Q1 - My husband and I live in the Boston area and have decided to retire to La Jolla, California. I think we should buy a condo there while prices are down and choices are plentiful. My thought is that we can rent it for the next 10 years or so and can pay down the mortgage until we're ready to move out there. We're looking around $350 -- $450,000 and can put down 20%. We have excellent credit and can afford an extra mortgage even without a tenant. My husband thinks I'm crazy...what are your thoughts?
A - Sure you're crazy, crazy like a fox! If you're certain you want La Jolla, then fly out there for a long weekend and look at houses for rent and for sale. You can search and choose them online and contact agents to set up the appointments before you arrive. In a few short days, you'll know if you can find a house you both like and you'll also know how much you can rent it for. Houses in California typically take three months to close, and that gives you plenty of time to find a tenant. But don't drag your feet, because the number of houses sold in California jumped more than 60% last month. Inventory is shrinking and rock-bottom prices won't last long.
Q2 - I am an American citizen, but live and work in the Bahamas. I'm considering purchasing a second investment property in Florida. My credit rating is excellent and I have no debt. I've also paid off the mortgages on the two properties I now own. However, my mortgage broker says the banks want a 30% down payment. This week in your segment you mentioned getting an investment property with as little as 3% down. Where do I go for that?
A - Sorry to disappoint you, but the loans that require only 3% down are FHA loans and only available to people buying a home for their own use, not an investment property. But with your good credit and large equity, you should easily be able to get a home equity line of credit on one of your other homes to use as a down payment on an investment property.
Q3 - My brother-in-law and I are getting together to buy up some foreclosed houses on Long Island. The way we figure it, we should be able to grab a half dozen at a good price. We live in Nassau County, but think Long Island's the place to be. We're both going to work on it together, so should we share all the profits 50/50?
A - Before you go out blowing a big wad of money, slow down honcho. If you want to become a real estate shark you better start small. Big shots always get burned. Why not buy one small property with your brother-in-law in your own backyard and see if you even like each other when the first deal gets done. If it goes well, you can split the profits and move on to the next one.
Q4 - Space is at such a premium in Manhattan that condo/coop owners are able to realize monthly rents of $10k and above. Is there a way to persuade coop boards to allow sublets?
A - Coop boards don't think it's in their interest to allow shareholders to sublet their units because they believe that buildings occupied only by resident shareholders increases the value of their stock and enhances the quality of life for everyone in the building. Nice theory. But in tough times like now, with too many coops languishing for sale and few buyers grabbing them, the coop boards are dead wrong. The fact is that condominiums hold their value better than coops and are also a great place to live. Condominium owners are allowed to lease their units, stall off selling and use the rent to pay their common charges. The coop boards should change their rules to accommodate changing times, but they don't. According to Al Fazio of Capuder Fazio Giacoia, LLP, a few coop boards permit short-term renting for only one or two years if the shareholder can prove financial hardship or if the shareholder is being relocated by a business. That's your best shot at getting a yes from the board, but it's a long shot.
Q5 - My mother died in November 2005 naming my brother and me executors of her estate. Three and a half years later we still have one item hanging over our heads. My mom owned land in Delaware, one mile from Bethany Beach. Her will stated that the property should be sold and the proceeds divided equally among her five grandchildren. They are to receive their share as they turn 23. Right now the grandchildren's ages are 21, 20, 19, 19 and 16. We have not been able to sell this piece of land as it's in a small community that has no real amenities. We've lowered the price twice with no results. There are two other properties for sale in the community but they are priced slightly higher than ours. We fully realize that if people purchase a summer place they prefer something already built, with the amenities like tennis courts and pools. We are not sure what to do at this point. Do we lower the price drastically or just sit it out? We have 17 months before the oldest grandchild turns 23.
A - What's the big rush? Sure it would be nice to have the place sold by the time the oldest grandchild turns 23, but it's not only unrealistic, it's probably not even in the interest of the five heirs. There's virtually no market for undeveloped land right now and if you could sell it, it would have to be at a fire sale price. Here's what to do. Pay for a professional appraisal of the land and share the price estimate with the five grandchildren and their parents. As executors of your mother's estate, you and your brother should make your recommendation to the family based on the value you receive. If it were me, I'd sit tight and wait for sunnier real estate days in the future.
Q6 - While there is only so much space on the island to go around (hence the "supply" side of the equation is in good shape), can one expect investing in New York City real estate to be as profitable as it has in the past? Is the "demand" side of the equation still intact despite the carnage we have witnessed in the financial and asset markets?
A - All the financial mess here in New York City is really just a speed bump on the way to future riches. I've lived through real estate markets a lot more hopeless than this one, and every time the city turned around and bounced back, taking real estate values up with it. In 1974 I listed a 14-room, park view apartment in the famous Dakota on Central Park West. The price the seller set was absolutely nothing! Zero! The owner was willing to literally give it away if I could only find some sucker to take over his monthly maintenance. I couldn't find the sucker. That same apartment was sold five years ago for $18 million. New York City is a boom-bust-boom town; don't ever underestimate its power.