All Forum Posts by: Llewelyn A.

 I read the Millionaire Next Door and it really described me to a TEE!! haha!

BUT, what it didn't do was to go as deep to look into what Families do when they get rich. For instance, you, the father, may have made Millions buying properties. BUT, you will probably push your children to do something else, like become a Doctor or a Lawyer, even though your children won't make as much money as you do as a business Entrepreneur.

The reality is that there isn't much status to a Millionaire who is the owner of a ball bearing company even if those ball bearings are selling in every machine in the world!

NOW.... if your Child was a Medical Doctor or fancy lawyer, well... that's impressive! And has a lot of status attached to it.

I also wanted to mention that when I was talking about being wealthy, we are a little spoiled, thinking that someone who makes $100k a year IS NOT wealthy. But the reality is that this person IS Wealthy, especially if the spouse equally makes over $100k for a combined household income of over $200k, by the average American standard and certainly by world standards.

Status is something that those Millionaires who have made it by many of the things we should be doing, such as living below our means, etc. don't really seem to care about until their children go to College. Then you will really see if they are seeking status!

The Millionaire Next Door is a good book. I think everyone should read it. But we should all keep in mind that status may be chased in many indirect ways, including having your children achieve it for you.

I remember the story of Consuelo Vanderbilt. The fabulously wealthy Vanderbilts wanted Status so badly, they literally bought their daugher's husband because of his Royal status. The one thing they really couldn't get by buying was the Royal blood.......... until they found a willing Royal to give it to them! haha!

@Raymond Reyes

Hi Ray! Good to hear from a fellow NYC Investor!

I think the City can improve things QUICKLY by ordering more G-Trains from Amazon! I am sure the City has Amazon Prime! haha!

It's going to hard to ignore living in Brooklyn along the G-Train. I just mapped it with Google and it only takes 15 minutes to get from LIC to Clinton Hill, Brooklyn.

It's a GREAT commute for those younger and hip Amazon employees!

I can see that there are a lot of people scratching their heads when it comes to picking a very expensive City for HQ2.

It would be easier to understand if you were to think like a Wealthy person.

Imagine you were wealthy, where would you live? In a place that makes sense to the working class or a place that gives you Status?

The wealthy tend to choose Status, which is why fancy brands are so popular, especially when the economy is really good.

NYC is a fancy brand and Amazon is RICH.

I remember watching an episode of "Mad Men", which is about the Advertising field in NYC on Madison Ave. They were tasked by Jaguar to advertise one of their luxury cars. The slogan was "Don't buy this car because it's Practical, buy it because it's NOT!"

I am a practical person but I recognize the need for the wealthy to be impractical, in other words, not like everyone else.

We all do it to certain degrees, for instance, if you were hungry and wanted good food, sometimes we choose atmosphere for the same food because we want something "special."

Practical is BORING. Impractical, EXCITING!

Anyway, I don't want to beat a dead horse. I think the readers of this post gets it!

If HQ2 actually makes it out to LIC/Queens and the rentals there are most likely to SKYROCKET close by, there will be 2 options for those that are going to staff the new HQ2.

1) You are rich enough to pay the $3k to $4k+ rent for a 1 Bedroom apts that will be available or

2) You are most likely to move close by in an area that has some "reasonable" rents for you and your family.

Usually, that means the transportation to work has to be straight forward and quick.

In NYC, anything along the trains that go directly into Manhattan has skyrocketed if it's within 30 to 60 minutes to the Manhattan.

I suspect this will have a similar effect. The trains that serve the LIC areas are the 7 train, the LIRR, E, F, M and R trains.

There is ONE sleeping DOG train that I think will be woken up if this comes true! the "G" Train.

It's the only one that goes from LIC DIRECTLY to Brooklyn.

I have a feeling that if you were a well paid HQ2 employee, you may want to live in Brooklyn if there was a DIRECT train that takes you there and back within 30 minutes without having to go through Manhattan!

I have been doing GREAT on these residual effects. It will be very interesting to see if the properties along the "G" train will appreciate. That would mean further appreciation for Greenpoint, Bushwick, Bed-Stuy, Clinton Hill, all in Brooklyn.

Of course, I MAY BE a bit biased as I own several Bed-Stuy/Clinton Hill properties!

My bet is that it will, and I have not been wrong on property selection for 21 years!

@Anthony Mikolich

There are several banks that do HELOCs on Investment Properties.

The one that I know is East West Bank: East West Bank

I understand there are a lot of suggestions to do a refi, but there are two problems with that:

1) That's not what the OP asked and 

2) There are REAL reasons why to use a HELOC... which is why it's a Loan Product that is available.

HELOCs give you another choice to use money temporarily and is better than HARD Money.

I will wind up getting huge discounts on properties with an All Cash Offer.

The discount I get can be upwards of $100k on a $1.5 Million property.

BELIEVE ME.... it is worth it.

@Thomas S.

Hi Thomas. Not sure these personal replies are a good thing for a forum or is just better off as an exchange of emails.

Either case, the basis of any of my calculations is that the components of those calculations change all the time.

For instance, you mention equity. So if I were to calculate ROE, over time, ROE will change. What I hope will happen is that ROE will get smaller, which means that the Equity is Growing. You may call that a bad thing because the ROE diminishes over time, but the overall cause of it is a higher Equity.

Every single cash flow calculation should be thought of as a moving target, RoE, Cash on Cash Return, GRM, Cap Rate, etc.

HOWEVER, there are a few calculations that will take into account all of these moving targets. The one that I use all the time is Internal Rate of Return (IRR).

What I do is project out the next 10 years of the Investment and determine an IRR based on certain assumptions. I will use conservative assumptions, such as 4% Appreciation Rate, 2.5% Rent Appreciation, 5% Expense Appreciation, etc. to come up with the cash flows throughout the 10 year holding period.

If the IRR meets my target number, usually over 10% IRR, I then look to see if there is any way to add value either now or in the future.

Although this is an extremely complicated spreadsheet to build, every one of the Investment Properties I have bought in the last 21 years have done PHENOMINAL.

I would say it's all about the numbers. But the reality is that I was WRONG. The Conservative models were WAY TOO Conservative and we had made a HUGE killing in the Brooklyn Market. But then again, the models were designed that way. It lowered the risk on the downside and there was NO risk on the upside.

As far as Economic and Market risks are concerned, I have been investing since 1997. You already know the Crisises that occurred during these period, and especially in NYC (think of 9/11).

I often ask people to tell me the difference between a good Investor and a Lucky Investor, because it's very difficult to tell them apart.

Both will make MONEY.

HOWEVER, the time when BOTH make money is when the economic tide is rising... meaning when everything is doing GREAT!

When the tide falls back, that's when you can tell the difference.

The Lucky Investor is much like a Gambler. He tends to continue his bet as he keeps winning, mostly doubling down as he goes. But inevitably, this Lucky Investor will lose, and may infact lose it all.

The Good Investor will make money in the good times. When the Bad times come, a Good Investor will NOT Lose money or very little.

A GREAT Investor will not only make money in the good times, but will also make money in the Bad times too.

My Investing History tells me who I am. I have been through enough crisis to know.

Either case, if you are really good at one thing, it follows you can apply that same motivation and discipline to other things as well.

Real Estate is just one of the areas I use to grow my wealth. I think we all have multiple things we are all doing. Some they have their careers, other businesses, etc. and RE is just another vehicle of investment.

The Great thing about using IRR, is that it doesn't matter what the Investment is that you are using. All that matters is the Cash Flows of that Investment.

My real skills is in the understanding of the Cash Flows of multiple Investment vehicles and coming up with a comprehensive IRR Based Business plan.

I know this has been a very boring post! But if you read this far, I congratulate you!

@Justin S.

One more thing to consider. If you have a 30 year fixed rate Mortgage at a really decent Interest rate, especially if it's sub 4%, you need to consider the effects of the rising interest rates and the value of the Mortgage Note.

The Bank is the owner of the Note, you are the Borrower. As Mortgage Interest Rises, the Value of the Mortgage Note decreases.

That is a loss to the Bank. BUT it is a gain for YOU, the borrower.

When the 30 year Mortgage Rates fell super low several years ago, I was lucky enough to lock in a 30 year fixed rate Mortgage on one of my properties at a super low rate of 3.75%, after buying a few discount points.

TODAY, that rate seems crazy low, which it was! But since Investors tend to have a narrow focus such as with Current Cash Flow, they may have failed to understand to buy your properties and lock in those incredibly low Mortgage Rates back then.

Since the time I locked in the rate which was in 2013 to now, the 30 year fixed rate Mortgage Interest rates increased to where it is now, around 5% to 6% for super jumbo Investment Portfolio loans on average.

Now that the rates moved up so much, what do you think happened to the value of my property from 2013?!

Many Investors who don't really understand the relationship between Rising Interest Rates, Inflation and Inflation Adjustable Assets would really have predicted incorrectly that property values DECREASE with rising Interest rates.

My property ROSE in value from 2013 by more than 50% as the Interest rates rose.

The reality is that Real Estate is a Inflation Protected and Adjusted Asset class, if you buy the RIGHT real estate.

I am sure you experienced the same thing. This is NOT some dumb luck. This is the phenomenon of buying an Inflation adjusted Asset.

Another concept that Investors don't get is the difference between NOMINAL and INFLATION adjusted Prices.

To us Investors that lock in 30 year fixed rate Mortgages when we can, the most important inflation number is NOT the CPI because it's Inflation Adjusted. It's the NOMINAL Inflation number that's more important to us.

Basically, if our value of the property moves up by 10% because the Rents rose 10% because of inflation, the inflation adjusted number will say that since both increased the same therefore it's a wash.

BUT, that's NOT true. If you are paying a fixed rate mortgage AND your mortgage payment is the same while your rents rose, you are making MORE cash flow!

So CPI doesn't work for this scenario. Nominal rise in prices mean the ACTUAL rise in prices where you do not adjust for inflation.

So the rents rise, the value of the property increases, and my Mortgage payments stay the same.

It's a Win-Win situation.

I think there is a point where Investors just can't absorb the full economic theory and think about it to the point of truly understanding what is the complete scenario. It is incredibly difficult when you are so busy in life that it's just easy to read a bunch of books but very difficult to spend time to try to make sense of all the reading and look to see how it really works in the specific scenario you are getting into.

The more we become sophisticated in our knowledge, the more we can have a fuller understanding of the sophistication of predicting the future.

@Westlake John

The way I look at Investing is not about today's cash flow, it's about tomorrow's cash flow.

When I buy a building, I want it to be in an area which will give me higher RENT appreciation, which will translate to higher Value Appreciation and a higher Cash on Cash Return.

For those that only calculate the current cash flow, that would assume that the Investment's cash flow tomorrow would not be of interest to you. BUT to me, many Investors miss the real diamonds because they are not shining right now.

There are definitely areas in Brooklyn (I don't know much about the other areas) that have future Rent Appreciation. But there are others that don't.

I'm not really sure about some areas because I don't know them well, but Carnarsie, Brownsville, would be two that I don't think will have much future rent appreciation when compared to other areas like Bed-Stuy, Crown Heights, Ocean Hill and Bushwick, even East New York.

The Flatbush area has become hot and is in the process of Gentrification. I would not look so much as what it is today, meaning "Over-priced" until you say to yourself, what will the Rent of a 2 Bedroom apt be today and in 10 years from now?

If that 2 Bedroom apt rents for $2k now but it will be $4k in 10 years, and you can lock in a 30 year fixed Mortgage for 5.5%, you will do fine.

BUT, if you look at that same property without taking into account the future, then you might as well buy outside the City.

I've been doing this for the last 21 years. Every property has seen rents triple and quadruple. For those that think Brooklyn has peaked forever, I've heard that many times before and unfortunately for those that thought that way, they did not take advantage of the huge Value increases.

Something to think about!

@Justin S.

That's a good News Article from your link.

It also indicates that House Prices also depend on the $/sqft of Condo prices. That makes a LOT of sense.

If you think about it, if your home has 4 Stories, each can be converted to a Condo, and each can sell for $1k per sqft, then you have a HUGE value add for the conversion.

If you convert at this price, which is pretty much where Condo prices are in the Bed-Stuy area, not even looking at where your particular areas is, for instance, Park Slope, it may be $1,400 per sqft, the value add can net you another $500k to $1 Million.

This is one of several reasons why I continue to buy.

The building I'm buying in Bed-Stuy is 2,400 sqft Gross. Can probably get 2,100 sqft livable. I'm buying it for $1.48 Million, but, if I convert and sell it today, I can sell it for $2.1 Million. So as long as the conversion doesn't cost me more than $600k, I'm already making a profit.

If you think like the NYC Developers, you have a different perspective on profit. If you think like a non-NYC Developer, then you will not want to own your property that you currently have.

Another thing to consider is if you think back, say, 10 or 20 years ago, you could have come to the same conclusion you have now. Sell your property, and maybe the market dipped and you were right.

BUT, if you failed to buy it on the dip, and the property probably doubled or trebled in Value from then, you may have won the battle, but you lost the over all war in the long run.

It's sort of like trading a great  stock like Apple. If you try to time it because you think it will crash, and you failed to buy it again, it inevitably goes much higher than the last peak. How many people have kicked themselves when they sold out of Apple thinking that they would get back in and just never did, only to see Apple grow to where it is today?!

Real Estate is vastly different than that because the commission on both the buy and the sell is far greater than that to play timing the market.

For the readers of this post, I'm not trying to convince you to buy my way, I'm just offering a perspective of an Investor like me who buy ONLY in Brooklyn, a highly appreciating market, for the last 21 years.

If you don't think this is a strategy but is just dumb luck, then maybe you should think to yourself, how can I get so lucky?!

Remember, Luck has two requirements. 1) You must recognize the opportunity and 2) You must be prepared to buy that opportunity.

I see opportunity in Brooklyn's Future and I'm prepared, therefore I buy.

Most people are prepared, but they don't see that Brooklyn is an opportunity TODAY. I would probably agree with that if I don't include the Value Add Condo conversion to the equation. BUT I don't buy on today's value, I buy on tomorrow's Value.

How many decades of buying on Tomorrow's value will it take for the reader of this post to realize that if you DON'T, then Cities like Brooklyn, SF, a few others, is not for you.

That's fine, it's just a different strategy, but don't call mine a gamble when I have been successful for 21 years. There something wrong with your logic because even a Cash Flow Strategy can fail in 21 years. Mine has NOT. Maybe it's time for those that think Appreciation is a gamble to start to think that there may be some intelligent and calculable way to add it to your tool chest of financial calculations. After all, for the Professionals, we use Future Value (FV), Discounted Cash Flows (DCF), Internal Rates of Return (IRR), Net Present Values (NPV), etc. in our calculations. ALL of these calculations are about the future. You cannot get an IRR without already assuming what the future cash flows will be.

That is the difference between those of us who use the more sophisticated Financial calculations and those that don't really. If you don't take into account the future cash flows, you really left out a LOT of analysis that you COULD have done. HENCE why those that don't do the future financial calculations think that Appreciation is a gamble. It's because they don't really use the future value calculations.  

@Justin S.

The one thing about appreciating properties is that people don't really realize that the rents tend to be the factor that causes Value appreciation.

Back in 2000, I bought a 2 family near Prospect Park for $140k. The apts were $500 per month.

Today, those apts rent just short of $2k each month.

I know many people here think that holding a property for break even seems ridiculous, but if after 20 years your property cash flows $3k to $4k a month with an investment of $21k down, $30k for renovations..... the Cash on Cash Return becomes something like $3,500 (average monthly rent roll) minus $1k expenses x 12 months = $30k per year / $50k invested = 60% CoCR........... that's pretty damn hard to beat.

This wasn't even the best property either and all 8 of my multi-family experienced the same thing.

Will it continue in the future? HA! I've heard the nellie naysayers tell me this every year for the last 21 years, all the while I keep buying and keep banking it.

If you ever read my past posts, I tend to talk about a friend who bought properties in a cash flowing City back in 2004, the same year I bought a 3 Family in Clinton Hill, Brooklyn.

Fast forward to today, the friend's property still cash flows $1k per month. HOWEVER, his rent in NYC went up over $2,500 per month from where it was in 2004. Really, he may be making cash flow from the property, but because he rents here, the increase in his rent versus the stability of the $1k cash flow puts him at a NEGATIVE cash flow lifestyle. Had he actually bought his apt with a fixed rate mortgage, he would have been better off.

My Clinton Hill property, however, went crazy. I bought it for $900k, it's now worth about $3 Million. The cash flow increase dramatically from break even to about $4k per month.

I do want to caution that not all properties in NYC do well. I know someone who bought an apt on Riverside near 60th Street. His Apt is priced almost exactly the same today as it was when he bought it 10 years ago. The problem was Tax Abatement. His expired and his property tax went sky high. That kept the value down.

Just for more food for thought, try reading the Price Waterhouse Cooper's Emerging Trends in Real Estate for 2019. Here is the link to the extensive report: PWC Emerging Market Report

Guess where Brooklyn ranks among the to 80 Buy and Hold cities? SECOND... that is 2nd.... Just below Dallas.

It's an interesting report.

I'm also putting my money where my mouth is and will be in contract for a 3 Family Bed-Stuy building VERY soon.

Something to think about.

I have about 2 LLCs (A Real Estate Brokerage Firm and an LLC which holds a multi-Family building) as well as an S-Corp which makes Software.

I don't expense my Cell phone, but I use it a LOT for business.

The Cell Phone is also part of a family plan with several of my Family members part of the plan.

I REALLY don't want to start a whole new business cell phone line with a new cell phone and have to carry around 2 cell phones.

What do Investors do when it comes to this kind of situation and they want to expense things which are entirely common like the use of a Cell phone.

In my case, I have 3 different entities as well as 5 other multi-family properties held personally.

I certainly don't want to have any of my Entity's Veil's Pierce because I took an expense that wasn't SOLELY business.

Any advice would be appreciated!