All Forum Posts by: Llewelyn A.

@Jack B.

ANYTHING, as you pointed out, can be faked.

BUT... if you are doing that for an apt, you risk committing a crime by falsifying information.

So, let's say a tenant has the following:

- NO CRIMINAL HISTORY from the Report

- HIGH CREDIT Score from various sources

- Qualified and Verifiable Income from their Employer

- NO Evictions

After checking all of that, they then submitted a FALSE 6 months bank statement?!

Ooooook!

Why would anyone risk that for an apt that's not a penthouse on Park Ave?!

SO... I would say you are correct, anyone can fake it, but the chances of someone risking committing fraud while having the above verified via 3rd Parties strikes me as being somewhat low.

In fact, it would be someone who would be willing to commit other crimes then just giving false information to a Landlord.

If the person got away with it like Bernie Madoff (haha... his last name is really a Pun), it's very difficult to blame the victim in this case because 99% of people will wind up renting to this person.

I don't think you will find that there was a Landlord that had issues with a tenant after getting all that verifiable evidence.

If there was a few tenants, it is so rare that it would be deemed insignificant risk.

@Michael Kiley

Forget about checking in with the current Landlord. That's really going to be a waste of your time.

What I do is ask for 6 months of Bank Statements where the rent was paid so I can see if the rent was paid on time.

Basically, if they can't give me proof they paid their rent on time, I go on to the next candidate.

If you even get a few checks, you can see who got paid if you really want to call the current landlord.

However, doing the employment, tenant credit, eviction and background checks along with having them providing Bank Statements corroborates their story of being good, prompt paying tenants.

BTW, I'm a NYC Broker/Landlord.... it is REALLY important I don't put in a bad tenant. NYC has one of the strongest pro-tenant laws. Hence why I ask for 6 months Bank Statements.

It's also competitive here in NYC, so I have an advantage when considering the less than 3% NYC vacancy rate. It's a normal thing for Candidates to expect to go through hoops here for an apt. I have never had anyone that was seriously looking for an apt turn down applying for my apts when I ask for the Bank Statements. But's that's NYC. Hopefully you are in somewhat of a in demand area as well.

@Ronny Tiburcio

Hi Ronny, I'm both a long term buy and hold Investor in Brooklyn and a Real Estate Broker.

I can tell you there will be a rare few rent stabilized under 6 unit buildings.

Some buildings can volunteer to become rent stabilized in exchange for a Tax Break. Generally, that would be new construction.

It became attractive for some developers to apply for the Tax Break and make the buildings Rent Stabilized because it was easier to sell the building to unknowing Investors who did not necessarily understand the Tax Abatement program.

So be careful and read this website:

NYC Rent Guildlines Board - Frequently Asked Questions (FAQs)

How does the number of units affect a building's regulation status?

Rent controlled units can generally be found in buildings with three or more apartments. In rare instances, a two-family home may be rent controlled if it was occupied by the same tenant since 1953.

Rent stabilization generally applies only to buildings with six or more units. Although smaller buildings may be subject to stabilization if stabilization is imposed due to a tax abatement (See our Tax Abatement/Exemption FAQ.

Also, the remaining tenants in a building which is reduced from six to fewer than six units may continue to be rent stabilized.

For more information on the differences between rent stabilization and rent control see DHCR Fact Sheet #1: Rent Stabilization and Rent Control Other DHCR fact sheets explain in more detail the workings of rent control and rent stabilization.

@Dan H.

Fantastic! Needless to say that anyone that had purchased in the last 5 years has done well as long as they were in areas that moved up with appreciating rents and values.

Unfortunately, not all of America had done that.

I still have a friend of mine that bought in Bristol, CT that have not seen much value or rent appreciation although it had maintained it's consistency.

The problem is that he totally missed the boat on the appreciating areas which was where he lived.

Unfortunately, investing in non-appreciating areas but living and not owning in the appreciating area is a formula that spelled disaster for him. His overall cash flow, meaning his cost of living declined while those of us investing in the appreciating areas where we lived increased our cash flow tremendously.

Essentially, his rent increased in NYC while his cash flow for the investment properties outside NYC remained the same.

So the overall effects is a decrease in net cash flow.

I'm not sure why Investors don't realize that this is a phenomenon that can easily happens and I know it does from that particular friend.

For the most part, the other thing that happened with those that did not either invest in the appreciating areas and also did not buy their homes either have become forever priced out.

Even if they can barely afford the home in the appreciating area today, they will say it's just way too expensive. So they are priced out psychologically.

But to your point, will the next 5 years be the same as the previous 5 years?

Probably not, considering that 10 years ago it was the worse economic crisis in at least 70 years since the Great Depression.

BUT, if those who did not understand that it was a FANTASTIC time to invest once the crisis was over, even if the same thing occurs, their risk intolerance will probably steer them to the investments that won't appreciate the most, and that is unfortunate.

This is really about education in the long run.

People have to add to their inventory of skill sets for an investor the ability to calculate and understand appreciation and other future values.

It's the only way to get used to the psychology that things change in the future and where you buy can either capture that change if it's good, or avoid it if it is not.

I just can't believe people make a decision on an Investment based on one single calculation for today, usually the Cash on Cash Return, and then completely ignore all future economics.

That's like the squirrel that doesn't bother saving his nuts for the winter because he has a lot around in the fall when they dropped off the trees.

Good thing squirrels can think about the future value of saving his nuts!

Anyway, I wanted to get back on topic.

A simple usage of statistics will mislead the individual investor (or if there are a lot of individuals, then the masses of investors).

People seemed to use the "Net Migration" number versus "Population Growth". The reality is that one needs to take into account Net Migration plus Births minus Deaths to get a fuller picture.

You will actually understand the trends better. There shouldn't be a surprise that NYC's MSA is really under supplied for the demand of a growing population.

The problem is when someone says "But people are leaving!" yes... that's true... but more babies are being born! Less of the remaining population is dying!

Right now, as according to the article, $7k  per year are migrating out of NYC MSA. But the birth/death numbers are ADDING 107k per year.

That's a population growth of 100k per year. If NYC MSA builds only 10k housing per year, you will still wind up being under-supplied for the future demand! BY A LOT!

So will the prices increase? My bet is that it has to until the supply catches up with the population growth or that population growth itself declines while the inventory increases.

I don't believe that's the case just yet.

Before I start this discussion, I wanted to post the link to the Article with the title "Population migration patterns: US cities Americans are abandoning" but don't go to the link YET. Wait until you read this post first then go to the link: US Cities America is Abandoning

From the Article, it states: "The 50 cities where the most people are moving away from can primarily be found in the Northeast, Midwest, and West Coast, particularly in states like Illinois, Michigan, Ohio, and New York. Among the cities where people are leaving in droves are places such as Chicago, Detroit, St. Louis, New York, and Los Angeles."

When you look at the statistics that are posted in the article for New York Metro, you see the following:

10. New York-Newark-Jersey City, New York-New Jersey-Pennsylvania

• Population decrease due to migration, 2010-2017: -21,503

The NY MSA, a huge area, had a decrease between 2010 and 2017 of a whopping 21,503!! OMG!! SELL!!! Real Estate Prices will completely fall and you will lose everything!! The SKY IS FALLING!!!!!!

But wait Chicken Little!!

When we actually look at the prices of Real Estate, that's not what we actually have seen.

While I don't think one should take their personal experiences into account for fear of extrapolating a biased opinion, I see this scenario done ALL the time here on BP, especially when I see postings involving places like NYC where people are saying I wouldn't invest here because my personal experience shows that it is un-affordable.

YES... that is true... it is un-affordable.... when you do it ALONE, by yourself. But if you use the laws of Partnerships, like Syndications, Investing with your friends and family, or just putting together a Venture Partnership, what was previously un-affordable can now be achievable!

I form partnerships normally in order to buy Brooklyn, NYC properties and I had bought several properties in NYC during the 2010 to 2017 period.

Again, I want to state that this is my PERSONAL results so I don't want you to think this is the overall results in a vast area called the NYC MSA. Here is the results of my properties that I have bought within 2010 and 2017:

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

Year: 2013 (locked in Contract, bought in 2014)

Type: 3 Family (2 Floor Thru's and 1 Duplex Garden Apt), Brownstone

Location: Bed-Stuy, Brooklyn

Price: $900k

Renovation: $350k

2018 FMV: $2 Million for an increase of $2 Million minus $350k minus $900k = $750k

Cash Flow Increase from 2013: over $4k per month increase! Rents skyrocketed!

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

Year: 2015

Type: 3 Family (3 Floor Thru's with a Garden), Brownstone

Location: Bed-Stuy, Brooklyn

Price: $1.35 Million

Renovation: $30k

2018 FMV: $1.65 Million for an increase of $1.65 Million minus $30k minus $1.35 Million = $270k

Cash Flow Increase from 2015: over $600 per month increase. Not bad, most of the rental increases already happened a year earlier.

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

Year: 2017

Type: 3 Family (3 Floor Thru's with a Garden), Victorian House, Multi-Family

Location: Ditmas Park, Brooklyn

Price: $1.71 Million

Renovation: $45k

2018 FMV: $1.90 Million for an increase of $1.90 Million minus $45k minus $1.71 Million = $145k

Cash Flow Increase from 2017:  We increased rents by adding value and duplexing the basement for an increase of $600 per month.

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

SO............ my personal experiences seems to be far different than those that are really stating that these higher priced MSAs are not good for investing.

BUT, as you can see, I have been incredibly successful by investing in these higher MSAs, but in my specific locations in Brooklyn, looking for higher rental appreciation and value appreciation as well as a large supply of great tenants and low crime.

When I now go back to the article, which really is a bit misleading from the Headlines, here is the remaining part of the New York area statistics that I left out above:

10. New York-Newark-Jersey City, New York-New Jersey-Pennsylvania

• Population decrease due to migration, 2010-2017: -21,503
• Population change, 2010-2017: +3.9% (19,566,480 to 20,320,876)
• Natural growth, 2010-2017: 1,811,927 births, 1,035,505 deaths
• Median home value: $426,300

Yes, the Chicken Littles are correct, there is a NET MIGRATION OUT in the 7 year statistics of around -21,503. The average, 21,503 / 7 year = 3,702 per year OUT.

That's FINE..... as long as you then look at the Birth and Death rates as well. Taking that into account, you get 1,811,927 births minus 1,035,505 deaths = 776,422 added to the population or 111k per YEAR added to the population.

Take into account that the general population outside of the opiod addiction areas are living longer. Seniors are choosing to stay at home, keeping those properties out of the supply chain.

If we then ask the question, what is the quality of the population that leaves and the population that is staying and growing?

Generally, those that are leaving, a large percentage happen to be priced out of the market. They cannot achieve salaries that can help support their lifestyles as everything in the City increases dramatically.

The population that is staying are then benefiting from their higher equity as their home prices increase as well as their ability to achieve higher salaries from those jobs that require a skillset for it.

With the higher equity, if they owned, they are then able to send their children to higher quality of schools which we know are expensive today.

When those kids come back, they want to stay, mostly because it's a great place and they can afford it by going to these quality schools and Universities.

ANYWAY, I think you get the point.

I have been seeing this trend for the last 21 years investing in Brooklyn, NYC. It's a fantastic trend in order to reap the rewards on a Real Estate Investment basis.

I do think that everyone are entitled to their opinions, however. If you hold a different opinion especially, I would really like to understand why you do think otherwise.

I would especially like to hear from those that HAVE invested in NYC over the last 10 years (2008 to now) and have an opinion that it was really NOT good. I haven't really heard that opinion from someone who had, but I welcome that as well.

@Jason D.

EXACTLY!! "You Only Realize the Profit from appreciation when you sell" IS A FANTASTIC Advantage for the really knowledgeable Investor!

It's such a great advantage to be able to take money out through an Equity Loan rather than realize profits and having to pay a tax on it (that is assuming you don't do a 1031 Exchange).

So imagine you took out an equity loan, added more to your investments, not paying taxes because you didn't sell to realize the profit as you don't need to pay taxes to take out money from your investment, then also get a tax deduction for the loan against the new investment that you just bought! INCREDIBLE!

When you do it this way, you supercharge your portfolio!

Great Point and one of the reasons why I have achieved incredible returns!

Getting back on topic about the CoC Return though....

Another issue with the CoC Return that some people use to pull the trigger is that they don't take into account future Capital Expenditures as well as future cash flow growth.

An example why this is bad is that let us say you are buying a property with some structural damage really cheap that you must fix in 5 years.

You calculated your CoC Return for the purchase and it GREAT!!! wow! 15%!!!!

But wait a minute...... you completely ignored that $100k structural damage fix.

Goodbye CoC Return calculated for the day of the purchase!!

The practice of using a single calculation based on TODAY's Purchase information is setting yourself up for a world of hurt if you don't get lucky enough that the property maintains it's cash flow and capital expenditures through the holding period.

When it comes to the IRR, you project it out for 10 years and you include every single known and potentially unknown cash flows including the anticipated fix for the structural damage.

Why would you do it any different?

@Nicholas Layton

I have been investing in Brooklyn, NYC for 21 years.

In the year 2000, I bought a 2 family for $140k with a Down Payment and Closing costs totaling $28k.

The Rents and Expenses broke even but I lived for free.

The CoC Return was 0%.

Fast forward to today, the rents for the 2 apts increased from $500 per month each to almost $2,000 per month after 18 years.

Because I used a fixed rate mortgage at the time, my monthly expenses increased MUCH less than the Rents did, raising my cash flow.

Today, that property would have cashed flowed around $2.5k per month or $30k per year.

If I used CoC Return as a metric 18 years later, my CoC Return would be $30k / $28k Initial Investment or 107%.

In markets like Brooklyn, NYC, what matters isn't the Current CoC Return, but the FUTURE CoC Return.

This is EXACTLY why I use Internal Rates of Return (IRR).

You cannot understand the Return on the Investments in Markets like Brooklyn with simple CoC Return Calculation.

Instead, you need to understand the CoC Return GROWTH.

Certainly not by coincidence, btw, the value of the property went up from $140k in 2000 to a current market value of over $1 Million.

If you want to understand the IRR from real examples, you should read my past posts. I even demo'd it via some spreadsheets I put together and posted a snapshot on how you should put together your assumptions which are needed in the IRR Calculation.

Anyone who thinks Equity is not real should also reconsider that.

I have pulled out millions of dollars against my Properties throughout the years from the Equity. The Banks thinks it's real, why don't you?

I have an idea!

See if you can get a phone number that's pretty similar, maybe a digit off.

Then, duplicate his Bandit Sign but with your new phone number!!!!!!!!

Find all of his signs, replace it with yours!!

He probably won't catch on for quite a while! haha!

So not only do you mess with his business, but you then also increase yours since I have to agree with someone else that mentioned his sign looks a little more effective than yours!

Of course he will be VERY pissed off but that's the effect you want!

If you are going to war, be smarter than your enemies! haha!

@Neerav Patel

What I do in addition to the Income Verification, Credit Check, Eviction and Criminal Background checks is to ask for at least the 3 most recent Bank Statements of the Account that the prospective tenants had paid their current Landlord.

I need to see that they are up to date on their rent payments. It is especially important for the latest rent to be paid because if they are looking for an apt because they are on the verge of being evicted, the first thing a tenant will do is stop paying rent.

So I always look to see if they have their rent checks or drafts taking out of their bank account and to make sure it's going to the Landlord.

It may be considered a bit extreme, but I am in NYC big pro-tenant City! Can't be too careful!

Also, I completely discount anything positive from a current Landlord. I can imagine that the first thing a Landlord that is being taken for a ride to do is to give a great recommendation just to get rid of the tenant! Pass on the problem to someone else.

So I don't think you can be overly paranoid here!

@Andrew Ware

@Peter M.

@Kelvin He

Going back to my 1st post with the calculations, I do want to point out that the IRR, which is the Internal Rate or Return calculation, takes into account the time value of money.

But what it does is boil it down to a steady interest rate as if you put the money into an Interest Bearing Account and left it there, what would be the Interest Rate for the 30 years you left it in there?

It's still a bit crude to think of it that way but the way to look at the number is to compare it to the CPI, which is the measure of Inflation over the next 30 years. If your IRR is better than the CPI, you have made money. If it is exactly the same, then you broke even in Buying Power. If your IRR is less than the average CPI over the 30 years, then you lost Buying Power.

It's really GREAT STUFF! My Geek in me loves it and believes everyone should have a little Geek in them to go thru the calculation so that it satisfies the Inner Financial Geek in you too!

Also, Peter M. is absolutely correct! You need to think that once your roommates move in and you are only paying $300 per month for rent in a location where if you did not own the house you would pay much more, then you are actually saving some money which has not been taking into Account.

So lets say that if you found an exact situation except you were the roommate instead of the owner, you would also be paying $1k.

Therefore, by paying only $300 per month, you can think of the $700 per month savings as adding to your cash flow.

Good Catch Peter M.!

BTW, this is pretty much how I built a Real Estate Portfolio that is worth around $20 Million today, generating almost $1 Million in Rental Revenues and Cash Flows for the Partners very significantly.

HOWEVER, as I have been saying, calculations cannot be the only factor. I definitely put Future Economics as a big part of your ability to be successful.

Consider Future Economics as if it were a Tide and you are on a boat on the tide.

As long as your Boat doesn't have a hole in it, if the Tide comes in (meaning the economics are good), your boat will float up!

Even if your Boat is airtight, if the economic tide goes out, it will fall with the tide and you may not be able to sail away.

It seems that Peter M. indicates that your chosen area has sound economics.

So again, the risk tolerance of your circumstances may be above others who refuses to even consider things like saving your rent if you buy rather than paying much more if you didn't buy or even refuse to take any negative cash flow situations, but it is well within my risk tolerance levels.

In fact, I don't even consider it a risk since there is a profit from the most pessimistic IRR calculations and the economics looks good for the future.

Had I been had less Risk Tolerance, there would be no way I would have build a Real Estate Portfolio over the 21 years I have been Investing in NYC.