Real Estate Investing & Pizza

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Recently, I attended some first-time NYC real estate investors meetups. They were hosted by real estate agents, mortgage brokers and CPAs. While I was pleasantly surprised by the generous pizza and soda selection, I was bewildered by the core sales pitch: Do whatever it takes to do buy an investment property — regardless of whether you make money (or “cashflow it”) on a monthly basis — because it will certainly appreciate in value over time.
Examples of “whatever” includes:
  • Buy a one-bedroom condo, convert it into a two-bedroom by turning the dining room into a bedroom, and rent out the master suite while living in the former dining room.
  • Buy a two-family house, live in the basement, and rent out the two legal apartments above.
  • Take out (“lever”) as much debt as possible on the investment (up to 97% of the purchase price) and cover the mortgage and other carrying costs with the rent while living in the basement or the converted dining room with a stranger for a housemate.
  • All of the above scenarios use an FHA loan earmarked for primary residences. So, to get the loan, your investment property must be your home.

Now, I’ve been investing in real estate for over twenty years. I started out with a low-money down 203(k) loan to renovate my first Brooklyn townhouse. I’ve done my own renovations, cash-out refinances, 1031 exchanges, flips, endless trips to Home Dept, and much of what the real estate coaches on YouTube gurus claim to do. However, living in my basement or sleeping on my own couch to be able to afford my mortgage sounds like a bridge too far even for my younger self.

Call me old fashioned, but when the person trying to sell me on investing says that it’s a good idea to go to such extremes for gains that might happen in the distant future, it’s a red flag. The honest truth is that investing in real estate is expensive, stressful, time consuming and risky. Real estate investing, like any other investment, involves risks and uncertainties. It is not a guaranteed path to wealth, and investors should be prepared for potential setbacks and downturns in the market. So, contorting your life and finances into a pretzel might not be the best plan.

If you do start investing using the above methods (or any other for that matter), please treat your real estate venture like a business.

 Know your market

  • See as many properties in your market as possible before selecting an investment.
  • Know the market rents really well.
  • Understand how long it takes to rent out apartments in your market. What’s the vacancy rate? Who are your target tenants?
  • Understand how to best rent out your units – what platforms to use, real estate broker fees, to use a broker or not to use a broker.
  • Assemble your team of people you’ll need to help you buy, fix, market and manage your investment before something goes wrong.
  • Understand the legal, financial and tax implications of your investment before you buy it
Be organized and efficient.
  • Use property management software to organize your business.
    • It should allow you to
      • Manage all your properties from one platform
      • Receive rent payments electronically
      • Control communications with your tenants
      • Keep track of maintenance requests and work orders
      • Easily access financial reports and track your income and expenses
Be Objective
  • Just because you’re willing to live like you’re still a student, it doesn’t mean that you should approach your real estate business casually.
  • Don’t rush into a deal because the broker tells you it’s the best you’ll find.
  • Don’t get seduced by “off-market” deals.
  • Don’t get emotional about your investments. Look at your choices objectively.
  • Don’t let the pursuit of perfect get in the way of the good. If you find something good enough, consider buying it. It’s unlikely you’ll find a perfect deal.

Ultimately, real estate investing can be a rewarding and profitable way to build wealth and create passive income. However, it is important to approach it with a realistic and pragmatic mindset, and to be prepared for the challenges and risks that come with this type of investment. Part of being prepared is using technology like UrbanVie to help you be organized and professionally manage your investments.

Happy Hunting!

Joshua Nunberg

Founder & CEO of UrbanVie