All Forum Posts by: Michael Gertz

We moved out to the burbs about a year ago and Montclair has some of the better restaurants in the area.  One night we were walking and I thought this is close by, has a college, and some nightlife so let's see what the rent roll is like.  2br standard apartments ranged from 1400-1600 and 3's were higher.  So I started looking and found the property downtown that was a few blocks from the area I wanted to buy in.   It was close to NYC transportation which was good and is something I look for in my investments. 

If I use the ABCD's of real estate where mid- upper Montclair is a A neighborhood I figured that the area was a B class waiting to become an A.  I did not think this would go to a D (bad parts of Newark, Irvington status) and my investment strategy for holding property is to be in a B neighborhood with some C exceptions.  If everyone is wondering where I get the A/B/C/D ranking please check out the great book Multi-Family Millions by David Lindahl.

I also scoped out some leveled land which had me thinking that development was on its way.  With that being said I went on the hunt for properties and jumped on the house that I thought was a great opportunity. 

Now it still may be a good investment opportunity for those who follow that type of investment strategy.  For me, unless I get it really cheap and can profit 30K min on a flip, or if it is in a neighborhood that fits my hold objectives, then its not in my best interest.

Thanks for the reply!

Hi Everyone -

Just thought I would share an experience that I just had on my own. 

I didn't have a model of due diligence with my latest effort.  All I had was my assumptions, and however you want to break up that word, I now know that I need to be better at due diligence BEFORE I go into a deal rather than later.  Luckily there are many ways out with a good attorney so I was able to manage this unscathed.

On the other hand, the one rule I always follow, is that if your gut is telling you NO then you need to follow your instincts before, or in my case, after making a deal and really do the work to see if your decision is the right one.  I want to go into a deal with ultimate clarity on my goals, some certainty in its outcome, and a properly designed baseline plan of execution as you never know where deviations may arise (may require some changes). 

Real estate is a liability and when you sign your name to any papers you become owner of it whether you like it or not.  It can be a dream come true like my other investment properties where rents flow in on time, everytime, no issues with the city or the property, no lawsuits, fires, thefts - and life is good.  It can also be a nightmare - especially when you take a chance looking only at the expected profit verse your what your overall investment objectives are and how they match up.

The topic of DUE DILLIGENCE arises and I always did some research which I considered was satisfactory.  Investing in my neighborhood really did not require the extra mile of review that one should take when investing in some other backyard.

This time, I was planning to buy a property in Montclair NJ down by Mission Street (not my backyard).  For those that know Montclair, its broken up by a few parts, most of which is good.  Mission street, not so good, but I thought - how bad can it be?

Properties were selling from low 200's to 300's that had potential rental income of 3000 per month - descent cap.  I found a property - offered 195k was accepted and we began the process.  I was excited at the fact that I potential had a great deal in the works.  The place needed about 35k rehab but once that was done this could be a cash cow.

Passed attorney review and all of a sudden I had a rumble in my stomach when I thought about the property.  Did I do any due diligence when making this offer?  I mean its Montclair...right? It cant be so bad....can it?  Wait why did I get it so cheap when this market is so high...?  Do I really know this area?  Hmm.  Let me get answers so we can get this done the right way.... So I decided to do some but where do I start?  How can I effectively weigh the pro's and cons to what this property represents and does it meet my objectives.  So here was my plan.

1) Travel the immediate neighborhood day and night.  When I went during the day, it was quiet, but at night - gangs on each corner...hmmm

2) Google the streets and blocks for crime stats or opinions - All spoke of highest crime in Montclair and constant crime.

3) Check the police blotter for recent calls - a majority were on or around this block... ouch.

4) Call the planning board to inquire on when ground will be broken on any gentrification projects. - This was interesting as the planning board member didn't seem like she wanted to speak to me at first....I convinced her in which she stated "the density in that area is not changing".  "The city has nothing happening and NO developers have submitted plans for build out down there".  "The land is privately owned and the owners are doing nothing".

There goes my thoughts of a starbucks on the corner.

5) I called local real estate professionals to get their assessment of the area and what type of renters would desire that area.  Overwhelming section 8 and mentions that they would not go there at night to pick up rent....hmm

6) I immediately called my broker and said what have all the listings sold for; in which, he sent me what everything is LISTED at.  yeah 250-300k but NOTHING sold.  I went on Zillow and found houses selling between 135-160K - My good deal just went sour.

7)  I created a fake ad on craigslist in an effort to see if the demand and quality of persons looking in the neighborhood would correct my negative experience so far.  Guess what...it didn't.  In my other investment areas I receive 10-15 requests over a weekend minimum.. Here I received 1 section 8 potential.

My Objectives from the beginning were as follows:

A) My objective is to rent to professionals who commute to the city, moderate income brackets,  and are not section 8.

B) Crime is a factor so I am looking for an area where crime, harassment and safety of my tenants is not something i need to worry about beyond the usual petty theft.

C) My wife wants to property manage the property and her safety is worth more than the risk of a bad neighborhood.  She needs a place to manage that will not jeopardize her well being.

Objectives not met.

I called my attorney and walked away from the deal.

This was a learning lesson for me.  I haven't been in the game in about two years, and I have had an itch to begin a rehab for months.  My desire to purchase, rehab, and collect checks was so strong, that it almost stopped me from sticking to my plans and objectives.  This effort required me to refocus on how and why I invest, as well as, what I am investing in. 

I think this practice is common in this realm, as the idea of reward and success in our real estate efforts are a driving force - the desire to be successful, the desire to be free; however, we as investors will always require the discipline to stick to our plan...unless there is a ridiculously good deal that we just cant pass up, in which plans may change!

I hope this helps stir those creative juices on how to perform due diligence.  I look for other stories to be shared so we all can thrive.

Best wishes & Happy Holidays!

Mike

hi dan

I just bought a two family down by Bay Street.  It's my first Montclair rental prop as I normally focus in union city and jersey city.  I have some rehab to do but once I can complete I plan to see how the rental market is over there.  I liked the property because it was cheap, close to the train, looks like some regentrification is happening down there and rentals are around 1400+ for 2 bedrooms.

Hopefully it's the right call otherwise I'll be flipping for the market I am most familiar with with.

Where are you looking?

Thanks 

Hi Josh!

Thanks so much for the info!  I was shopping around but could not find any lender that would be that creative, so I ended up going conventional 30 year at 4.5 with cash out of pocket so I didn't lose the deal. 

Right now I am financing the rehab with a loan against my 401k but using cash for down payment and closing.

I will be in touch for the next project! 

Thanks!

Mike

So even if the mortgage is under your name you can transfer title? I assume I should setup 3 LLC's for each and transfer title on all then, no? Thanks for the reply!

Hello Friends!

I own 3 properties and I am onto the fourth house.

If I buy a property in my name and have a mortgage in my name, how can I transfer to LLC?

Any ideas?

Thanks!!

HI Charles - As always your wisdom inspires!

The two properties I own are based on personal loans and are not in a corporations name.  There is equity, I just need to identify a bank that would allow for second mortgages on investment properties.  To be honest I had a few doors closed and did not put in the effort to find other solutions to leverage the additional equity, but even that effort would take some time and might not meet my timeline when locking down this property.

This effort that I am trying is my first effort outside the standard approach.  You mention

seller subordinated financing -  I would like to see how this an option and who would write the note and how I subordinate their loan to my interest. I would assume that if they are the only lien holder it would not be a subordinate note, rather the primary.  Please correct me if I am wrong.  Also - what terms are effective in this type of practice?  6% 10% interest only loan for 12 -24 months with a refi option that would allow for early payoff.  I would need to think of early payoff penalty payment that makes it a quality investment.

I am interested to identify the commercial loan aspect with a blanket option, but I am not sure if my assets qualify due to the current ownership model.  I will see if I can get more info.

The angel investor idea is something I need to look into. 

I am looking to create blueprints for each of these models, any recommendations on literature that can outline these methods?

Hello Friends

I have multiple properties under my belt that i have self funded but would like to move forward with another property that I am about to acquire a property in Montclair NJ that requires rehab.

List price 199,000  - Offer in negotiation but probably will be at market due to high demand in this space.

Rehab costs 65K

ARV ranges from 300,000 - 350,000

Rental CAP is 9% based on the two family generating a low end 3600 per month

I am putting 10% my own money so looking for 90% funding and I am looking for hard money lenders who can cover the other amount.

This is my first time around looking for this creative funding opportunity - can anyone help advise what my expectations should be and where I can find helpful resources?

Thanks!

Hello Friends!

We have all heard about tax liens and how it is a passive money maker, but what does an investor expect when going to one of these events?  Stories have been told of a handful of investors bidding down all the properties and winning, so the questions are as follows:

1) What are some tactics or general actions to take that would win a property?

2) What are the actual or realistic expectations when bidding? 16%? 5% 0%?

3) Can someone outline an event, attending the auction, bidding, and closing?

4) When does the purchase become ineffective in delivering your expectation? What I mean is, if the bidding has gone beyond the allowable interest <0% would the only reason to bid is the assumption that you will foreclose on the property?  If I bid to pay 500$ for a cert do I get a return?

All gurus are encouraged to share and I am sure our BP community would love to hear the stories.  Thanks so much!!

great reply. This brings such value to bigger pockets members, thanks so much!!