All Forum Posts by: Llewelyn A.

@Jesse S.

I have a portfolio of 10 small multi-family properties here in Brooklyn where the center point is Prospect Park.

More specifically, I own properties in Ditmas Park, Windsor Terrace, Clinton Hill and Bed-Stuy.

Additionally, all 10 properties are between 2 to 4 Units, NONE are Rent Controlled or Rent Stabilized, and all have two or more Partners.

The first property we bought was in 1997 in Ditmas Park.

The last we bought we bought was in 2018 in Bed-Stuy right near the A-Train at Nostrand Ave stop.

Acquisitions are on hold mainly because of very uncertain, unfriendly to Landlord politics.

This past June, a suite of Renter Friendly laws were passed.

Most of the changes strengthened the laws that were already here in NYC for Rent Controlled and stablized apts.

However, other parts of the law affects every single rental, including non-regulated apts in the State of NY. Some of those are:
- Cannot charge more than $20 on a Rental Application
- Cannot use Prior Evictions as a criteria for qualifications of a potential tenant
- Judges can extend an eviction up to 1 year
- Cannot do No Cause Evictions
- etc.

What is worse is that there is a push by the radical Left to make these kinds of laws National.

Until the uncertainity period is over and we start to have a very certain set of laws soon, be it pro-tenant or pro-landlord, then I will NOT continue my acquisitions of new properties for my portfolio.

One outcome in the future could be that ALL Properties (including Small Residential properties like mine) will wind up becoming Rent Regulated as a safe bet.

If that's the case, then the value of every type of properties, including mine, will fall in value as the future rent appreciation is no longer controlled by the free Market.

If the future laws do not regulate small properties like mine, then the Value will appreciate tremendously. We have enough evidence that unregulated buildings and apts skyrocket in price due to the lack of supply of free market apts where you don't need to be on a 10 or 20 year waiting list for that those regulated apts.

I think that in the State of NY, and especially in the City of NYC, if you want to acquire a residential investment, you are doing so where the future regulations are uncertain for at least the next election cycle.

I also won't rule out Commercial RE to be untouched either. There's word that NY wants to regulate even Commercial property's rent.

I have a saying that I like to use: "If you can Predict it, you can profit from it."

When the future is uncertain, you cannot predict things like the future appreciation of both Rents and Value. Therefore, I am uncertain as to how much I can profit, and therefore, I am on hold.

I would say that if you already had Portfolio of buildings like mine which had properties acquired decades ago and had already captured a large amount of Appreciation where the Price may move down a bit, then it's worth keeping for the Gamble that the future politics may not touch 2 to 4 Family Buildings.

So for me personally, I am keeping the portfolio but am not expanding it.

What I will expand, however, is my Property Management business should the future regulate my buildings! There will be a TON of small property owners that will be completely miserable with dealing with the City and State to be in compliance of the Rent Regulation Laws.

There will be a vacuum left to be filled by someone with the knowledge of Managing Properties in a highly regulated City and State.

That's where I come in.

So I'm in a hedge situation.

If the laws become pro-regulated and does not affect 2 to 4 Family buildings, I win because my buildings will appreciation tremendously.

If the laws become pro-regulated and DOES affect 2 to 4 Family buildings, I lose a bit of Value in my Property Portfolio but I win because I expand my Property Management Business tremendously.

If the current laws do not change OR if it becomes more Landlord friendly, then I expand my current Portfolio.

I like to encourage Investors to think of their Investments as more of an Investment VEHICLE.

When you drive your Vehicle, if you stare at the Rare View Mirror (meaning past data) too long, you will crash your Vehicle.

If you stare out the side view (the current data such as today's cash flow) too long, you will crash your Investment Vehicle.

HOWEVER, if you look through the front windshield almost ALL the time, you will be able to see the signs that the BRIDGE IS OUT before you drive into the River. You will be able to avoid obstacles, take detours, etc. If you look out the front windshield mostly and only occasionally look at the side view and rear view mirror, you will be able to steer your Investment Vehicle away from Danger and on to safer roads.

BTW, what you are proposing which is to House Hack a multi-family or Commercial property is exactly what I did when I started out 21 years ago.

For 21 years, the only certainty was that property values would INCREASE in NYC and other Large Metros that didn't have problems like Detroit.

Why was it certain? Because the Capital Gains Exclusion was enacted for Home Owners just before I bought my first House Hack Investment Property.

When you add a National Law that exempts you from paying Capital Gains on profit of up to $500k after owning for 5 years, that is so ridiculously pro-real estate back in 1997 when property values was so much cheaper, that good Real Estate really had only one way to go, UP.

This Law was written 2 decades ago when the average home was probably not even $200k. Only the Rich could have taken advantage of this exclusion by the first year of the law. However, it would be just about one decade before this law would eventually work for the middle class.

Either case, what I'm saying is that I personally follow the politics and the possible outcome of the laws that may affect my Strategy.

If I can't predict the Law, I can't predict what will happen to Real Estate, and therefore, I won't acquire more until it's sorted out.

But in the meantime, I can set up a hedge so I can win in any direction.

Makes sense?

@Justin Polston

My main issue with my current PM is that he works WAY too hard, does an incredibly great job, saves me a LOT of money, does everything including fixing the kitchen sink and doing tax return very accurately.... WOW!! He is a super PM!

(BTW.... I'm the PM as well as the Investor!)

@Amit M.

I have to point out that Bernie Sanders AND A.O.C. are from NYC. Both are VERY familiar with the machinations of the bad actors in the Real Estate field.

It really is a problem that should NOT have every occurred and because it was certainly very prevalent, here in NYC especially, you will create leaders who will want to put a stop on these kinds of bad actors.

It's very similar in the way that we should not abandon our Allies as you will create more enemies.

In this case, the Rent-Controlled Renters are our Allies but they felt abandoned, at least, here in NYC.

Again, these bad actors have also made it difficult for me to maximize my own profits on legitimate Market Rate Buildings as they illegally added market rate supply of buildings that should not have become Market rate.

IF they did not get away with their bad behavior, I would have certainly have done even better than I have already done over the last 21 years I have been investing in NYC Real Estate.

To me, these bad actors stole my profits and opportunities as a result of shifting the mindset of the renter class to be anti-Landlord while they reaped the illegal gains.

Again, I am not saying ALL Landlords are bad.... but certainly "All Landlords are Good" is untrue.

AND, as I pointed out, many of the bad landlords controlled a significant share of rent controlled apts to make a difference in our political atmosphere.

We are in our potential Universal Rent Control situation for a reason that could have been prevented. If the Bad Actors didn't get away with it for the most part, I doubt we would have been looking down the tube of the Renter's Grass Roots Gun.

@Dan H.

@Mary M.

Not singling out both of you, but I just thought I would include you both here.

There are a LOT of unscrupulous Investors in Real Estate and how they operate is incredibly illegal and makes it very bad for Investors like me who follow the law.

An example would be the case of an Investor that buys a "rent controlled building," for DIRT cheap, harrasses the tenants, including not making required repairs, to get them to move out and then in turn, forcing appreciation illegally while benefiting from the benefits (such as lower property tax) that the tax payers have given that investor to be entrusted and a good steward of the renters in a rent controlled building.

There are even cases where the Landlord burnt down his rent controlled building to vacate it, reaping huge rewards years later.

What this does to legit Investors like me who DO NOT BUY rent controlled buildings because of all of the requirements by law, is put us at a deep disadvantage of making money the sure and slower way because we pay close to market Price for our market rate buildings, which is EXTREMELY expensive compared to the rent controlled building.

It is ENTIRELY unfair to both the tenants of those buildings AND legit Investors like me who refuse to break the law, harass tenants, etc. in order to break the limited revenue that the rent controlled buildings are under which is WHY they were cheap in the first place.

In fact, what some of these landlords were doing was filing cases that just did not exist, knowing that a percentage of the tenants could not show up either because of medical, work or other reasons and would win a default judgement.

It was so bad because the amount of cases that were presented in court backlogged NYC Housing Courts that it would have affected my own legit cases should I have one by causing these cases to be seen much later than would be normal.

I don't agree with the characterization that ALL landlords are bad.... but it would equally be a mis-characterization to say that ALL landlords are good.

The problem here is that the bad landlords affect people's lives. When that happens, there will be an over-reaction.

What we are seeing now, is a COMPLETE over-reaction to a very small percentage of bad landlords. HOWEVER, this was compounded because those bad landlords maybe FEW, but they tend to own a LARGE percentage of the rent controlled buildings.

Unfortunately, legit landlords like me (and I'm sure most of us here on BP), are suffering from an UNDERSTANDABLE over-reaction towards BAD Landlords.

I wish they can retroactively punish those bad landlords but unfortunately, those bad landlords know exactly how to protect themselves, and this is probably why there is such an over-reaction.

I really don't blame Liberals... I blame the bad Landlords. If the renters who were negatively affect had gotten Justice, we would not be in this situation of impending Universal Rent Control.

If the rent controlled building Landlords were to just do the bare minimum but stay within the law, we would not be at this point where we may wind up with Universal Rent Control.

I wouldn't rush to conclude that the rich are moving out.

Take Jeff Bezos, for instance, a few months ago he bought 3 Condos for a total of $80 Million.

I would agree that if you have already established your Property Portfolio and it's doing well now, it will do well in to the future.

Unless even small investment properties wind up getting rent regulated, these investments will just skyrocket in value over time since Market Rate apts in NYC will become even more scarcer.

I see a silver lining here!

@John Hickey

Thanks for the invite John! I can't guarantee I could make it but I'll try!

@Cody L.

@Wy Kay

I don't think this is a RED versus BLUE when you consider that in States that do not have a housing Shortage, there really isn't a need for rent control. Red States tend to have much more affordable housing than Blue States, I believe.

The real problem is that Wages have effectively been stagnating over decades while Shelter has steadily increased for both Ownership and Rent.

Where there are much larger population, there is a change towards renting rather than owning because the most recent TWO generations actually cannot afford to purchase a home.

That lead to a huge increase in Renters.

With the YUGE increase in Renters, naturally, there will be a push to enact laws that are biased for Renters... at least seemingly biased (we know that virtually all Economists predict that Rent Regulations will inevitably cause the remaining market apt rents to rise as well as a extreme time frames to get a rent regulated apt which can be as much as 30 years).

My guess is that if Red States start shifting towards renters from Home Ownership in general, over time, they will begin the process of implementing some sort of rent regulations eventually.

SO.... my thoughts, which can be wrong, I admit, is that once the population of renters reach a high majority over home owners AND there is a significant shortage of affordable renting options, rent regulations is inevitable.

The only way rent regulations will not happen is if there is either no short supply of apts for the large demands of renters.

So is it Red versus Blue or is it Renters versus Landlords?

I think there needs to be a distinction because I don't think this is Political. It's more about desparation of the Renters not whether or not you are a Conservative or a Liberal.

If you are Liberal and you studied Economics to understand the issues better, I'm sure the only conclusion you will reach would be that there needs to be more relaxing of Zoning and other restrictive building codes in order to increase supply of apts which will have a much fairer and better effect on affordability.

Just my 2 cents!

@Alan Grobmeier

Hi Alan!

That's exactly correct! The new laws affecting ALL of NY State as well as New York in general will basically benefit the existing rent regulated tenants and absolutely drive up the rents on Market Rate Apts.

It effectively makes renters who are not "Lucky" enough to already be in a rent regulated apt to pay for those that are lucky enough.

Either case, my strategy has always been to never buy Rent Regulated buildings and to stay at 4 Units or under.

There has been exceptions where small multi's has become rent regulated, for instance, SF in 1994 did exactly that.

I'm don't believe this will be NYC's future, but you just never know.

If I were to bet, market rate buildings will first skyrocketed before there will be enough of a build up of support to regulate even buildings less than 5 units.

I'm watching the Politics very carefully.

@Mohammed Shahriar Rashid

@J.R. Coffin

I would not only calculate the increase in Cash Flow, but I would also do a search for comps related to single family and 2-unit buildings in your area.

There are a few things to think about.

Don't think that changing from a One to a Two Family building will increase your value. I have seen it go both ways with wealthier neighborhoods having ONE family to be just as expensive and sometimes more expensive than TWO family. Rich people wouldn't necessarily want to be a Landlord, therefore, you would really lose these potential buyers. I would not say that you will ALWAYS get a value increase with the change.

Second, the type of renovations you want will require you to pull an ALT-1 Permit: Permit's in NYC

However, Jillian can confirm that.

It is possible that a full tax re-assessment of your building will trigger paying higher taxes, which will blunt your calculated cash flow.

If you were not changing the Certificate of Occupancy, I would not have mentioned a tax re-assessment.

Those are a few things to think about and make sure you don't wind up spending a lot of money to make a change in the CofO only to wind up having the same Property Value AND having your potential income source blunted by increased property tax.

@Russell Brazil

@Aaron Taylor

Just to do a contrast with my own properties, I wanted to check out a 20 year history using the same calculator.

Here is what I got:

Time Period: July 1999 to July 2019

DJIA Return: 143.59%
Annualized DJIA Return: 4.552%
Total DJIA Return (Dividends Reinvested): 289.536%
Annualized DJIA Return (Dividends Reinvested: 7.035%

For the property I mentioned above, JUST in Appreciation, I am at a 19.33%

The numbers for the IRR calculation is as follows:

Year 1999 ---> -28,000

Year 2000 to 2018 ---> ZERO

Year 2019 ---> 960,000

-------------------------------

The IRR will be 19.33%

If I take into account $40k in renovations in Year 1999, but then counted the Cash Flows (the dividends), the IRR then becomes somewhere around 18%. This takes into account a ZERO cash flow in year 1999 AND year 2000. After that, my monthly cash flow for the property increased by about $85 per month each year from 2001 to 2019. This was a CONSERVATIVE guess as I didn't run the exact numbers for this year.

I would have posted the spreadsheet but I can't seem to upload an image anymore. Maybe @Mindy Jensen can help alert BP about a need for a fix for the upload button? I tried using the "Image" button and it just doesn't allow it to work.