So You Want To Be A Real Estate Investor?
When you think of real estate investing, it may sound like a lofty aspiration or a hefty obligation, depending on who you’re asking. It'd be easy to balk at the obvious: taking out a huge mortgage, the insurance premiums, taxes, leaky faucets, nightmare tenants, and more. While the problem aspects of being a real estate investor can keep you up at night, there’s another side of it that can help you to sleep like a baby. It might feel pretty comforting to have that extra income from your rental(s) to line your pockets with every month, and the equity that builds over time would be a nice addition to your nest egg- especially since a chunk of Americans are not on track with their retirement savings. You can even do “house hacking”, where you purchase a home to live in but also rent out portions of it to help pay down the costs of ownership and receive some cash flow. That would be a huge benefit, especially for millennials, who list housing costs as the number one reason why they’ve fallen behind on saving for retirement.
Glen with his Son Paul
This article is for the everyday person who always wanted to invest in real estate or become a real estate investor, but have no idea what to do, how to do it or how to even try. The right man to speak to about this exciting, yet intimidating trade is Glen Galluci, owner of Peak Private Lending & Peak Properties LLC. For over 30 years, Glen’s been investing in real estate and amassed a portfolio of properties that are “in the thousands”. Based in New Jersey, he got his start in real estate very early on in life. His father owned a large construction company in New York City and Glen would spend summers working for his dad when school was out. Not only did he gain the technical know-how involved with property development, he also learned how to negotiate with contractors, owners, landlords and union delegates. For many investors like him in New Jersey, especially those managing older properties, selecting a reliable window replacement contractors, or a kitchen remodeling company like Magnolia, can make a significant difference in the portfolio. “I was getting a pretty diverse background” Glen stated. His foray into becoming a property investor happened almost nonchalantly, when a realtor he knew in New Jersey suggested he “buy a house and fix it up”. Glen said yes, and thus, his journey began.
But, his first move into real estate investing wasn’t an ideal one. “I proceeded to go in and fix it . I made it beautiful. Spent a lot of money. Went to sell it, and didn’t make any money!” he said heartily. Why did it flop? Glen says it happened because he wasn’t an investor. “I was a contractor. I didn’t really know the numbers and how to evaluate the deal properly.” Simply put- he just spent too much money on it. And knowing the numbers seems to be the winning factor in this business. This will get you farther than having an excellent credit score or six figure income. “Private money lenders are strictly asset based,” he said, “The first thing is, do they have a qualified deal.” How would an individual with no real estate background know whether or not they have a deal? “It’s very simple,” Glen states assuredly, “and it’s a really, really good guideline.” And it is simple; you must abide by the 70% rule. This rule sets the limit on how much you should purchase the property for at resale price. So for instance, this four family property for sale in Parkchester is currently listed at $1,099,000 dollars. Let’s assume that it sold for that price, and right around the corner there’s a similar yet distressed property that could sell for the same. Figuring what 70% of the after repair value, or ARV is (in this case it comes out to $769,300), you’ll then have to account for any possible renovation costs and subtract that too. Let’s say it’ll take $100,000 dollars to renovate which means you’re now down to $669,300. “That is what we call the MAO, or maximum allowable offer.” Once you have that, you have a deal.
There’s other ways to practice real estate investing, especially for those who have no money to put into deals or rather make a quick, yet smaller amount of money, avoiding the fix and flip or buy and hold investment strategies. This alternate approach would fall under wholesaling, where you as the investor would either buy at a slightly deeper discount and sell it to the next investor or you’d assign the contract you have on the property to the next investor, an approach that would grant you an interest in the deal without spending any of your own money. “One of the ways a lot of beginners do get in is they go out, and they look for properties for cash buying investors like myself,” he stated, “using the 70% formula, whatever that number is, they need to deduct their fee.”
This is an ideal way for new investors to start making some of their own money, build relationships with other investors, learn how the game of real estate investing works and eventually start coming to the table with their own money for larger deals. If it sounds very similar to being a real estate agent, whose job it is to go out and find properties for buyers and investors then collect a fee for their service, it does but with one very important difference. You can also start investing by getting an LLC for wholesaling houses. As a wholesale investor, you’re actually putting the property under contract yourself. “You can't go and get a seller and match them with a buyer. Now you’re acting as a real estate agent. That you cannot do.” Glen stated. “But you could put a property under contract. Now you have an equitable interest in that property.”
A humble climb up the wealth ladder via real estate investing in New York City is quite honestly, unattainable for most. Even for the experienced investor, looking beyond their immediate area for opportunities isn’t uncommon “We’ve got people here in New Jersey going up to Buffalo, Syracuse, and they were buying properties for fifteen and twenty thousand dollars”. So, if you’re a working professional living with roommates somewhere in midtown on a $65,000 salary, you probably won’t be buying a brownstone on the Upper West Side anytime soon. Your journey into real estate investing may be a PATH or Metro-North train ride away. However, Glen doesn’t recommend going too far out, “Beginners, you need to stay close where you can look and see and visit your property.” If you’re just starting out, you simply will not have the resources to properly assess your purchase and then manage it from a very far distance. He also suggests sticking to the “meat and potato” markets. What does that mean? “It means buying properties that are going to sell from between $200,000 to $500,000 dollars,” he said, “that’s middle America.” Glen realizes that most people can afford a home within that range, and when you start to exceed that price point it’s an entirely different market. “Holding costs are higher, you get more finicky buyers.” If you can’t meet the expectations of home seekers or sell the property quickly, it’s going to sit and it’s going to cost. “We have a lot of people from Brooklyn that come into the New Jersey market. We have a lot of people from Manhattan. They’re not buying and flipping condos in Manhattan.”
Glen with the Peak Private Lending Team
It doesn’t matter where you choose to invest, how much money you have (or don’t have) to invest or the investment strategy you take. If you want to succeed as a real estate investor, it seems that second to knowing the numbers is surrounding yourself with other people in the industry. Glen suggests hooking up with your local real estate investment club or association, which he states can be found through Meetup.com, “You will find every type of investing meeting on meetup.com. Twenty years ago, you didn’t have this. It was all about who you knew, who your parents knew, who your coworker knew.” These meetings will also give you the opportunity to connect with other industry professionals that you’ll need to get the deal done, such as real estate agents, attorneys, appraisers and contractors. In particular, Glen speaks to how important investor friendly real estate agents are and to keep them at the top of your list.
There are two additional things that Glen mentions first time investors need to do. Always get a title search done on the property and always get a home inspection. The title search will ensure that you obtain “clear and equitable title” and if anything pops up, have the seller satisfy it or see if you can figure it into your numbers. For the home inspection, Glen says “don’t take anyone’s opinion, even your contractor’s, about the condition” of the property and to get it inspected. Doing so will make you aware of any major issues with the property, such as structural defects, and offer you a complete overview of all of the things that need to be renovated.
What’s the take away? “Stay in your local area, stay in the meat and potato market, and absolutely adhere to that 70% rule. Do not violate that. Work with knowledgeable, investor friendly realtors and the last thing- get educated.”
To find more information out about Glen Galluci, how to invest in real estate, or his real estate investment group you can visit www.peakpropertiesllc.com and www.peakprivatelending.com.
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