All Forum Posts by: Michael Gansberg

@Andrew James - as a new investor, I’d urge greater than usual caution when considering the Caribbean as your first investment. Distance makes investing more challenging, as does seasonal occupancy and governments which operate differently and/or are less stable than our own(though our own government has not been a paragon of stability lately.)

By investing in the Caribbean, you’re adding those challenges plus you’re throwing in the occasional hurricane.  Furthermore, many owners in the Caribbean bought their properties as vacation homes, diminishing the connection between what a home rents for and what it sells for(and not in the direction an investor would like.) 

But if you must invest in the Caribbean, consider what most early investors/developers did on Grace Bay in the Turks and Caicos. They bought land, built condos, then sold those condos. Often, management is on site and many condos are kept in the rental pool. This usually just means the owners don’t have to pay maintenance- I’ve never heard of anyone profiting from buying a condo in this way. 

So the developers have performed some interesting magic- they’ve sold condos to people who cannot hope to profit on the cash flow. I guess if the cash flow were compelling, the developers would’ve kept the units for themselves😂.

I suggest buying locally(or more locally) and using real estate in the Caribbean for its primary purpose- kicking back and chilling out 🍸 

@Sean Lauber - congratulations on your acquisition. Sounds like you did very well! It reminds me of my first acquisition in ‘03. I was on the 1st floor an I heard gushing water- so we(me, the broker, and the seller) went into the basement and there was ankle-deep water- the source was a hot water tank actively leaking from some place or other. The seller grabbed a wrench🔧from a shelf in the basement and beat on the tank for a minute or so, after which it obediently stopped gushing water. I said to the broker, “I wanted to get my feet wet, but this is ridiculous!”

Suffice it to say, the building I bought was not nearly so well maintained as the one you bought. I wish my older more experienced self had been there to advise the younger me! However, the building was in(and remains in) Hudson NY which has washed away many mistakes like the one I made, and I’m still a proud owner of it.

MG

Happy to help, @Joshua Lupo - early in my investing career, I purchased stuff that was mostly ready to go. Albany worked well with that investment approach. Later on, I've acquired only distressed assets as I can accomplish greater value-add with my team on those assets than can most typical purchasers, and I can accomplish greater value add for myself on those properties relative to the non-distressed asset class.

Albany resists those efforts, however; in order to rehab distressed assets in Albany, you need licensed plumbers and electricians for any plumbing/electrical work. And they must be licensed in Albany proper- there are not many of those licensed plumbers and electricians around(because Albany licenses so few of them,) so they have a bit of a monopoly. This causes very expensive rehab costs in Albany, relative to even Albany's near neighbors, and I believe it's a primary driver of the urban blight that's evident in parts of Albany. If people could rehab those houses with less expensive labor, they would- but some of these houses are so far gone that there's no economic benefit to fixing them up when the plumbing bill is $25k and the electrical bill is about the same. So by trying to protect its citizenry, I believe the government of Albany has made an incorrect calculation. The plumbing and electrical may be marginally safer, but the increased blight due to government's pricing distortions likely causes harm to Albany's citizens in other ways that may be less evident than a burst pipe or an electrical fire, but may be equally or perhaps even more pernicious. Hope this helps! I'm spending my last day on vacation, so back to the beach with me, looking forward to hearing about your first investment, 

MG

Hi @Joshua Lupo - glad to see you're considering investing in the Capital District. I currently own in Troy primarily, Waterford secondarily, and Albany in a tertiary way. I've brokered deals for clients in those areas as well as Cohoes and Watervliet. I personally have avoided Schenectady due to the property taxes, and I think the government there has just screwed things up over the years. Will a casino fix things? How'd that work for Atlantic City?

Troy is on the upswing, but their property taxes have been rising pretty sharply of late. They removed their recycling fee, but replaced it with a much steeper garbage fee(which was really a tax hike as taxes once included garbage but no longer do.) The garbage fee is $160/yr per unit. Taxes are rising there faster than owners' ability to raise rents- this does not bode well and hopefully this is only a short-term phenomenon, but who knows.

If it's more certainty, less risk, but perhaps less upside that you seek, Watervliet might be a good choice. It's a sleepy part of Albany where I don't expect major changes to occur in the near to medium term.

Waterford is a very interesting place- I've had good luck there, though the local government is a little more interesting than I'd like it to be. I picked up this sweet 4 unit(and another uber-chill 6 unit) in a single deal in 2014. That porch you're looking at was built by us! It replaced another porch that was built before I was born and was crumbling because it hadn't been anchored to the bedrock properly. Since it's a historic district, the porch had to be rebuilt to the same appearance. Beaucoup bucks, lemme tell you! But I'm rambling. Good luck with your investment and welcome to the neighborhood,

MG

Hey @Jeff Rodgers - I can unequivocally state that listing agents share info. They’re people, and people do that sort of thing sometimes. One example I saw involved a broker talking about bids - and the lowest amount her client would accept - openly in the office. Other agents heard the conversation, which definitely could have cost the seller a good deal of money if any of those agents ALSO happened to know the buyer 😉.

That’s just one example. What you’re referring to could happen like this- an agent gets an offer on a house that’s sat for 6 months, for example. Then at dinner, they tell their friends, “wow, I just got a lousy offer at 20% below ask on that house that’s sat for 6 months!”

Maybe one of the agent’s friends goes online to look at the agent’s listings, figures out which one it is, then passes that info to another one of their friends. There are many ways this sort of thing can(and does!) happen.

Congrats on the 3 deals you closed! MG

@Nick Warren - don't do it. Electric baseboard costs about 90% more than oil to heat a home(this depends on electric rates and oil prices. The calculator I used had an electric rate at 15 cents/kilowatt-hour and oil at $2.21/gallon.) If you're gonna rip out the oil, replace it with natural gas forced air(good) or ductless heat pump systems if the home is a candidate for that(much better.)

@Louis Aller - I'm not sure that the payback time on any of these options will meet your requirements. The electric wall heat option is a definite no- it'll cost the tenants so much that you'll never hear the end of it, and you'll have higher turnover rates. You'd have to reduce rental rates so sharply that it would have a negative return from day 1.

But if you are going to proceed- I'd go with ductless heat pumps. There's an energy calculator on efficiencymaine.com. I ran the calculation with a ductless minisplit air source heat pump vs an energy star oil furnace/boiler(with oil at $2.21/gallon and electric at 15 cents/kilowatt hour,) and with these assumptions, the ductless saves about 35% on heating costs. So if you're paying $5k/yr to heat the place with oil, the tenants should pay $3250/yr for heat. 

If that's the end of the story, I'd say it's an awful investment- $6k X 4 = $24k invested for a savings of $1750/yr, or about 7.3%. But there's more to it. Your tenants will have power over their own heat. If your building is poorly built, that could be a disaster; a tenant leaving the heat off(to save $$ or because they forgot to pay their electric bill) during a cold snap could cause burst pipes and big damage. In a well-built building, that's not an issue. If that's your situation, then tenants having control over their heat is much better than not. If one tenant likes it cooler and another likes it hotter- no problem! Plus they'll have AC in the summer without those unsightly window AC units. These will make your building a much nicer place to live(translation- cha ching! Nicer place = higher rents and lower turnover. Maybe that 7.3% return will really turn out to be more like 15%)

Also, how do you broach this issue when leases renew? If you tell the residents that since they're paying the heat you're reducing rent by $500/year per unit, then you take in $2k less in rent, but save $3k in heating costs(if my estimate of $5k/yr was right.) That makes the investment look a little better.

Installing gas forced hot air will be less effective- depending on gas/oil prices, you might only save 10%, plus everyone will have to pay for extra gas service which could wipe out those savings. 

MG

Hi @Eric Meyer - I can’t say whether I’d buy or run away, but there’s a cheap way to remediate lead in dirt fairly effectively(it takes some time and patience.) One word: sunflowers  🌻🌻🌻  

There are certain species of sunflowers which absorb lead effectively from soil. So at the beginning of the season, plant the affected area with many of the proper type of sunflowers- then at the end of the year, cut them down and take them to the dump(they’ll have high levels of lead in them- I’m not sure if you have to dispose of them in a special way, but you can’t let them die in the yard as the lead they’ve taken up will then go back into the soil.) You can also grab the seeds from the old sunflower heads and plant them in the subsequent year(unless the lead concentrates in the seeds, then I recommend not doing this.) 

Have the soil tested- grow sunflowers- test it again after harvesting. The second benefit of this is that lead regulations in my area(not sure about yours) allow for higher lead levels where stuff is planted and kids won’t be playing. If it’s exposed dirt where kids tend to bathe in the stuff, the lead levels must be lower.

Hi @Mike Cross - instead of comparing prices, why not compare cap rates? If Journal Square is cheaper, but also has a lower cap rate, then your return on invested funds will be lower(should your cap rate calculation bear out.)

The cap rate is just a snapshot of what is, not what will be. The latter is much harder to figure out. As Yogi Berra said, “It’s tough to make predictions, especially about the future.” 

I think the NYC Metro area should continue to drive prices in the boroughs and Jersey City/Hoboken. If you believe NYC will continue to thrive, then you should also believe that prices will increase over the long-term in the NYC Metro area. I’m a bird-in-the-hand guy- if it doesn’t pay me now, I don’t trust that it will pay me later.

Hey @Cheryl Branche - you’ve hit upon the main problem with NYC investing; getting positive cash flow. If positive cash flow is important to you(and it seems it is from your post,) instead of changing the purchase price, why not change the property? Lopping 25% off the asking price in NYC right now doesn’t seem realistic. 

Have you considered further out in Brooklyn(the Rockaways, for instance) or Staten Island? Or Long Beach or Yonkers? I think you’ll have better luck with cash flow if you get a bit further from Manhattan.

MG ☔️