Real Estate Investment 101: Look Before You Leap… or – How I Accidentally Bought a Crack House
In the fall of 1996 I was on a pretty good roll. After a few years as a NYC real estate agent I was at last figuring it out, things were finally falling into place with my 3 NYC investor co-op units, and I'd come to terms with the fact that not everyone was meant to be a trader on Wall Street.. especially me. I wanted to buy a small apartment building. I didn't have much cash but in 1996 that didn't really matter. Foreclosures were everywhere, financing was pretty easy, and I'd always maintained solid credit. Not great, but solid - and in 1996 solid was enough.. especially in a foreclosure market. [for an explanation of why, unlike the rest of the country, there are so few foreclosures in NYC, check out this article published at the height of the real estate crash of 2008 http://cooperator.com/article/foreclosure-epidemic-skips-big-appleso-far/full] NYC foreclosure auctions were very common in the 1990’s, The New York Times real estate section was FULL of auction ads. So one afternoon I was bored at work, thumbing through the Times - and a few hours later my co-worker and good buddy Neil Benet and I were at the New York La Guardia Airport Marriott, waiting for the auction to start. I'd forked over the requisite $2500 cashier's check to get a bidder's badge just in case, but I told both Neil and myself that this was a dry run. I'd never been to an action before and I just wanted to see how things worked. The $2500 was fully refundable if I didn't win anything, but I'm a leo and like to be taken seriously. The bidding was fast and furious. It was completely intoxicating. At some point the big players had cleared out (hint #1 - time to leave) and they were down to the less desirable inventory.. not that I knew that at the time.. A 3-family house in Brooklyn was on the block and nobody was bidding. This one didn't have a reserve price, meaning there was no minimum bid (hint #2 - time to leave) and some guy was about to take it for $17,000. I smelled blood (or at least I thought so at the time.. in retrospect I was smelling something that I routinely try not to step in). Neil was on the same page and in my ear: "Hey Tiga, are you gonna let this guy buy this house for $17,000??". "Hell no", I whispered back incredulously. "Eighteen - five!!" I shouted out of nowhere. I couldn't help but notice that the wife of the guy who'd bid $17,000's wife looked instantly relieved (hint #3 - time to go home). What happened after that is a blur .. but 5 minutes later I was on the hook for $42,500. I know absolutely nothing about this property. I didn't know the neighborhood, or even the general area. I knew neither the condition of the property, understand the depth of needed repairs, or the ability to finance them. But I was now the proud owner of 110 King Street in Brooklyn.. wherever that was. I'd never even heard of King Street in Brooklyn.. "It's KING Street.. must be good!" Neil's an eternal optimist like me. The next day, armed with a Brooklyn street map, we headed out to view my prize.. We exited the G-train in Carroll Gardens, a beautiful brownstone neighborhood complete with tree-lined streets and smiling young parents pushing strollers. Jackpot. As we walked east towards King Street I noticed two things: the brownstones were becoming decidedly less beautiful and the traffic was getting louder.. because we were approaching the expressway.. and according to our map we still weren't close. As we CROSSED the express way I remember feeling nervous and doing my best to drown out the nagging voice in my head.. "there are 3 rules in real estate: location, location, location...dummy!". A few minutes after traversing the overpass we were confronted by something new, strange, and definitely disconcerting .. pin-drop silence. I had never, ever experienced pin-drop silence in the middle of the day in New York City. It was just weird. 15 minutes (making it a total of 30 minutes walk from the subway.. a complete disaster) later Neil and I were standing in front of my $42,500 palace at 110 King Street in Red Hook, Brooklyn. The house looked like it was about to crumble. It was short, ugly, and completely boarded up. I remember a gaping hole in the front stoop and a rusty abandoned upside-down shopping cart out front. The property to the right was partially burned-out, and to the left there was a vacant lot patrolled by a pit bull. The neighborhood, property, and dog had (I hoped) all seen much better days. Still, I wanted to examine my conquest. The front door was boarded up and chained shut, so Neil kept watch as I pulled back some plywood and climbed through a front window. I knew 2 things immediately: 1 - the property was presently empty. 2 - there were most definitely people living there. There was garbage and discarded food everywhere, clothing strewn about, and most disturbingly needles... discarded hypodermic syringes everywhere.. (I wont' described the make-shift toilet). I was the proud owner of a drug den full of squatters. I decided that the best course of action was a hasty retreat, followed by a humbling phone call to my friend and attorney Michael Strauss, who got me out of the contract. Better to lose $2500 than own a crack house .. especially a crack house with a 30 minute walk to the subway.
[110 King Street today.. as you can see 20 years later, the gaping hole in the stoop remains. Disaster avoided.]
But all's well that ends well. A few months later I found a diamond-in-the-rough in Boerum Hill Brooklyn. It also needed polishing, but was 100% needle-free and much closer to the strain. So instead of dodging junkies and pit bulls, I contend with the the normal landlord stuff: the occasional late payment & leaky toilet, clearing snow, and a once-a-month sit down with my beloved super Mr. Frazier.