Landlord Discovers the Difficulty
Of Managing a Rental From Afar
The investor: Nick Gullo, 31, is a Long Island police officer and former New York City detective. He says he's always been interested in real-estate investing, motivated in part by friends in the mortgage and real-estate investment businesses. "It always sounded like a prestigious thing to say 'I own property,' " he says. He began researching investments three years ago, scouting potential neighborhoods by car during his off-hours. He cut his first deals over the past two years. In addition to the property in this column, he owns three duplexes in Nassau County, Long Island, N.Y., as well as a duplex and triplex in the Buffalo, N.Y., area.
The property: Mr. Gullo paid $23,000 in cash for a triplex fixer-upper in Buffalo in a foreclosure sale in February 2004. He estimates that the brick building was built during the 1950s. It contains three small two-bedroom, one-bath units with fireplaces, each no more than 700 square feet.
The strategy: Mr. Gullo knew he'd have cash flow of about $420 per month (factoring out fees for rental management and building-maintenance) from rents paid on all three units. Contractors finished renovating the building by late April, and he had all three units rented by May 1. He also planned to use equity from the property to borrow money for other deals. An appraiser valued the building at $68,000 post-repair, which Mr. Gullo leveraged to borrow a home-equity line of credit to have available for potential future purchases. He says interest rates are sufficiently low to make it a good time to buy and build equity.
Additional investment: Mr. Gullo paid $17,000 to rehabilitate the building, add a new roof (which alone cost between $8,000 and $9,000), put in new sheetrock for the walls, repair electrical systems, update baths and kitchens, repair plumbing, and paint throughout.
The pitfalls: Mr. Gullo says this deal and others in Buffalo will make him money, but says he plans to pull back on investing outside his home area, because he'd prefer to handle his own renting. Because he is not on-site, he uses a Buffalo-area management company, which charges a 10% gross rent fee. He says that since he's now accruing enough equity to pursue higher-priced deals in Long Island, he'll focus his energy there. He also says that while the triplex has been appraised for $68,000, he had to ask for $59,000 because he didn't get much interest initially in the property, which he listed as a for-sale-by-owner (FSBO) transaction. "I don't know what's going on up there," he says, referring to the Buffalo real-estate market. As of mid-October, the building is in contract with a buyer paying the $59,000 asking price.
The payoff: If Mr. Gullo realizes his $59,000 sale price, he could see a pretax payoff of at least $21,810.The sale price, subtracting the purchase price ($23,000), repair ($17,000), and utilities/taxes (20 months at $237.50 average per month), but adding $420 per month in rental-income profit ($7,560 total rent for May 2004 through November 2005), results in a $21,810 profit.
Do you think this was a good investment? Share your thoughts on this property.
-- Ms. Hodges is a free-lance writer in Seattle.
Email your comments to rjeditor@dowjones.com.