All Forum Posts by: Llewelyn A.

@Wesley W.

@Account Closed

My apologies, I posted in too much generalities.

What I meant to say, that in places that already has Rent Regulation AND a Rent Guidelines Board (RGB) such as NYC, it strengthens the already existing regulation.

In NYC's case, if you bought a non-regulated building that is under 5 family, you are generally safe from this regulation and in the future.

In other locations in the State of NY, yes, the municipality probably can opt-in. I have NOT read any of the specifics in this regards since I'm solely concentrated in Brooklyn.

I have not read all of the specifics since they don't pertain to my property portfolio. I cannot comment on other municipalities specifically.

I would say if you believe your own municipality MAY opt in then the next thing to do is into the exempt building class, such as buildings under 4 units, etc.

I'm somewhat sure that if NYC has exemptions then these exemptions gets carried forward into the new bill.

In my case, my properties were exempt before the bill and that carries forward for the most part. Only certain policies changes will be affecting my non-regulated properties here in Brooklyn, such as how much I can collect for a security deposit, etc. will be affecting me in general.

IF your municipality opts in AND your properties do become regulated when it was not already, WOW..... that is TERRIBLE news.

Keep us informed how it goes and I hope that your circumstances DOES NOT change from non-regulated to regulated!

Since the vast majority of Voters don't have a high level knowledge of Economic concepts, they will be voting for politicians that are seeking their understanding of what they believe will be best for them.

These voters believe that NY RC will benefit them, then Cuomo is just doing what a politician should do which is to do the things his constituents put him in office for, however good or bad that may be.

If you have a problem with Cuomo for doing his job for the people that voted for him, then I think at best you are directing your grievance in a completely wrong direction.

Getting rid of Cuomo won't solve the problem. Educating the populace would.

The root of that problem is that the populace refused to put in the time to learn enough Economics, Law and other pertinent information to make any kind of informed decision.

In fact, I don't even blame them. We as Americans work way too hard in general to have the time to put in to all the things we need to know to vote properly.

The political system we have today isn't because of the politicians. It's because of the Voting public, or non-voting public that allows a smaller majority to choose their politicians.

Blaming Cuomo is at best a smoke screen for any real problems you may have with the policies he is backing.

Since I know this to be the case, I, as a Real Estate Investor, know that I would rather not take the risk of buying NYC Real Estate that will be subject to rent regulation because I cannot guarantee that the populace will not want to vote in those in office that back Rent Regulation.

This is what I would call RISK MITIGATION. For the last 21 years, I have been building my portfolio of Brooklyn, NYC properties that ARE NOT and have a high chance of never being rent regulated.

Not only that, should RC get strengthened, as it just did, my RE Portfolio will also get strengthened.

The important concept here is to first understand the root of the problem and then plan to reduce the risk and strengthen your portfolio in spite of the changes.

These rules generally apply ONLY to Rent regulated buildings.

Buying a Rent regulated building is a CHOICE. You are not FORCED to buy a rent regulated building.

I am a Brooklyn, NYC Property Investor with a portfolio of 10 small non-regulated multi-family buildings.

It should be obvious that if you compare a rent regulated building to an equivalent non-regulated building, the latter is much more valuable.

What REALLY BOTHERs me is the large amount of unscrupulous Investors that buy rent regulated buildings for CHEAP but then illegally treat it as non-regulated.

This is NOT FAIR to those of use who pay the very large price difference to have non-regulated buildings.

I am in FAVOR of forcing those Investors who purposely break the law to enrich themselves by paying for a rent regulated building but yet reap the benefit by charging market rents illegally.

These criminal investors should not be competing against my much more expensive real estate.

Typically, a building such as my 4 Family non-regulated building will be about twice as much as an equivalent 10 unit regulated building. BUT, if the owner of the 10 unit building treats it as a non-regulated building, they not only have the market rents, but they also benefit from the cheap property tax which accompany rent regulated buildings. That then pushes up the value of the building despite it being illegal.

I'm not saying ALL rent regulated buildings are like this but enough of them are that the City should be cracking down on them.

I'm also not saying that some small landlords won't be penalized either, that will happen. That's why it's best to steer clear of the possibility being in the cross hairs of rent regulations. I do that by buying buildings under 5 family which are non-regulated in general.

 Just to throw out some numbers, according to Wikipedia, there are 43% of non-regulated apts in NYC. So why buy one that is regulated when there is so much available that are non-regulated?

You have a choice. It's up to you.

But if you make the choice to buy a regulated building, you should pay a much cheaper price than a non-regulated building. The opposite is also true. If you are buying a non-regulated building, then you should be paying a much higher price in comparison.

Where the problem comes in is if you buy a regulated building for cheap and treat it like a non-regulated building illegally. This enrichens the criminal investor by taking advantage of everyone who pays to have these regulated apts, such as the Tax payers in NYC.

That's my opinion as a NYC Real Estate Investor and Broker. 

@Josh Eitingon

I haven't read the exact Bill that just passed, but from what I understand of it is that it strengthens already existing rent-regulated apts in NY.

That's actually EXCELLENT NEWS for those of us who are Investors that own NYC Properties that are NOT REGULATED.

Excerpt from NYTimes Article called "Rent Regulations in New York: How They’ll Affect Tenants and Landlords"

(excerpted)

Are the rules just for regulated apartments?

The package of protections extends well beyond those living in rent-regulated apartments to all New Yorkers renting apartments:

Security deposits will be limited to one month’s rent and procedures will be improved to make it easier for renters to get their security deposits back.

Tenants who were seen as troublemakers by landlords — perhaps for standing up for their rights — would sometimes end up on blacklists that would be shared among rental agencies. That practice would be banned.

Tenants would be better protected during the eviction process, particularly against retaliatory evictions.

Unlawful evictions, such as when a landlord illegally locks out or uses force to evict a tenant, would become a crime, a misdemeanor punishable by a civil penalty of between $1,000 and $10,000 per violation.

Landlords would be required to provide at least 30 days notice to tenants if they intend to increase the rent by more than 5 percent or are not going to renew the lease.

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

The way I see it is that if you buy the buildings that I buy, which are under 6 Units (I only buy 2 to 4 Unit buildings) that are unregulated, you will be in EXCELLENT shape!

Since the regulated buildings may wind up in disrepair in general, it will cause more people to reconsider renting regulated apts and consider paying higher for well kept market rate apts.

This will just increase demand for market rate apts.

This is an easy lesson for any Investor in NYC properties to take into consideration.

However, if the price of these rent regulated buildings should fall dramatically to correct for the lack of future income growth, it may be attractive as an investment after the price adjustment.

Basically, if you were buying buildings that were rent-regulated and you overpaid because you did not considered the future of rent-regulations, it's time to understand that you have to take future politics into account if you were to do it again. If not, just make sure you don't buy buildings that cannot be regulated. There are MILLIONs of unregulated properties. There is PLENTY of choices, really.

As a whole, I do see that neighborhoods with LOTs of rent-regulated buildings will have a negative impact such as higher crime and lower desirability. BUT, the neighborhoods with less rent-regulated buildings will continue to Gentrify and will probably accelerate in rents and prices.

That's just my opinion as a Brooklyn, NYC Investor for the last 21 years.

I would love to see many of people who subscribe to the initial first year cash flow as the only metric they use to determine if an investment is solid, to be open minded about other metrics other than cash flow.

The easiest one is the Mortgage Balance reduction. The Calculation is actually even simpler than the calculation for Cash Flow.

Here is an example:

Let's say property A is listed for $1 Million. If you bought it with a 100% LTV Mortgage, 30 year fixed, you would get ZERO Cash Flow.

Let's take Appreciation out of the equation. So we assume ZERO Appreciation as well.

What is the Annual Average Profit you will get on the Mortgage reduction?

Let's just do simple math and not do a more complex Amortization.

The simple math is:

$1 Million Mortgage / 30 years = $33,333 per year OR $33,333 / 12 = $2,778 PER MONTH.

Don't you think the Mortgage Balance Reduction is actually MUCH MORE dependable than even the Cash Flow?

What do you think of the $2,778 per month? Do you think this math is FAKE NEWs or something?!

It's MATH. There is nothing fake about it.

I don't want to single out anyone unless NO ONE replies to this post, but I would like to hear from those that say they ONLY buy for Cash Flow and CASH FLOW is the only safe metric.

What do you think of the above very simple math?! Is this a trick or something?! Or are you still sticking to your guns about Cash Flow being the only reliable metric?!

I've been watching a very good modern Philosopher who has taken the world by storm. One of the things that he says is that even people can get hacked. The most vulnerable people to being hacked is those that stay with their opinions even in the face of indisputable facts such as math.

His famous saying is that if you think you are unhackable, you have already been hacked. The reason why this is the case is that if you can be open-minded that you could have been hacked, then you would at least check the other resources for accuracy. But those who believe themselves unhackable just will not do it, stick to their guns and never knew they have already been hacked in the worse way possible.

Maybe it's time to be a bit openminded? No?

I'm glad I had my AI Robot read this thread because it's too freaking long! haha! (just kidding!)

I see this question quite a lot, "what do you say to those that may argue that the return on your equity on a 2 million dollar place is pretty low and would be better off elsewhere with a higher return?"

Let's talk about the property that I bought for $140k that cash flowed ZERO in the year 2000.

I bought that $140k property with a down payment and closing cost of $28k.

I did some renovations for around $40k. Total is $68k out of pocket.

If I only used the original year for the Cash on Cash, it would be ZERO.

HOWEVER, if I use the current cash flow of $3k per month or $36k per year but with the ORIGINAL Investment of $68k, then the CoCR in the year 2019 will be $36k / $68k = 53%.

Do you know any investment where you will be making a 58% CoCR?!

I DO.... most of my Investments already do that if not much better than that.

Makes sense?

Now to address your question on ROE of 3%.

Does it really matter if the ROE is 3% versus a CoCR of 58%?

Well, MAYBE. What really matters is the full comprehensive analysis which includes the initial Investment ($68k in this case), all the cash flows in the holding period, plus the cost to sell the property at the end of the holding period.

Those of us who do the calculation will use the Internal Rate of Return (IRR) or some derivative of that calculation.

ROE does not take into account the Expense of the Sale nor the purchase price of the new replacement investment on the switch. If you factor those in, then your IRR may actually diminish which will tell you it's not the best decision to make.

There are other factors to consider as well, such as Market Timing.

If you have bought the way that I have bought, the Price of your Investment will look like this over time line chart:

Notice that this is not a standard horizontal line. It's an INCLINED line and that even if you bought at the peak of one Price/year cycle, because the Line is INCLINED, it will just be a matter of time when the next cycle bring it WAY past the current peak.

NYC and many big Metros are like this. This is why TIMING the Market can be MUCH better in these bigger Metros.

In other words, it's just a matter of time for the market to adjust to a higher price if I'm incorrect on my market timing.

Most other markets are not like this and are very unforgiving. If your timing happens to be bad, you are dead for decades.

NOT NYC or other major metros.

It's VERY hard to buy at the wrong time in this kind of Inclined Market Price Chart.

So... if those that are thinking NYC is a straight horizontal line AND that prices are way too expensive.... they will NEVER buy. Over my 21 years of buying in Brooklyn, NYC.... every single year I have been ADVISED that the market has peaked or that it's way too expensive.

So what?! It's just a matter of waiting for the next cycle because of the inclined chart.

Makes sense?

@Roshan K.

Maybe it's me, but I don't see many postings that specifically state that you can make money just on Mortgage Balance Reduction. I see at least 70% to 80% of the articles posting that generally has a calculation that deals with ONE and ONLY One time frame, which is the initial purchase, and if the calculation for that specific initial time worked, hey... then it's a good deal.

So, the 1% rule, a Calculation of Cash on Cash Return, a single calculation on Cap Rate, etc.... these are all calculations based on one initial time frame.

BTW... these calculations are MISLEADING at best.

Take for instance, you buy a property that meets 10% CoCR. Example, you pay $10,000 out of your pocket for a $100,000 property that then generates $10k in Cash Flow per year.

That sound GREAT for most people as a CALCULATION. BUT.... let's say the 2nd Year of your Buy and Hold investment, you had to sell for whatever reason.

HOWEVER, there will be associated Selling Expenses like Commission.

Let's say the selling Expenses is $10k. So if you buy and made $10k in Cash Flow for the first year and you sold in the 2nd year but paid $10k in closing costs, you effectively made ZERO..... a BAD DEAL.

Your Cash on Cash Return calculation does not take that into account.

If Investors on this forum don't take into account ALL the future Cash Flows of a targeted holding period..... they are not doing a full and comprehensive analysis. I personally don't know WHAT they are doing other than getting some calculation for an initial time frame which is at best misleading.

To really make the point between Cash Flow and Appreciation, I really recommend several podcasts here in BiggerPockets, there are PLENTY including:

1) Cash Flow VS Appreciation | Real Estate Investing Basics

2) Many others but I would like to mention @Russell Brazil and @Jay Hinrichs Podcasts as well.

NOTE: Cash Flow VS Appreciation is a "REAL ESTATE INVESTING BASICs". Watch the first podcast and I am sure those who are "Cash Flow" is everything and "Appreciation" is gambling, I'm hoping you will start to understand that Cash Flow is just a very minor part of the Real Estate wealth generator.

@Thuy Pham-Satrappe

I ONLY buy 2-4 small MF, all in a very HIGHLY appreciating market, Brooklyn, NYC.

I have been doing this for the last 21 years.

In many cases, the cash flow starts out as ZERO.

HOWEVER, if you only want to do a calculation of the original purchase cash flow, you will tend to miss the whole strategy about investing in very large Metros like NYC.

When I bought one of my first properties 21 years ago, it was at Zero Cash Flow and rents were $500 per apt.

Today, that same 2 Unit building rents for $1,900 per apt and cash flows around $3k per month.

With the increased cash flow, the building's Valuation moved up from the original purchase price of $140k to $1.1 Million today.

Another missed profit generator in Real Estate seems to be the Mortgage Balance Reduction of a Fixed Rate Mortgage.

I think this is missed almost 95% of the time and I rarely see any postings about the Mort. Bal. Reduction as a profit generator.

Today, I buy buildings in the $1.5 to $2 Million price range. Even if I used a $1 Million Mortgage, had ZERO cash flow and ZERO appreciation, I will still make a Million dollars when the Mortgage Balance falls to zero. That is PURELY Math and pretty much GUARANTEED in the kinds of Markets like NYC as Real Estate values RARELY fall. If they every do, it bounces back and always goes higher.

BUT, again.... I implore the readers of this post to NOTE that I said you can get ZERO cash flow, Zero APPRECIATION and you will still make a Million dollars.

I'm completely baffled why, on a Real Estate forum like this, there are very little postings or articles that even mention the Mortgage Balance Reduction as a profit generator.

@Shiloh Lundahl

I think that most people will try to follow a tried and true plan that worked for some, even though the "Some" are actually very small compared to the amount of people where it did NOT work out the way they thought it would.

To me, that's an employee mindset. You are giving your destiny into a plan, generally the plan that the Company has for you, be it to remain as a skilled asset or to move up to the highest point in the Corporate ladder.

BUT, if you take ANY skill and bring it up to the top 10%, better yet, the top 1%, then you can be an entrepreneur and build a great business. BTW, building the business is half the fun! It's like climbing mount Everest! When you reach that peak, the feeling you get is really amazing!

If you started from the bottom and then achieved incredible success, then you have plenty of examples to make the comparison between what is the most important area of Investment you can make.

The reason why someone who started from the bottom can really give clarity on what is most important is because someone like me can point out the people in our lives that have FAILED to achieve anything close to our results.

The Rags to Riches story gives you incredible insights.

When you are DIRT poor like I was in my childhood, ALL your friends are like you... DIRT poor.

When we look to get out of Poverty, we try to do it via Education. It's pretty much the only way. Rich poeple will rarely give you a break and say... hey, this poor kid has spunk! Let me take him in and teach him how to be rich! no.... that's not how it will happen. You are not even close to being in that circle.

Either case, Education, particularly PAID education, was the way to get out of poverty. Today, it isn't as much anymore because Salaries have stagnated for about 30 or so years, especially if you look at Buying Power over the 3 decades.

I want to make a distinction between PAID education and FREE education (or almost free). Today, you have access to the GREATEST library in the known history of the world.... the INTERNET. Most of it is totally free. So if you want to learn something, you can.

BUT... to learn something when the Access to free education is there, seems to be VERY difficult for MOST people... I would even say 95% of people cannot learn on their own. They need a structured education curriculum and to even be pushed into it.

The other 5%..... they are truly self-motivated. They just need the baseline of education, generally about freshman High School level education.

After that, you are capable to make a TON of money if you are REALLY motivated.

Now I want to get back to my childhood friends.

NONE of them became Millionaires before I did.

Of the ones that became a Millionaire, I don't know ANY of them that did it without me as they became Partners in my Real Estate Investments.

Of the ones that Graduated College, NONE would have been a Millionaire without me.

2 of those that went on to be Doctors. Both of those did not achieve Millionaire status, again, with investing with me.

So far, I have 12 Partners, ALL of them has a College Degree.

IF Education was the only thing one needed when you started from NOTHING, from my personal experience, then you can achieve to be comfortable in life, but you may not be able to reach a millionaire status in your 40s and 50s without INVESTING.

Of the ones that did not graduate, unfortunately, I did not keep in touch with them, so while I don't know if they really hit it big, I would say the probability that they had done well is very slim.

I often wonder what would I have done had I not invested at all? I know that answer. I would have failed to be wealthy but I would have been comfortable. That's a BIG difference.

There were a few of my more recent friends whom I met after Graduating College and starting work. One in Particular, I have written quite a lot about because his mindset is typically what I see on BP. He pursued Cash Flow.

Unfortunately for him, this did NOT work out as planned. He bought 3 Cash Flowing properties in CT in 2004, making around $1k per month. That was 15 years ago. Today, those properties are still making $1k per month and have NOT YET moved up in Apprecation.

If I do my calculations, $1k per month x 12 month x 15 years = $180k in Cash flow over the 15 years.

OK... that's pretty good by most standards... but no where NEAR being a Millionaire.

What was even worse was that in the year he bought his properties, he rented an apt for $2k per month in Manhattan. Over the 15 years, that same apt is now renting for $4,500 per month.

If you do the math, He started to LOSE money if you considered his NET disposable Cash. He switched from making a cash flow to losing cash flow as his NYC rents moved up above his $1k cash flow.

In the same 15 years, I bought a 3 family Brooklyn Property for $900k. That property is now worth $3 Million and cash flows $4k per month.

Now I would like to go back to a comment I made above about being in the top 1% of anything.

What this person and all the others that really was not going to make it as a Millionaire did was only achieved, in my humble opinion, 50% of what you really needed to know about Investing.

I would say that if you want to do ok, then 50% is all you needed to know. If you want to be comfortable with your investing, then maybe 80%. IF you want to REALLY do well... then be in the top 5%, if not 1%. EAT, SLEEP and DREAM about Real Estate.

Most of the people didn't know what they didn't know. Therefore, they didn't know they only had some surface knowledge of Real Estate and Investing in general.

I had achieved being in the top 10% of my field of work, in this case, Computer Science, and worked as a programmer and compensated for my pay grade.

I then learned everything I could. So when I heard all the things that you normally hear, GRM, Cash on Cash Return, etc. I learned all of that.

BUT... then I asked myself... do I really believe I have the same knowledge of the TOP 10% of Investors, particularly Real Estate investors?! NO.

I had to discover what I did not know I knew.

That led me down the road to Economics. So I learned Economics VERY well. Better than my friends that graduated as Economists. That actually helped me a LOT.

BUT, I also had to combine that with 2 other subjects, 1) The specifics about Real Estate, for instance, how to do Tenant Screening, etc. and finally 2) What are the calculations that the pros use? Discounted Cash Flow, Internal Rates of Return, etc.

So I learned it all, from scratch... no formal Education. All self-taught.

That put in in the top 10% of those with Real Estate Investing Knowledge.

What this gave me, was the ability to put together a real Business Plan. What is normally called a 10 Year Pro Forma Business Plan with an IRR projection.

That then gave me the VISION to see how my Target Real Estate Investments would do even before I bought the properties.

It is that CLEARITY of this VISION that makes you a LEADER. Leaders clearly sees what paths are ahead. With this Vision, I can clearly steer my Investment Vehicle through road blocks, pulling the trigger where the road is clear, and holding back when it is not. ALSO, stopping when I can see the bridge is out.

The conclusion here is that NONE of those that I knew even got to the point of putting together a business plan, much less understand how to do an IRR calculation.

THEREFORE, they need me to lead them to becoming Millionaires, DESPITE having advanced EDUCATIONAL degrees and professions, neither of which would have made them millions in their 40s or 50s.