Investors find real estate enticing once more

HACKENSACK, N.J. — The stone house has small rooms, an overgrown yard and a roof that begs to be replaced. But investor Frank Oliveri and his business partner, Al Best, see the potential in its Wyckoff, N.J., address and the $125,000 in renovations they've got planned.

The house fell into foreclosure after selling for $522,000 in 2006, when the housing market was at its frothiest. Oliveri, of Rochelle Park, N.J., and his brother, Mel, bought it recently for $315,000, even less than its 1999 sale price of $339,000.

After extensive renovations — including the addition of a master suite — the investors hope to sell the property for more than $600,000.

If this deal works out as planned, it will illustrate the more favorable numbers that are slowly drawing investors back into the real estate market. After the housing crash left many with losses, some investors are now seeing the attraction of lower home values and interest rates, as well as higher rents. Home sales are running ahead of last year's very slow pace, and about one in five buyers is an investor, according to the National Association of Realtors.

"The flipping market is back," said Antoinette Gangi, a Re/Max agent in Woodcliff Lake, N.J. Real estate investors, she said, "want to put their money in the dirt, not in the bank."

That's certainly the case with Best and the Oliveris. They look mostly for short sales or bank-owned properties, because they have to buy the properties cheaply enough that they can still turn a profit after spending on improvements. That's easier to do in the current market.

"Prices have come down, and investors have a lot more room to wiggle with," said Frank Oliveri. His brother is head of Property Hub Realtors in Paramus, N.J.

Builder Lou Chiellini of Park Ridge, N.J., who buys and renovates or replaces homes, also said that he's been able to pay less for properties these days. At the same time, he's accepting lower profit margins than in the past, he said.

"If you're not greedy, you can still make money," Chiellini said.

Some investors would rather hold properties, to take advantage of both lower purchase prices and higher rents.

"In some areas of the country, housing prices are down to the point where you can get a positive cash flow out of turning property into a rental unit," said Jed Smith, an economist with the National Association of Realtors. "In the past, they couldn't get a positive cash flow on rentals; they got a return based on appreciation. Lower prices make properties more appealing to investors."

"In any market, if the numbers make sense, you do the transaction," said Dan Schwartz of Fair Lawn, N.J., president of the non-profit Metropolitan Real Estate & Investors Association. At current prices and interest rates, he said, "the numbers are more likely to make sense" — though there are still pitfalls.

"Yes, prices have come down and interest rates are at historic lows; however, banks are highly reluctant to lend money," said Schwartz.

Certainly, there's still plenty of risk in real estate investing. Upgrading a property can be expensive, and holding costs such as taxes, mortgages, utilities and insurance can eat into an investor's profit — especially if the sale takes longer than expected. Surprises like asbestos, bad wiring and underground oil tanks can pop up in older homes, requiring expensive remediation. And with mortgage money still tough to come by, it's not always easy for investors to find buyers.

"It's not easy money," Best said. "You're going to find your opportunities, but nothing comes for free. … It takes a lot of money and a lot of people to bring a deal together." He and his partners borrow from private investors at high interest rates.

"There are more ways to lose money than there are to make money, when you're not seasoned," said Billy Procida, president of Procida Advisors in Englewood Cliffs, N.J., who invests in real estate directly and also lends money to other investors. "Real estate is the single most complicated type of investing you could do. … I've seen people buy land without knowing there's a stream running through it and they can't build on it."

"Most investors are one-and-done. They realize they're not going to make the money they're supposed to make," said Gene Lowe of Better Homes and Gardens Real Estate Rand Realty in Wayne, N.J.

Lowe is an active investor who has recently stepped up his buying pace. His usual method is to pay cash for a small, neglected house — often an estate sale and often the least expensive home in a town. He'll spend a short time and limited amount of money to renovate it, then quickly resell. After a long period of watching home values slide, he said, some sellers are willing to take low prices.

"They're worn down after trying to sell their house for the wrong price. I offer them much less than market value, and they take it," he said.

For example, he said, he recently bought a bi-level in Butler, N.J., for $250,000, put in $15,000 worth of improvements, and sold it for $318,000.

One key to his success: he avoids major renovations that require getting permits from the town, because that dramatically slows the process.

Schwartz, a real estate investor since 1982, agrees that many investors spend too much time and money on renovations, which makes flipping a tricky proposition. He prefers to hold properties and rent them out for enough to cover his monthly costs.

Even with the risks, Schwartz thinks investors will look back in 15 years and wish they had taken advantage of this year's low prices.

"Real estate has always gone in cycles," Schwartz said, "and I bet my money on the fact that it will go up again."

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