Buffalo’s stock of depressed housing has seen its share of hard knocks.
Beckoned by rock-bottom home prices, out-of-town investors have scooped up dirt-cheap properties looking for a quick profit. Too often, the results have been disastrous for both the city and the investors themselves — overpriced, under-renovated flips; mortgage fraud; tenants living in slum conditions.
But there is money to be made in an ethical way in such a market, experts said, for those willing to do things the right way. And doing things right involves a lot more work than just buying low and selling high.
“As far as investment property goes, there is a lot of potential,” said Ben Okonov, a property investor and real estate agent with Hunt Real Estate Corp. “The numbers are better here than anywhere else. There are people who do it right and are successful.”
With its low prices, the Queen City provides a way in for small-time investors, but it’s not easy. The ones who succeed are generally hands-on operators putting in sweat equity and living in the area.
Doing things right means buying the right properties in the right neighborhoods, renovating them properly, renting to reliable tenants and consistently working to keep things running. Because the bread and butter is in monthly rent cash flow, rather than speculative, top-dollar transactions.
Just ask Brian Behrmann.
In 2007, he and his wife, Karen, started building a mini-empire of inexpensive single and double-unit homes in some of Buffalo’s more troubled neighborhoods. In 2008, they moved to Buffalo from North Carolina to focus on their properties here full time.
They amassed 47 homes, mostly from foreclosure sales of less than $20,000. The homes dot the East Side, University Heights, Black Rock, Riverside and are clustered around Grant Street. Bought in various states of disrepair, Behrmann renovated each one and began renting them out, some to tenants receiving Section 8 housing assistance.
“With Buffalo, you get really good pricing, but there are houses I wouldn’t take if someone gave them to me,” said Walter Behrmann, Brian’s brother and partner. “It’s tough to find the right ones. You have to really look and work long, hard hours.”
It’s not glamorous, but it’s a living. In their sale listing, the Behrmanns claim to make a gross annual rent income of $542,700. Sale price data was available on only 37 of the 47 properties, but those 37 were originally bought for a combined price of $468,304.
Several of the Behrmanns properties visited by a Buffalo News reporter appeared to be in solid condition. And though there are always tensions in landlord-tenant relationships, several of Behrmann’s tenants had good things to say.
Ebony and Mike Staten have lived at 74 Fernhill Ave. since May. The house is in good condition but could use a new set of front steps.
“He’s a decent man,” Ebony said of Brian Behrmann. “And it’s a really nice house.”
Both said that when they ask for repairs or improvements, Brian is quick to respond.
“He will try to get it done,” said Mike.
Karen Walker has lived at 60 Schuele Ave. for a year. She is very happy with her apartment and says Brian is always responsive.
“There’s nothing I’ve asked him to do that he hasn’t done,” said Walker.
Karen Behrmann is in the process of addressing a health code violation in Housing Court, which was adjourned in contemplation of dismissal in June. Still, it’s a far cry from the widespread violations slumlords such as Scott Wizig left in his wake. The Houston investor bought up 300 properties here in 2000, becoming the most prosecuted landlord in Buffalo history and contributing to the formation of an Anti-Flipping Task Force.
Today, all of the Behrmanns’ 47 homes — a total of 82 units — are up for sale as a turnkey, professionally managed package deal, selling for $2.5 million.
The Behrmanns said they are just testing the market.
“Everything is for sale at the right price,” said Brian Behrmann. “But I’d be happy to go on managing them as I have been.”
Indeed, Karen Behrmann snapped up three more properties at auction last month for a total of $16,000.
Difficult to sell
The Behrmanns willingness to stay invested in Buffalo could be a good thing, considering a similar package of homes from another seller has been on the books for more than a year.
In August 2008, a locally managed mix of 41 single, double and multiunit residences and apartment buildings went up for sale for $2 million. The price has since dropped to $1.9 million.
Okonov is representing the out-of-town seller, whom he declined to name. The seller spent five years buying properties a few at a time, building up a large portfolio. He is now hoping to sell them to someone who would like the benefit of monthly income without having to do all the work from scratch.
“He’s growing. He bought small, now he wants to sell and buy bigger,” said Okonov. “He’s getting out of residential property and wants to do more commercial.”
But the same real estate crisis that attracted investors to Buffalo and insulated it from the housing crisis is now making it more difficult for some to cash in on all their hard work.
Financing, here as elsewhere, has been a problem, especially the blanket mortgaging necessary for multiple properties.
And those with ready cash are looking to markets such as Florida and California where prices have plummeted with hopes of rising again. Investors priced out of hot markets during the height of the bubble and who would have looked to Buffalo for better deals are now able to look elsewhere for easier investments.
Why should out-of-towners opt for blood, sweat and tears in Buffalo when they can simply buy and hold in Nevada or Texas?
“This package will be appealing to a number cruncher,” said George Correa, a real estate agent with Hunt. “Unfortunately, that is where the long-term danger comes into play for the buyer, basing his decision strictly on the numbers without understanding the neighborhoods. With no Buffalo real estate experience, he or she could end up in a lot of trouble.”
A particularly pressing problem here, especially with these types of multiproperty deals, is management.
“It’s the nit-picky things that drive investors out,” said Todd Vanderlip, a realtor with Keller Williams Realty. “If your tenants forget to put their garbage cans away one week, that’s 45 properties times $52 [in fines].”
Indeed, management is an oft-cited challenge for landlords of scattered single and double- unit properties. Rather than a multiunit apartment complex, where a property manager has just one location to deal with and operate from, managers of properties scattered all around the city can spend half their day just traveling to sites, greatly increasing the cost of typical repair and upkeep.
Needing unique knowledge of so many separate properties makes out-of-town ownership difficult at best, experts said. The sellers represented by Okonov have to visit Buffalo at least twice a month, and gave up on local management companies, forming their own stable of Buffalo managers and maintainence workers.
No quick-buck deals
But even if the national market has drawn the attention of transactional buyers away from Buffalo, experts said that could be a good thing.
“When you get an investor who comes in wanting to properly flip properties, it adds value to the neighborhood,” said John Leonardi, chief executive officer of Buffalo Niagara Association of Realtors. “Socio-economically, if you want to rebuild cities with a strong foundation, one way to bring that together is to have solid housing stock.”
The hands-on nature of Buffalo’s real estate game has proven unsuitable for out-of-towners looking for a quick buck with minimal effort. That could shield the market from the types of unscrupulous deal makers that burned the area in the past, and could attract the types of devoted investors that elevate neighborhoods and market values.
“We should hope that the Behrmanns take that money and buy 67 more properties and do the same thing over and over and over again,” said Correa. “Because maybe then they will positively affect the real estate market in the city of Buffalo and others will follow in their footsteps.”