes a key differentiator.

Be careful with a double close. Some title insurance companies will insure the A-->B transaction, but not the B-->C. Double close is perfectly legal, but some banks have convinced the title companies to play by bank rules because the banks have so much influence and leverage. The is nothing in the law requiring an insurance company to give you insurance. But you need it to have marketable title. I agree with the previous comments. Let them know your fee up front. Ultimately it will be negotiated. The way to maintain your negotiating leverage is to ensure you're able to close on the purchase if you need to. If the buyer believes you can't close, they will just wait until your contract expires and cut you out of the deal. I made $300,000 on a contract assignment last year. It was a difficult drawn out negotiation over a 4 week period. But they knew the deal up front. Clearly they saw the value. It was worth much more to them even at $300,000 more. In that instance there were 8 offers for the property. Hope that helps.

Which town in New Hampshire? Depending on your location, I may be able to make some introductions that could help you get some quick estimates. For my own projects we have several rules that we follow. 1) hardwood flooring can be purchased in truckload sales for about $3.00 per SF. Installation is another $2.50. So you can get it done for $5.50 per SF. 2) drywall should cost $25-$30 per sheet hung, taped, plastered and primed. 3) tile can be purchased for $1.00 per SF in truckload sales. Installation is about $3.50. Really small spaces with lots of cuts like bathrooms may cost a little more. 4) windows can be installed for about $200 each. Price the windows from a construction wholesaler. Buying retail will cost double. 5) electrical may need to be redone if there is any aluminum wiring. I budget $100 per box. Hope that helps. Let me know where it is. I know people who know people.....

We have a strong team with many new construction projects underway in North Philly. We'd definitely be happy to share what we've learned in the process and engage with a few highly motivated individuals who would be interested in helping us with acquisitions. 

The numbers look good on paper. Just remember that maintenance and expenses will be a much higher percentage when rents are that low. Your chances of negative cash flow go way up. I prefer to buy properties in areas where I can get at least $1,200 per month per unit. In many of my units I'm getting $2,000 per month. It means that I'll have more income to cover expenses. If you have to replace an air conditioner ($3,500), you're looking at dedicating 6 months rent to paying that off. In reality you have other expenses. So it could take upwards of a year before you are back to positive ground.

I can give you several contradictory answers to that question. I am based in Ottawa and I invest in Canada and the US. I have multiple Canadian and US entities. It depends. There are pros and cons. If you're simply investing in a couple of properties in Canada and not taking it much further, then it's fine to keep them in your own name. The cost of owning a company outweighs the benefits. If you plan to scale up to hundreds or thousands of units, then a company (perhaps several companies) becomes essential. Tell me what your goals are and I can offer a more specific opinion.

The city is planning a major redevelopment of a vast area spanning 33 acres. This extends from Girard College up to Cecil B. Moore and from 18th street west to 27th street. It includes a commercial corridor along Ridge Avenue that will contain a supermarket, retail, and office buildings. We own about 60 properties in that immediate area and have been very active with new construction. If you would like to know more, message me directly and I can share some specific recommendations as to what that area needs. We have just completed 18 units of new construction and are about to break ground on another 50 doors.

There are very few good section 1031 facilitators. The industry was decimated in the years 2008 onward. I recommend John Hamrick. He can be found at www.section1031.com. He's very knowledgeable, reliable and professional.