Miami Real Estate Investors Find Value in Ugly Houses
Friday, April 02 2004 @ 04:10 PM UTC
Contributed by: Admin
It's 7 p.m. on the third Wednesday of the month, and 300 people have crammed into the Wyndham Miami Airport Hotel to hear Pete Youngs, an expert in rehabilitating properties, discuss "finding and rehabbing ugly houses."
Some have come straight from work and are still wearing their tool belts and coveralls to the Dade Real Estate Investors Association meeting. Others are dressed in suits or casual gear, but they all have a common interest: picking up useful information and sharing their experiences about investing in hands-on real estate -- handyman specials, "as is" properties, foreclosures and homes "for sale by owner" that can be fixed up and flipped for a profit.
These are the people you see shopping at Home Depot at all hours; the faces behind the real estate ads in fliers and neighborhood papers, and the voices answering the phone for those ubiquitous "buying unwanted houses" signs.
"We've seen a tremendous burst of interest lately," said Bob Hunter, founder and executive director of DREIA.
"There are so many opportunities for investing in real estate because of the number of people living in the area or moving in," he said.
His own story is classic. While working as a salesman selling industrial supplies and vacuum cleaners in Pittsburgh a dozen years ago, he bought his first property for $6,000 and spent $2,000 to fix it up. He got $30,000 for it.
After he moved to Florida, he lacked capital but was still able to find properties and investors willing to partner with him. After 18 months of dealing in South Florida's "bread-and-butter" (inexpensive) real estate, he was able to move from a condemned hotel in South Beach to a waterfront home in North Miami-Dade.
In 1996, he founded DREIA as a networking group to bring together investors, providers of insurance, mortgages and financing, and title companies. The organization also began to function as a real estate education and support group with expert speakers, seminars, workshops and a mentor-of-the-month service.
"Members can call for advice on real estate-related situations and problems," explained Hunter.
He buys distressed properties from banks and estates for resale. Hunter also keeps a portfolio of investment real estate.
"There are always opportunities -- business problems, a death in the family, divorce. Some people don't care; they don't want top dollar but just to get rid of a property as soon as possible," he said. "You can solve their problems and bail them out."
Scott Leon, founder of the two-year-old Broward Real Estate Investors Association, switched from studying to be a certified public accountant to a full time real estate investor.
"I love the independence and being able to make my own schedule," he said.
The Broward group is now the biggest in South Florida, attracting several hundred people to its meetings. Some members are buying their first property; others are on their 100th, said Leon.
"This market is on fire; it doesn't matter where," he said. "The demand is greater than the supply for wholesale properties to be resold. I've heard that there are more than 300 foreclosures a week in the tricounty area."
Yvette Brown and Viju Koottungal of Northwest Miami-Dade look for foreclosures or bargain properties. Their business card conveys this message: "We buy Houses CA$H! any condition or price range. Behind in Payments -- Facing Foreclosure; Moving -- House Vacant; Estate Sale -- in need of repairs."
After four years, they have learned that fixing up and reselling works best for them, but they have held on to their day jobs in the network information systems department of a local university.
"I'm glad we heeded a warning that beginners should steer clear of rentals," said Koottungal. "If I was a landlord early on, I would have been out of real estate in no time"
Their first venture was a bank-owned house in Hollywood. Koottungal calls it "the biggest learning experience we ever had. The house needed extensive rehabbing and the margin was not as great as we anticipated." Expensive repairs to a leaking pool taught the pair to steer clear of buying pool homes.
Their second project came through bailing out a friend prior to foreclosure, then fixing the house and selling it at a profit.
They moved on to buying more houses and learned the art of finding homes at about 65 percent of their improved value. Figuring improvement costs was an important lesson too.
"We went through a lot of workmen in the beginning," said Brown.
Frances Rolph, a Miami Shores resident, gave up her day job for full time real estate investing. "With the stock market down, I realized that I would have to find another way not to retire aged 99," said the former entrepreneur and later, exam proctor. Rolph chose rehab-and-rent as her investment route and borrowed against her own home for an equity line of credit.
She began by looking for an older area with good potential that had fallen on hard times.
Rolph bought her first property, a duplex in a North Miami neighborhood just west of Biscayne Boulevard, in October 2002. She then renovated it to meet requirements of Section 8 -- a federal low-income rental assistance program -- and put in her first tenants.
Her next property came with approval for Section 8 tenants, and Rolph learned how to work with the program to get and keep qualified tenants.
Along the way, she became a savvy shopper and increased her portfolio to a total of eight tenants in three duplexes and two single-family homes.
"It hasn't been all smooth sailing." she said. "I had problems with a property I bought without a Realtor, and the seller walked out at the closing, so we ended up in mediation."
Rolph credits the DREIA seminars and weekend courses with helping her gain expertise.
"I love real estate investing," she said. "I wish I had done it 30 years ago."
Dan Heitner of Northeast Dade is dealing with a real estate market that has changed radically in the seven years since he first started buying small North Miami Beach condos to rent.
"It's not such a good deal anymore because units you could buy then in the mid-$20,000s, have more than tripled, but rents have only gone from $500 to $650 or $700 a month," he said.
Maintenance, assessments, property tax and repairs now eat up a good part of the rental income. Though the value of his apartments has increased, Heitner said that the investment income figures no longer add up.
Even in luxury buildings, the rental income may not be enough to cover expenses. The owner of a $450,000 Aventura condominium rents it for $3,400 a month, but with mortgage and sky-high maintenance and property taxes, he has a monthly shortfall of $200. While the property may appreciate in the long term, it is not producing income now.
Some real estate investors move up to buying small apartment buildings. To make that option work, "you have to screen potential tenants very well in advance and take good security deposits," said Heitner, who also owns a small building in Miami Beach. "One or two bad ones can make life difficult for all."
The attraction of real estate investing is tempered by reality, and Hunter doesn't hesitate to explain the pitfalls.
"People make mistakes. They lack knowledge, become impatient and anxious. Some don't research properly, or they jump in above their heads, overpaying and overimproving," he said.
Scott Leon agreed that people have to do their homework before any deal. "It's not like you see on those TV programs. You can't start tomorrow and be a millionaire in six months. A lot depends on how well you bought, how well you manage your property and how long you stay in the game," he said.
"But, it is a unique occupation where you can start with virtually no money," he added, "and if you are diligent and persistent, then you have the opportunity to make a very good living."