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Five weeks ago
AS I WATCH MY SON Max and his girlfriend Alexis renovate the 1872 house they bought last June, I’m reminded of a few eternal truths about renovation:
- It always takes longer than you expect
- It always costs more than you plan for
- Things get worse before they get better, because before you can do anything, there’s always something else you have to do first, ad infinitum, so you feel like you’re actually going backwards
- Contractors (electricians, plumbers, etc.) invariably say previous contractors’ work is shit
Also, when you’re in your 20′s, a year seems like a really long time. It’s been almost that since, taking advantage of last year’s Federal tax credit, Max and Alexis bought a building in the rapidly gentrifying (hipstifying?) Fishtown section of Philadelphia. It’s a former corner cigar store with a bay window — the store had been converted to a rental apartment before they bought it — plus a 2BR duplex apartment above, where they live.
The ‘kids’ probably thought they’d be done by now. Instead, having torn out the existing kitchen and not quite put it back, and spent nearly all the money they had set aside for the renovation, they’re still living in near-chaos, especially on the lower floor, with an uncomfortably cramped bathroom, and eating out a lot.
Not fun
That said, much has been accomplished. Walls torn down to create open space out of a warren of small rooms; new electrical wiring; original pine sub-floor partly exposed and sanded; upstairs bedrooms painted.
The most spectacular part of the project to date is the kitchen, where Max has been building cabinets in shop space he rented not far away. (His day job is as a woodworker building high-end custom furniture, and at his previous job in Brooklyn, he installed a lot of super-duper kitchens at fancy addresses, so his standards are high.) They’ve bought all the appliances and a farmhouse sink, and installed a vintage-looking tin ceiling.
I spent Mother’s Day weekend there, mostly in work clothes, though we did find time on Sunday for a lovely visit to the Morris Arboretum, below.
Max’s goals for the weekend were two: to chisel a hole, below, in two layers of brick, which took a good couple of hours; and then install an aluminum duct pipe for a stove hood in the exterior wall.
This required his climbing up a 24′ ladder and drilling through the brick from the outside, below. I was very unhappy until he got down safely, and hope he never does anything like that again.
The other goal was to make three cuts in a massively heavy butcher block counter top to fit the L-shaped lower cabinets, below, with space for the sink. This required exactitude, and kicked up a fair amount of dust, but with earplugs, three pairs of hands, and a trusty Shop-Vac at the ready, that too was accomplished.
I feel somewhat responsible for this whole thing, since I encouraged them to buy the house in the first place. I may have forgotten (renovation amnesia, let’s call it) how stressful it can be, and how one needs a certain mindset to live through it. Some day, I hope, they’ll thank me. Right now, they just want to get it done.
I’M NORMALLY EXTREMELY SUSPICIOUS of financial ‘gurus’ and of people who have their heads swayed by their often-dubious advice. But a new book by Greg Rand, a real estate entrepreneur who contributes to Fox News (maybe that’s why I hadn’t heard of him) and has a radio show on WABC, has come to my attention. Crash Boom! Make a Fortune in Today’s Volatile Real Estate Market speaks to me. Naturally I like what Rand has to say: he validates my own experience and makes me think I’ve been on the right track by investing in rental property and clinging to it for dear life.
I’ve bought six properties, but never sold one. I’m an accidental real-estate investor. It started in 1979 with a Brooklyn row house that has three units, then a re-finance and the purchase of another Brooklyn townhouse in the mid-’80s, with two units. Both were bought primarily as homes; they just happened to have these extra apartments, which we rented out. We then let years go by — years when we could have swept up brownstones for a song — without investing in any other NYC property. But let’s not go there; my blood pressure numbers have been good lately.
It wasn’t until 2005, when my son went to college in Philly, that my attention turned purposefully toward investing in rental real estate, and I bought two early 19th century Philadelphia row houses with a total of five rental units. One is in a solidly upscale area (Queen Village), the other in a fringe neighborhood (Old Kensington) that nevertheless seems to be improving at breakneck speed. Both buildings have had positive cash flow from the beginning — not hugely so, but most definitely in the black, while I build equity month by month. Perhaps most important, I enjoy owning them. For me, it’s like collecting antiques — very large ones.
Buy, Improve, Hold is Rand’s prescription for building real estate wealth. Of all types of investment properties, he’s most partial to two-to-four family homes. “An incredibly appealing property type,” he says, and I concur. More tenants paying rent. And desirable: people want a backyard, Rand points out (most of my tenants have them, either shared or private). Though Rand doesn’t specifically mention vintage properties, many of the examples he gives, including a Victorian mansion in Tarrytown, N.Y., with commercial space on the ground floor and residential units above, resonate with me much more than if he was solely discussing condos or suburban homes.
Almost everything Rand says rings true to my ears. Here are some of his main points:
- It’s a great time to be a landlord. The current economic climate is providing investors with the opportunity to get a ‘deeply corrected’ price, and it also comes with a wave of new renters (800,000 new rental households in 2009 alone).
- The ‘technical drivers’ of real estate wealth — appreciation, leverage, amortization and income — do not exist together in any other form of investment. He likens these elements to a mixing board in a sound studio, calling them ‘the four dials.’ “As you push each of them up a little bit, the volume gets exponentially louder. You don’t need any of them to perform off the charts to get off-the-charts results.”
- Re appreciation, Rand points out that home prices are still above where they were ten years ago and the market is almost done ‘correcting.’ “In other words, the entire bubble has been erased. Poof! Gone.” In the long view, the historical upward trajectory is intact.
- Leverage steepens the return as a percentage of investment. Because most people buy real estate by taking out a mortgage, the cash invested initially is smaller in real estate than in the financial markets, compared to the eventual return.
- Amortization (paying off a mortgage) lowers the amount you owe as time passes.
- Rental income is icing on the cake.
The book also delves into what, for me, is the most seductive, creative aspect of the whole real-estate game: fixing up an ‘ugly duckling.’ Rand advocates finding properties in need of upgrading, not turn-key ones. He loves long-languishing properties that have become stigmatized, as in “Something must be wrong with it if it’s been on the market so long.” Let others pass it up. That’s where you can often find bargains, he says — something I’ve intuitively understood for a long time, but am still heartened to see in black and white.
Mind you, Rand’s book doesn’t say you’ll get rich quick. “A good buy on a house means you set yourself up for even greater returns as you ride the cycle forward and mature the investment over time.” The biggest mistake people make in real estate, he says, is selling in order to realize the profit, adding “Don’t do that!” He views equity in real estate as liquid, which is refreshing. True, it takes a few months to get to it, but it’s still a good place for your money. Let it stay where it is “until you have another real estate play to make or your objective has been met” (say, when it’s time to send a child to college).
There’s lots more — from how to find a neighborhood on the upswing (“Home Depot and Lowes don’t open stores on a whim”), to owning near where you live and work, to buying distressed and foreclosed property. And there are quite a few surprises (Rand thinks Florida is still a great place to invest, for instance).
My one disappointment is that Rand is not terribly helpful when it comes to how to get the money for a down payment in the first place. I hope that’s the subject of his next book.
To see my archive of blog posts on Rental Property Management, go here.
Fine row of 19th century storefronts, Northern Liberties, Philadelphia
I’VE BEEN MOVING AROUND SO MUCH LATELY, my head is spinning. Hence the random assortment of images in this post.
A few days after moving into my new apartment in Prospect Heights, Brooklyn, I took off for a week in Maui. I was back in New York all of two days before heading down to Philadelphia to meet a new tenant and a painter.
Federal-era corner building in Northern Liberties, Philly, now a popular brewpub
Got to hang out in Brooklyn another couple of days…
Flatbush Avenue’s own Flatiron building, near Bergen Street
where I did much of my Thanksgiving food shopping at Damascus Bakery on Atlantic Avenue it Brooklyn Heights. It has become a full-service Middle Eastern grocery in recent years. I went there primarily because Sahadi’s, the old standby, was mobbed, but I’ve since decided I much prefer the offerings (below) from Damascus anyway — all tops.
Meanwhile, Sahadi’s opened a pop-up holiday gift store, below, on the same block, for those food gifts (pistachios, dried fruit, candies, sticky baklava…) everyone likes.
Then I high-tailed it to Ancram, N.Y., in Columbia County, for a high-spirited Thanksgiving weekend with cousins.
Impeccable three-story eyebrow colonial, Ancram
Quintessential Hudson Valley dairy barn, late 18th c.
Hope you all spent a satisfying Thanksgiving with people you love.
UPDATE: This apartment has been rented.
YOU WERE THINKING OF MOVING TO PHILADELPHIA, weren’t you? Or maybe you already live there and need new digs.
The town is hot hot hot, so hot that the popular Brooklyn-based real estate blog, Brownstoner, has just launched a Philly franchise. I mean, that says it all. Philadelphia is now officially New York City’s sixth borough, if it wasn’t already when The New York Times called it that a few years back.
Artists and young people (including my son) are moving there for its cultured but laid-back vibe, less stressful and competitive than NYC, and cheaper. Bars and restaurants opening by the day. World-class everything: gardens, parks, libraries, museums, galleries, historic neighborhoods…personally, I adore Philadelphia and hope to live there one day myself.
But not right away. Which brings me to the subject of this post: I have a wonderful 1-bedroom apartment for rent in one of Philadelphia’s finest neighborhoods, Queen Village (roughly equivalent to the West Village in Manhattan) — and on a prime block, too.
Available June 1st, the apartment is in one of two 19th century townhouses I own in Philly, the older one. The building dates from 1810, and was once a parsonage for the church next door, now co-ops.
The word ‘aerie’ springs to mind: it feels like a roost, on the top (third) floor, overlooking treetops, rooftops, and the flower-filled courtyard of the building next door.
The building is attached only on one side, so there are six windows with three exposures — south and west (the living room and kitchen) and east (the bedroom). Like most Philadelphia buildings, the proportions are on the diminutive side. The apartment is 650 square feet total. It’s best for one person. The kitchen and bathroom are 1980s modern, with newish appliances — in any case, completely serviceable. There ‘s a dishwasher and a washer-dryer.
The downstairs entrance is shared by just one other tenant. It’s quiet and peaceful, but not far from Center City, Italian Market (with its outdoor food stalls), South Street, and any number of bars and restaurants. There’s a sweet park (Mario Lanza) around the corner.
Winter view from one window
Queen Village is actually the oldest neighborhood in Philadelphia. Once called Southwark, it grew up around the 1699 Old Swede’s Church (still there!) The streets and alleys are filled with old brick townhouses, and nothing but.
Oh – the rent. $975/month, plus utilities (electric and water, roughly $90/month in spring and fall, $150/month in summer/winter). Heating/cooling is via electric heat pump, the all-in-one units like those found in hotel rooms. There’s one in the living room and one in the bedroom, and they’re very efficient.
Courtyard next door
If interested, e-mail me without delay: caramia447[at]gmail.com. Or go here for my craigslist posting, which also has my phone number.
Near Mario Lanza Park
HERE I THOUGHT I WAS HOT STUFF, owning a few ordinary properties. Then along comes an e-mail from Tyler Hays, who thinks in tens of thousands, hundreds of thousands, of square feet, and acreage in the hundreds as well.
Tyler, who owns a furniture company called BDDW, recently moved his manufacturing operation from Brooklyn to Philadelphia, where his new workshop is a 100,000-square-foot tannery in the Port Richmond section, and his family’s new home, in Fishtown, a 30,000-square-foot former Catholic school (BDDW still has a Manhattan showroom on Crosby Street in NoHo.)
He also owns an 1844 inn in Shandaken, N.Y., in the Catskill region, as well as the subject of this post: a pair of old stone horse barns on 147 acres 15 minutes north of New Paltz on the west side of the Hudson River.
It’s hard to believe such an elegant turn-of-the-20th-century complex exists in this part of the world. It looks like something out of Brideshead Revisited. Built originally for Colonel Oliver Hazard Payne, a “wealthy industrialist and philanthropist,” it was later used as a Utopian school for boys.
Tyler bought the barns about 4 years ago to use as a workshop. Since moving to Philly, which he “absolutely loves” (he and I have a lot in common), he also became a father for the first time, and those long car rides “aren’t as much fun as they used to be,” he says. “I hate to sell it, but I can’t justify carrying it just to look at it once in a while.”
There’s also a 19th century farmhouse, which is itself a charmer. I’d take just that; wouldn’t know what to do with the barns. But perhaps someone out there does?
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