Case Study: When in Buffalo New York, do as the locals do

A case study following New York City real estate trends and developments, this case study was published in the API Magazine in April 2007.

The way to make property investing work in Buffalo is to do it the way the locals are doing it, says Melbourne-based investor Chad Simmons. He buys distressed properties, `rehabs`(renovates) them and rents them out or sells them at market value, in conjunction with a trustworthy local joint venture partner whom he counts himself lucky to have found.

Chad bought his first Buffalo property in November 2005, after hearing about the western New York market in a radio ad. He ended up buying a Buffalo property with a friend who took a real estate property tour there.

"We knew very little about the real estate market at that point but thought that US $39,000 was cheap and on paper it was showing 20 per cent gross return on investment, " he says. Chad soon started to research the real estate market in New York and Buffalo himself, and one day on eBay found a property in Buffalo that caught his interest.

"It was in a street that I knew so I rang the contact point," Chad says. "I didn`t buy it but the seller was extremely helpful and was intrigued when he found out how much interest there was from Australia. "One thing lead to antoehr and in January 2006 I was sending money over to him to do a renovation on a real estate property that he had purchased. It was the best risk I had ever taken because he is now a very good friend of mine and business partner."

One of these houses, in Downing Street, Buffalo, was a distressed property they bought for US $16,000. It was a two-bedroom, two bathroom duplex. The renovation was US $30,000 – so in all they spend US $46,000. After the renovation, the real estate market value was $US $69,000. It now returns $1300 per month. The taxes are $2300 per year.

"It is in a really good neighbourhood as well and very easy to rent out. We still have this property and Terrell (Terrell Mack, his joint venture partner) manages them" he says.

Another joint venture was a duplex just 20 minutes north of Buffalo, comprising two two-bedroom, and one-bathroom units. It cost US $22,000 to buy, US $10,000 to renovate, and that brought it to a real estate property market value of $60,000. When they sold it – for US $57,000 – each unit had an expected rent of $500 to $550 a month, giving a minimum return on investment of 21 per cent. The bottom unit was already tenanted at $500 per month. Estimated taxes and expenses for this Buffalo unit were $2200 per year.

Chad says, "The relationships was the beginning of my real journey in that Buffalo market because I could now learn what it`s really all about from a local who buys and sells houses in this market for a living." Chad has found the tax side of things very simple. "If you have got a good accountant, they just let you know when it is time to lodge your tax return," he says. "You get an ITIN (Individual Tax Identification Number). It costs $150." That gets lodged with the Internal Revenue Services (IRS).

"Then it is a very similar process to here – your expenses, repairs, insurance, are tax deductible," he says. "This all up costs around US $400."

Like most Australians investing in Buffalo New York, Chad encountered problems finding a reliable property manager. He stopped recommending the real estate market in Buffalo until he found himself a good one – Sandra. Now he, Terrell, and Sandra have set up a local property management operation.

Chad has also set up a venture to sell those real estate properties bought by Australians to US investors. He also plans to begin vendor financing in Buffalo in 2007, something he already does in Texas – another of his US investment markets. "There has been renewed interest in the Buffalo real estate market," he says.