BOOK REVIEW: Crash Boom! Rx for Real Estate Wealth

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.

How to Be an Absentee Landlord (Don’t!)

THERE’S A NEW QUESTION on my Q&A page. I’m putting it up today as a post; it will remain in perpetuity on the Q&A page along with others I’ve answered in the past:

• looking for property under 150K
• where to find good buys on mid-century furniture
• contemplating a move from the Hudson Valley to Philadelphia
• entering the Brooklyn real-estate market as first-time home-buyers
• renting in Brooklyn with three dogs

Check it out when you get a chance. Here’s the latest:

Q: How do you handle being an landlord in multiple cities? I’m in Brooklyn. My girlfriend and I are building a little investment house in downtown Charleston, South Carolina. Going to rent it out…the house is comprised of 3 little lockout apartments and can easily convert back to single family. Any tips or advice on how to be an absentee landlord? – Reid

A: Hi, Reid. What you’re proposing is entirely do-able. I have ten rental units, five in Brooklyn and five in Philadelphia. For the past year-and-a-half, I’ve been living at the end of Long Island, 2-1/2 hours from Brooklyn and 4 or 5 from Philly, so I’m an absentee landlord all around, I guess. I don’t love the term “absentee landlord,” though. It suggests tenants running amok because they think you won’t know or don’t care. It reminds me on New York in the ’70s, when “absentee landlord” was synonymous with “slumlord” in the tabloids. That’s not us! We need a new term (suggestions welcome…)

Anyway, in this day of cell phones, texts, email, FedEx (for leases and keys), and Craigslist, it’s not hard to be “present” as a property owner/manager, even at a considerable physical distance.

The Importance of Being Painted

 

THE OTHER NIGHT, a friend and I got to talking about how to stage a house for sale. Trying to sell a house while you’re living in it, as she is doing — the necessity to keep everything in tip-top shape at all times — gets wearing. She’s on a constant de-cluttering rampage, afraid to leave home without making the bed. And after months of prospective buyers parading through, she’s learned not to get caught up in discussions of her avant garde art collection.

At that point, it struck us why professional real estate stagers advise in favor of unchallenging, middle-of-the-road furnishings. My friend’s wild, abstract art is a distraction from the main point: the architecture and construction of the house.

For me, personally, whether looking to buy or rent, staging would make no difference. I pride myself on seeing right through filth, clutter, and ugly furniture all the way to potential. I even once bought a building that smelled really bad (turned out there was a dead bird above a dropped ceiling). Hell, having a strong stomach is a great way to get a deal in real estate, when those with more delicate sensibilities run the other way.

Many prospective buyers and renters can’t even deal with dingy walls, let alone decaying wildlife. I had this confirmed last spring, when tenants left my 1850s townhouse in Cobble Hill, Brooklyn . I showed it for 3 or 4 weeks, empty but without a new paint job, though it needed one. I was hoping (ha!) that people would see beyond the need for paint to what it could be, and then we would negotiate a paint allowance, or a touch-up job, or maybe even a full paint job. I just didn’t feel like painting a four-story house if it wasn’t going to be absolutely necessary.

I got no serious offers. So I caved, and had the whole house painted top to bottom, including the stair railings, window moldings, insides of closets, etc. Not a square inch remained unpainted. Boom. Next person to look at the place took it.

 

Coincidence? I think not. Just days later, my Cobble Hill neighbor two doors down called me for advice. She was trying to rent the lower duplex of her identical 4-story townhouse (with a garden, on a coveted park block, fairly priced) and having trouble. Again, it needed a paint job and had been on the rental market a few weeks. My neighbor had powerful resistance to the idea of painting. Like me, she didn’t want to spend the money and didn’t want to be bothered. She thought she’d make a deal, and the incoming tenants would arrange to paint or not, as they saw fit. Again, prospective tenants streamed through and no one bit. I said, you’ve gotta paint. She moaned, I don’t wanna paint. I said, I know, but you must paint. She did. Guess what? First person to look at the freshly painted place took it.

Paint. Paint. Paint. It’s not about the space, my friend and I decided, so much as the perception of the space.

Oh, and paint it white.

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Want more insight into what it’s like to own and manage rental property? Take a look at one of my most popular posts, “So Ya Wanna Be a Landlady?”

So Ya Wanna Be a Landlady?

SOMETIMES IT’S GOOD. When all the rent checks roll in promptly on the first of the month, and there’s a long spell without broken appliances or electrical issues or, God forbid, rats.

Sometimes it sucks. I must make it look easy, because recently someone said to me, don’t you ever have plumbing problems or roof leaks?

Of course. All the time. And worse. Old buildings need frequent maintenance and repair. We’ve had flooded basements and frozen pipes. A few years ago, we rebuilt the entire back wall of our 180-year-old building in Boerum Hill, Brooklyn. The rear facade was peeling away, chunks of brick and window lintel falling into the backyard. We took out a home equity line of credit and hired an engineer and a contractor, who set up scaffolding, draped the building in blue tarp, and rebuilt the back wall brick by brick, replacing all the windows. All the tenants lived through it, by their choice (crazy!)

Mostly I love being a landlady, though the word suggests fuzzy slippers, hair rollers, and a feather duster. Things happen, and I address them. Quickly. I want my tenants to pay the rent lickety-split, so I fix things lickety-split. I’m getting better at it as I get older, partly out of a kind of maternal instinct. I have mostly youngish tenants, and I want them to have a nice place to live. So I try to take good care of them.

Right now the flagship of my real estate empire, a four-story 1850s mews house in Cobble Hill, Brooklyn, is vacant. The last tenants, a Hollywood screenwriter who set up shop there with his family while working on a TV show, decamped last week, leaving behind a lot of garbage and dog damage, along with unopened bottles of very good vodka and wine and an array of cooking pots better than the ones I have. (Departing tenants leave very strange things. One woman left her parents’ wedding album and some gold jewelry.)

I spent all day yesterday, from 8:30AM to 5PM, taming the jungle that is the back garden in Cobble Hill and getting the place ready for the painters, who started today, and the housecleaner, who will follow the painters. I have the place listed with six real-estate brokers.

It makes me sad to see that house, where we lived for 20 years and raised our kids, empty. Soon it will be another family’s temporary home. They’ll live in it for a while and then move on.

I may not live there any more, but it’s still my house. I can’t imagine anyone loving it as much as I do.

 

Urgent Real Estate Questions: My Two Cents

C.W., a reader from Brooklyn, e-mailed to ask my advice on, as she put it, “what/if to buy right now.”

So here’s my advice. But please, take it with a keg of salt.  We’re dealing in opinion here, not fact.

C.W. wrote: “My fiance and I rent a pleasant 2BR in Boerum Hill for $2,500.  Our lease ends in September, and we could certainly renew.  I have a job that pays $84K, perfect credit, and $100,000 cash to put toward a home purchase.

I’m torn between wanting to buy the best apartment we can afford in Fort Greene/Boerum Hill/Park Slope/Windsor Terrace, OR a one- or two-family somewhere in upstate New York, the North Fork, or PA that I can rent out, at least for part of the year, to generate income.

Ideally, I’d like to do both, of course, but I suspect that NYC prices haven’t fallen as far as they may, whereas we might find a bargain out of the city.”

That’s the prologue.  Here are C.W.’s questions and my answers: