All Forum Posts by: Llewelyn A.

I have used Judicial Title in NYC and I know they have offices in Long Island.

I also know the Director of Sales. PM if you are interested and I can refer you.

Generally speaking, what many of you are really referring to is Not OUT of STATE Investing but rather High Priced Markets to Low Priced Markets.

For instance, if you are a Houston resident, then NYC, where I invest, is out of state for you. BUT, that's not what is meant by the phrase. So I'll go with the flow and pretend you mean "Why would you or would you not invest in --->LESS EXPENSIVE STATES (or Cities for that matter)?"

The short answer for me is that I am afraid I won't get NEARLY as high a return as I did in the last 21 years investing in Brooklyn, NYC. My Partners and I have made over $10 Million in Profits.

Would I have done the same in Less Expensive areas? Very few could have compared to Brooklyn in the last 21 years.

That being said, in today's NYC Market, the average Joe is priced out if he intends on buying by himself without partners. That means the average Joe cannot buy in NYC with Partnering... something I suggest Investors do. After all, your Net Work = your NETWORTH. If people really understood this, then they would make the right Partners and open the doors to any City, rich or poor.

An Example of what I have done with ONE of my investments 19 years ago, I bought a property for $140k with only $28k for Closing Costs and Down payment which is now worth $1.1 Millions today. Yes... $28k turned into $1.1 Million. Well... let's add in the renovations over the years so it's about $60k invested.

I'm not sure which Less Expensive Markets today will yield returns like that. BTW, that same property cash flows over $3k per month. But remember, don't calculate my Annual cash flow on the Market Value, calculate it on the Investment of $60k .

So.... $3k Cash Flow per year x 12 month = $36k per year / $60k invested = 60% Cash on Cash Return. AND it will keep growing.

What other Markets have done that in the past 21 years? Would be interesting to know the experiences from those who have been in the game for as long as I have been.

Maybe what we should ask as well is who has done better, those who invested in Less Expensive Markets or those of us who invested in Markets that were always expensive but generally always gets more expensive.

Something to think about!

@Justin S.

Hi Justin!

I'm a big proponent of Brooklyn investments in General and from what I believe you are buying from what I can tell from your posting, it will do really well over the next 10 years!

I think people do NOT realize that the Cycle of Appreciation in certain cities like Brooklyn is not a Wave that moves across a horizontal line. If it was, then the value of a property will peak, fall to a low, then reach the same peak again and NOT go over.

That's NOT how Real Estate works in NYC. What it does is forms a wave pattern on an INCLINED line. When it does that, it looks like THIS:

Notice that even if you bought at the 1st Peak, the next bottom is much higher than the previous bottom. Then the 2nd Peak is higher than the 1st peak. That's NYC and I suspect other Cities, especially in California.

What this kind of Appreciation Cycle does is pretty much ensures that even if you are buying at the top of this cycle, by the time the bottom falls, you are not that far from the peak, meaning your timing will not be bad. Then the next peak happens and you are profitable in a short period of time.

That's why it's easier to time our Market because it's almost impossible to buy at a WRONG time since the Appreciation Cycle is inclined.

I also stop thinking about things like "Trapped" equity or "Dead" equity. If you put too much thought into it, you won't buy in the best markets in the world like NYC.

My preference is a Three or Four Family Brownstone, BUT, one of my friends bought a "Grand" 2 family Brownstone in Crown Heights and made a $1 million in Appreciation since 2015. Not bad for 4 Years Buy and Hold! That was also a gut reno and it has ALL the original details.

So you have my VOTE (literally) for your Investment Strategy!

@Alexander V.

Just to clarify, I called my scenario a "Rental Investment."

I don't want to get technical, but even Coops are not "Real Estate" since they are corporations.

Coops don't even pay a Mortgage Recording Tax (at least in the past) because the MRT was a tax on Real Property and Coops were not considered that for Tax purposes.

The Negative Cash Flow example is REAL and happened occasionally to properties in my portfolio.

For NYC and many other highly appreciating places, CoCR will keep you out of those tremendous markets. Markets which would make you really wealthy.

But the IRR will help you evaluate in ANY Market.

If I were to calculate the percentage of people in my circle of friends and family that DID NOT invest with me in the 21 years I have been investing in NYC, it reaches the same statistics, 95% did not invest. One Relative and One friend did in the beginning.

The 95% of my friends and family considered it a big risk solely based on lack of cash flow and ignored the IRR or just really didn't understand it.

Now, almost ALL of them are priced out of the NYC Market.

That is NOT hyperbole, that is just FACT.

@Kai Van Leuven

Thanks for the comment Michael. If you read a LOT of my past posts, I basically go through several scenarios like the above and explain how to build Excel business models with 10 year pro-forma IRR calculations.

@Kai Van Leuven

I agree with Kai to a LARGE extent. But this discussion should ultimately wind up being a discussion on what is Internal Rate of Returns (IRR).

Here is the dictionary definition of Cash Flow:

"The Total Amount of money being transferred into and out of a business, especially as affecting liquidity."

As Kai is pointing out, the majority of BP posters use a definition of something that goes like this: "Rents minus expenses = Cash Flow."

However, when you boil it down to the REAL definition, The amount you paid out of your pocket for the purchase is a Cash Flow as well. So is the Sales Proceeds when you sell.

When an Investor believes that the definition of Cash Flow has ONLY (and I want to make sure you see the emphasis on ONLY) to do with how much monthly cash he puts into his pockets on a monthly basis and ignores all other cash flows, the the statement "X property makes $xxx amount of cash flow" is FLAWED at best.

As Kai pointed out, you can be at ZERO monthly cash flow but if you sell at a huge profit, meaning your LAST cash flow which is your Sales Proceeds is HUGE.... your overall Return is GREAT, if you count EVERY Cash Flow.

Similarly, if you were making, say, $200 per month in year 1, which may be a 10% Cash on Cash Return if you invested $24,000 out of your pocket, BUT, if you were forced to sell the property after Year 1 for a LOSS of $3,000 in Seller's Closing Costs, then your DEAL was BAD because you lost money overall. The Cash on Cash Return is at BEST misleading.

To do proper analysis, you need to take into account at LEAST the following:

1) The initial Capital Investment to get the Investment

2) All the Cash Flow during the holding period

3) The proceeds after the Sale EVEN if its in the FUTURE

The last point, 3).... makes the point that you should be doing PROJECTED Sale Price. Then you will REALLY know if you have a good deal.

But if all you do is calculate the 1st year Cash Flow versus your initial investment and come up with a Cash on Cash Return, that's hardly an analysis. It is FLAWED at best.

The weird part about any of these Numerous discussions is that it really points to doing better analysis than just CoCR. But for whatever the reasons (sticking our heads in the sand because you just don't want to understand), there really seems to be a prevalent amount of posters who only do a very simplistic CoCR analysis.

This is DESPITE the fact that the Calculators, including the BRRRR Calculator on this Website, includes an IRR calculation. It really demonstrates that the majority of BPers who may even use that Calculator may not even understand the depth of the calculation and will miss the assumptions it makes, for instance, what appreciation rate did it use to get to the final Sale Price so it can calculate the last Cash Flow?!

For those that are reading this and have an open mind that yes, the Cash on Cash Return analysis is flawed and you need to get a handle on a more sophisticated analysis, then do READ What Every Real Estate Investor Needs to Know about Cash Flow

... do notice that this book is ALL about Cash Flow, and it is FAR different than the Cash on Cash Return most people use in BP.

Many here probably thinks you don't really need to pull credit in very low income places because no one has a good credit score anyway!

My apts are in Brooklyn, NYC and in good areas.

A few of my buildings are near a school, Pratt Institute, that attracts a lot of Foreign students.

Pratt is EXPENSIVE (think $30k to $50k per year with Dorm).

I can't really do credit checks on foreign students. So I listen to their stories and then verify it.

3 Students from Pratt came to me to apply for one of my rentals.

All were Chinese. None will have a Credit Report I could pull. BUT... they each had very wealthy Parents.

One was the child of a very well known CEO of a Beijing developer and the company was worth around $1 Billion.

All I needed was for this one student to prove their relationship, then I would have called the Company directly and verified their relationship. I wouldn't need their Credit Score.

Ultimately, the kids lost the apt because an even better candidate applied with over an 822 Credit Score!

So, on the high end... there are some times when I won't pull a Credit!

In fact, since most credit scores are available on your Credit Cards, Online Banking Accounts, etc. All I do is ask them to pull up their credit from one of those account on their phone and show it to me. If it's high enough, I won't bother with the report at all.

@Anthony Wick

I buy in NYC, Brooklyn Specifically, and have been buying for 21 years. All of the properties I bought were 5% Cap or under.

Today, similarly like @Russell Brazil , as an example, when a property I bought for $140k, $28k down payment and Closing Costs about 19 yeas ago, is worth over $1.1 Million, profiting over $1 Million, and cash flows over $3k per month, all from an initial investment of $28k.... you start to understand that some calculation of Initial Cash Flow is not the best calculation.

Think of it this way. Suppose you did buy that GREAT 1%er as most here want and it gives you $200 per month of Cash Flow and it has a Cap of 10%.

Let's say you had to sell it next year. That means you collected $200 x 12 months of cash flow = $2,400. BUT, if you had to pay seller's closing costs of $3,000..... did you really do good?! NO... you lost $600 after the sale.

Really, if you don't take into account the initial investment, the cash flows and the eventual sales proceeds, you haven't done enough analysis.

You THINK you have a good property because of it's initial cash flow, but really, you have not taken into consideration EVERY cash flow, including any loss or profit from the sale.

Now, here is an easy calculation.

Let's say you bought a property that broke even on cash flow and had $1 Million Mortgage, 30 year fixed.

How rich would you be after 30 years?! $1 Million.

How much did you make every year? $1 Million / 30 years = $33,333 per year.

Did you make your 1% rule?! NO.

Did I depend on Cash flow? NO.

Did I depend on Apprecation? NO.

All I depended was for the Mortgage to disappear in 30 years. That's just Math. It is GUARANTEED to happen.

How many here would buy this property? Not many because it doesn't conform to the 1% rule.

Now... imagine you bought 10 of these properties with $1 Million Mortgages.

Instead of making an average of $33,333 per year you are making $333,333 per year.

Can you live with $333,333 per year in equity building up and breaking even on your cash flow?!

Is that really so bad?

Others would say that breaking even on cash flow is too big of a risk. But in NYC, if in year 1 you are breaking even, by year 10 you are killing it with cash flow.

So I buy properties at low Cap Rates and break even cash flows. When the property begins to cash flow and does not need my support at all, I look for the 2nd property.

Repeating this strategy until I built up a nice portfolio of 10 properties.

This is Real Estate Investing made easy. Very hard to lose and almost a guarantee to be a multi-millionaire in a few decades.

So this article has some really great points on BOTH sides, BTW. I as a resident of NYC for about 50 years AND a Landlord of small buildings (4 Family and below) have a couple of insights in regards to comments made about NYC.

FIRST, the article does sight some important issues in regards to regulated apts where the family unit was large and then, over time, reduced to a very small size. The example has a woman who is a Widower and lives in a 3 Bedroom regulated apt, but was not asked to down size after her family reduced in size.

In defense, however, I would ask how often does this happen? I do suspect quite often.

This in itself causes a shortage.

I also know that any RE Investor who is looking for his next investment in NYC should be smart enough NOT to buy to close to a low income housing project. Most crime DOES happen there and rents will be much lower than areas that are the same distance to work but are further away from these low income housing complexes.

What the article does NOT address is the impact of AirBnB and other STR. In the mostly low rental areas in NYC but are easy to get to Manhattan or good areas in Brooklyn, Landlords would rather rent short term than to rent to an unqualified tenant and potentially get into a court case, this is ASIDE from making better income on the STRs.

That also reduces the supply of available apts.

Other issues that has not been addressed but was touched upon when over-consumption was mentioned is that in these rent regulated buildings, there is usually a high demand for services, which will add to a landlord's expense, such as older residents demanding more heating despite conforming to heating laws (BTW, this isn't every landlord... I do know there are a lot of NYCHA buildings that fail to supply heat at all!).

Had renters actually had to pay for their own consumption, they would really think twice about keeping the window open during freezing winters and adjusting their thermostat.

Many have a sense that if the Landlord is paying for a service, it's ok to waste it.

Another issue not really addressed in the article is that rent regulated apts include tenant protections even when the tenant had done something criminal. For instance, in the low housing complexes, I have a contractor that served as a maintenance person for over 20 years. He tells me that he has to fix the locks at least ONCE a WEEK because someone will eventually forget their keys and just break the lock. It's a sense that because the city has hired someone to fix things like that, it's ok to break it. Same goes for the surveillance cameras as well.

What really is problematic is that no matter how much you try to tell people NOT to FLUSH down things like diapers that will cause the sewers to back up, it ALWAYS happen... and, according to my Contractor.... there is no worse job than to clean up that mess.

So.... correct some of these that lead to over-consumption, high maintenance costs, etc. and you may get a better, more affordable housing situation.

I don't think it's a large percentage of the people that are the problem. It may be only about 10% or 20% of the population in these low income housing complexes. But they make it HELL for everyone else and drive the cost of ownership WAY up.

No one wants to own one of these over the long run. It doesn't really make sense if you cannot evict problematic tenants, restrict rental increases and your costs goes up over time while market rate apts sky-rocket.

HENCE why I invest in smaller buildings that are not rent-regulated. It's actually a gold mine because you have much more control over your buildings and the residents in it and the Vacancy Rates are held incredibly low because rent-regulated apts are basically removed from the available housing stock, lowering the supply of apts, as well as other factors including AirBnB.

I have also seen abuse go both ways where Landlords purposely harass tenants. In fact, one strategy is to file for eviction on all your rent regulated tenants, regardless if they have done NOTHING wrong. It only costs $75 to file the papers, so why not? AND, it is very possible that hard working low income tenants may not make the court appointment. Obviously, VERY abusive.

It creates incredible injustice not only to the tenants, but also to us smaller investors. We buy expensive small buildings. But these abusive landlords buy big, rent-regulated buildings CHEAPLY, harass the tenants, pay low taxes, evict as much as then can, and reap the rewards of their bad behavior.

That's incredibly unfair to someone who buys at a premium and plays fair.

So there is a disconnect on Each Side and it's a very difficult problem to solve.

@Dmitriy K.

For rent collection, because I have over 15 apts, I use https://www.avail.co/

They charge me $75 for 27 apts. $75 / 27 = $2.8 per apt per month.

While a lot of investors don't want to pay for rent collections, I think $2.8 per month per apt is quite acceptable for the turnaround time that Avail.co gives me, which is 3 business days. They notify me when the money gets withdrawn from the tenants account and is on it's way to my account. They do all of the expected email notifications such as when a tenant's rent will be late, when it's due, etc.

More importantly, they handle all the roommates in a given apt incredibly well. Many of my apts have young gentrifiers living together. One of my apts, a 2 level apt with 5 bedrooms have 6 roommates! No problem with Avail.

Alternatively, I have seen a lot of recommendations on BP for Cozy. I have recommended Cozy to some friends and family who have less than 10 apts since it's free.

For my CRM, I actually use Salesforce. I'm a partner in a Salesforce Partner Company and have been a Programmer in my past.

I have been developing a Property Management Salesforce Software to be released in a year or so and have been testing it out on my own Portfolio to make sure it's robust enough to handle all the things I need it to do. Here is a snapshot:

I bring in the information from Avail.co that has the tenant's payment information. I lay it out on my screen and color coordinate whether or not the full lease payment has been made, who made their payments, Green is Good, Red is Bad, The Dates may be in Blue if the payment has been scheduled but has not been deposited just yet because of the 3 business day gap, etc.

When I started using Electronic Rent Collection, the one problem I had with doing it this way is make sure that the service deposits what they say they will deposit in the right bank account. I have one bank account for each of the 8 properties.

So it was time consuming at some point to look at what Avail.co was telling me would be the deposits and match it up with the actual bank deposits. So I programmed a Bank portion of my PM Software to accept Bank Transaction Data. It will then summarize all the the major categories such as revenues collected per month such as the following:

So in the above example, for this one property, I know I collected $9,695 in Revenues for April 2019. Now I just have to match the rents collected from my report from Avail.co and see if there is a discrepancy between the both and why. Once they match, I know that I'm fine that the rents that Avail.co claimed they are collecting and depositing into my account is exactly what was deposited. This is just verification.

Also, with this software, I can quickly turn out my Tax Return numbers. Here is a snapshot of this past year's tax return report for one of the properties:

All I have to do is give this report to my CPA and that's it. Done. Tax work is very simple. If the CPA has a problem with a particular amount, say $60 for Advertising, I can click on it and see the details and re-categorize it if needed, right on the fly and my CPA will see the numbers change in real time.

For the Building Automation, some of my partners really don't like spending the money. I told them that I charge a fee to go to the buildings and I won't charge that travel fee if I can do something remotely, such as letting Contractors in and viewing their progress during a renovation.

The Locks that I use is this one: Yale Z-Wave Lever Lock

I love this lock because I like using a Lever lock for the front door with a Door Closer.

I don't know if this happens to Deadbolts, but I'm afraid that a tenant will hold the door open too long and the Electronic Deadbolt will open it's bolt. The tenant leaves and doesn't check to see if the door is actually locked.

With the lever lock, you can't have that problem. I can also see if the door is actually locked or not. I have a Camera on the door. This is the one I am using so far: REOLink Solar Camera

I wanted to do the work myself and I am not HANDY. So I want everything battery powered. I installed the above Camera because it's completely battery operated, Z-Wave and has a Solar attachment. That's key so I don't need to charge or change the batteries at any time. It's also motion detection, etc.

To control my sensors and lights, I use Samsung Mesh WiFi

I use it so that I can extend the Automation Hub throughout the building which is generally around 3k to 5k sqft. So you will need something that acts as a BIG HUB.

These automation stuff is so good, I can see who is coming to the door, who uses what code on the locks, when did they use it, record a video of the person, etc.

This is important for the kinds of buildings that I have, which are in a dense urban area. Amazon packages tend to get stolen quite a bit and if they are not dropped off in the front yard, it's a pain for the tenants to get it picked up somewhere.

So I give my tenants EACH a lock code. I also give them a code for the delivery instructions. The code for the delivery will be deleted once the delivery happens. I will get notified that the delivery person accessed the lock and then check to see if he just put the package inside and left via the indoor camera. The tenants can also access the camera as well.

Lights are automated to turn on so that the delivery person knows he's being monitored and recorded.

I will say there is a LOT of things you can do for automation. This is the way to go for self-managed PM.

I have it set up so well, than when I need to do some renovations to a tenant's apt, in this case, the backyard, the tenant did not want my landscaper to come in without him. BUT, after giving the tenant a wifi camera and installing a lock, he can see exactly what the landscaper is doing and whether or not he roams around the apt. The landscaper  also knows he's being monitored.

I will say that without doing self-management, how would you get to know all of these kinds of technology?!

Maybe I'm just a geek and just love all of this stuff. But really, there is so much I fully believe that you will be able to automate PM work very shortly in the Future.

I even think that the RE Brokerages will be able to do showings where all they do is install voice cameras and smart locks. You take a tour and the cameras and locks can automatically direct you where to go, what to see, etc.

I forgot to mention that I use Wifi Thermostats! They are AWESOME! I really recommend every PM to have them. They can save you things like busted frozen pipes, etc.

Time is changing. Tech is the way to go!