All Forum Posts by: Llewelyn A.

@Basit Siddiqi

@Tania Savory

@Abena Cannady

There is a really great website that walks you right through setting up an LLC, getting it published in Albany County where it's really cheap and then changing the County after you get your Affidavit of Publication accepted.

You will save THOUSANDs because of the great advice by a real Attorney who created this website. Please thank him if you do find it useful because we need more of these kinds of education available to us rather than the ultra wealthy.

Here is the website: LLC University

It's really great and I am almost finished with mine. I'm just about to get the publication started before filing to transfer the LLC to Kings County in Brooklyn from Albany County.

Hopefully this helps. It certainly helped me.

Scenario 1 - Live Sub Standard / Ultra-Wealthy

Let's say you live in a Van by a brook and depend on that brook for your hygiene but you are satisfied with it and your living expenses is maybe $200 per week for food/Gas/etc?

Let's say you have several Investments that pays you $800 a week.

Technically, by the definition of that chart, you are ULTRA-Wealthy because you can live forever this way.

Scenario 2 - Live like a King / Broke

NOW.... let's say you have $10 million in the bank but make ZERO Income and all you do is live on that cash. You are 50 years old and believe you will live for another 50 years to 100 years old. So you divide the $10 million by 50 years and you get $200k a year to live on without working.

If we look at the chart, we have a problem.

No one would say the person in Scenario 1 would be classified as Ultra-Wealthy though he meets the definition.

In Scenario 2, no one would say this person is in an EMERGENCY situation which is below broke.

Each one of these has to have a STANDARD of LIVING in which we can calculate the Value of it.

So if Scenario 1, we calculated the Standard of Living in the area where this person lived to be $2k per month, he is obviously living financially free, but way below the normal standard of living.

In Scenario 2, if we also agree that he spends $200k / 12 = $16,667 per month but has not discernible income, he is still living WAY above the $2k per month income.

In my opinion, the Value of the Standard of Living has to be taken into account. The Chart is too simplistic. 

I ran out of votes that I could give to @Nicholas Aiola and @Brian Schmelzlen who both deserve as many votes for their voluntary postings.

I know there are some of us who "Forget" to vote for people whom you feel adds value to this Forum and even to yourself, I feel it's important that you show your love by at least doing a single quote on the vote button to the posts that helped you in any way.

Show some love for these guys! There is no way Nicholas should have so little votes for his posting!

I hate to say this but even your relatives should pass your tenant screening due diligence since you indicated you are a landlord!

For those who are not landlords.... you should also tenant screen in this situation! Protect yourself from making a mistake!

In fact, it's more important because he will live in your home!

You also have access to his social media like Face Book, Twitter and Instagram! It was probably real easy for you to know everything about him!

I think that this thread will help anyone who is thinking of renting to someone they know or are related.... still do your due diligence and take that into account before you make an emotional decision!

@Jordan Moorhead

@Denise Brown-Puryear

My experiences have been very similiar to Denise's experience.

We also would have experienced a large rent and value appreciation, depending on which neighborhood we owned our investments.

Several of my properties trippled in Value and one increased 7 TIMES the value that I had bought it.

I would like to comment based upon a REAL example.

Year: 2000

Area: Windsor Terrace, Brooklyn, NY

Purchase Price: $140k

Investment: $28k ($21k down, $7k Closing)

Renovations: $50k

Rent: 2 apts at $500 per month

Current Year: 2017

Current Value: $1 Million (Conservatively)

Current Rents: $1,900 per month

In terms of the topic and this is just MY strategy, renting to low income, my preference is:

1) I don't invest in Low Income Rentals unless I fully can anticipate the rentals to move up. In the building mentioned above, the rents started out at $500 per month. Today, it is $1,900 per month.

2) The Quality of the tenants must improve over time and full due diligence can be done.

If I am going to take the risk of investing in a "higher risk" area, which generally means a lower income neighborhood, then I need to have a "higher reward."

The "higher reward" is achieved by purchasing in fringe neighborhoods which are eventually going to Gentrify. The above property was in Windsor Terrace which was somewhat sketchy in comparison to other, more prime neighborhoods almost 20 years ago.

Particularly, on that block, there was a specific drug dealer who terrorized the neighborhood. It sort of kept out the spill over of people who were out priced of the higher cost areas.

HOWEVER, eventually the drug dealing family finally sold their home for much more than the drug money they made.... it was inevitable that this would happen because they were greedy.

$140k for that property was not a discount, btw... it was just the price at that time on a fringe block. Everyone I speak to believe I got a bargain. That's correct, but not in the traditional sense.

A bargain is is generally when you get a discount for something. An example is a pair of shoes that sells for 50% cheaper in a discount store.

HOWEVER, an INVESTMENT bargain in Real Estate is more to do with it's future price because unlike the shoes which is worthless after a while, Real Estate will either keep it's value or increase in value.

I'm buying for an INVESTMENT bargain.

I try to buy low income, low value, low cash flow to achieve high income, high value and high cash flow.

It's worked for me for the last 20 years and every year I have heard that it's a big mistake to think you can predict future appreciation.

I guess I have been luck 7 times (I bought 7 multi-family buildings) in a row for the last 20 years. Seemingly an impossible odds.

So if you are open-minded to the possibility that you can buy low income where in 10 years you can do enough research to determine what metrics you can use to predict some value increase in either cash flow and/or value, then I fully recommend this strategy, that I have successfully implemented. You would just need to make conservative assumptions that are as accurate as you can and run a spreadsheet which will tell you how much you can make based on those conservative assumptions.

For instance, if the 30 year appreciation rate is say, 5%, then conservatively, you can use 2%. If the rents move up 3% per year, then assume 1% per year. If the expenses move up historically 4% per year, then assume 6%, and so on. Then create a spreadsheet which takes it all into account for the next 10 years and see what it tells you. Does it give you a substantial profit? Is it mediocre? Is it a bad investment?

Then go to several low income properties in different neighborhoods and eventually, you may find that diamond in the rough.

I also want to point out that when you go to low income, you may not be able to do a full due diligence tenant screening. I'm not sure if anyone had pointed that out just yet.

I have a friend that bought in a low income area and he eventually couldn't really use the Credit Reports because EVERYONE... with out exception.... had poor credit. What was the point?! So while he checks, what's more important was that the person made reliable income.

However, that's a big part of the tenant screening that Denise and I can do here in Brooklyn in good neighborhoods. In my case, no one can rent under a 700 and we get normally 750 or above. Occassionally, we get over 800. Like Denise, I have not done an eviction over 15 years and only by inherited tenants from buildings I bought.

The one eviction I did in 2014 was because I bought a building with another inherited tenant... but that building DOUBLED in price and made approximately $900k in appreciation in 3 years. That was in Bed-Stuy, Brooklyn.

Again, this specific Bed-Stuy Building was renting 2 bedroom apts for $1k per month in 2014. Today, after some renovations, we rent it out for $2,200 per month.

Please note, I'm not trying to convince anyone to do it my way, I'm just trying give an opinion and stategy that has worked for me for 20 years.

@Nicholas Aiola

Thanks for offering to field Tax Questions in these times of great tax changes!

What do you think about the SALT tax deduction elimination, specifically in places like NYC?

Will high Income earners get hit hard in NYC?

I know this is all opinion, but do you anticipate a migration to non-Tax States? Or do you think this fear is a bit overblown? Just curious and I am fully aware that this is just an opinion!

I'm curious how people do their Marketing.

Basically, I've always been on the Buyer side in a Saturated Market.

From what I understand, one does pre-marketing surveys before they commit to a full blown marketing campaign to make sure that the Marketing Company had not exaggerated their claims of expected results.

It's now something I'm interested in now that I've gotten my Broker's License and can sell for others.

I want to make sure I give them the best I can and not just list their property because it's the thing to do. That could be a waste of their time and mine. It can also stigmatize the property.

Do anyone actually do pre-Marketing or is that just not done in the kind of Scenario for that the OP Described? What about for potential listings? If there are a gazillion homes listed, do you just come up with a CMA and say, hey.... it will sell for this despite thousands of homes that are similar which qualified for the same Comps in the CMA?

I think I wouldn't want to commit so much money if I don't really have a pre-marketing strategy. But curious about what others think.

If an Investor only knows the 1%, 2%, GRM, CoCR, etc. Rules (or guidelines), then you are not going to understand what the other calculations are which WILL help you in other kinds of Markets.

The problem is without knowledge of the other calculations (think IRR, DCF, NPV, etc.) and how to apply them, you can actually get yourself in trouble despite qualifying for the 1%, 2%, etc. rules.

I often point out how a friend of mine, let's call him Bob.... bought cash flowing properties outside of NYC where he lived.

His properties did not appreciate. He did maintain about a $1k per month Cash Flow from 2004 to now.

HOWEVER, because he lived in an apt in NYC, where is rent in 2004 was around $2,600 per month... eventually he started paying $4,600 per month for the apt he lived in.

So what's the point on having a $1k per month Cash Flow in an out of state property when your rent climbed up by $2k? I call that a Negative cash flow despite the Investments being a positive cash flow because his NET, the difference between the rent he used to pay, which increase $2k and the cash flow of $1k, is NEGATIVE $1k.

I suggested he move his family to the area he invested for cash flow. NOPE...... he likes the great amenities of a City like NYC.

The other funny thing was had he actually bought his property in 2004, he probably would have made at least an increase of $500k in Appreciation, but probably as much as a $1 Million.

I think what's not being taken into consideration is the OPPORTUNITY Cost of investing in different markets.

All of this is an educational thing. When you are only knowledgeable of a few ways of calculating your Investments, you can only see things that one way.

Expand your knowledge. You may still decide to buy using the 1% rule, but at least you would have chosen it after you have done ALL your analysis.

Inevitably, I use the IRR. It helps me make that decision based on a 10 year projection on any property and putting in some conservative assumptions. I've been doing this for 2 decades and the returns..... incredible.

But most importantly..... I had secured my shelter in the ONE of the most expensive place in America. And I had done so cheaply by buying in 1997.

Today, you may think.... wow.... but properties are $1 Million!!! HOWEVER.... guess what that property will be worth in 10 years from now.

If you are getting out priced at $1 Million..... you certainly won't be able to buy at $2 Million in 10 years from now.

Do consider Opportunity Costs and other calculations than the normal, simple ones that are being tossed around.

@Jacob Barnhart

Jacob, if you did not sign a Buyer's Agreement Contract with your Agent's Brokerage, then it's up to the Seller to know what is in his Exclusive Right to Sell Listing Contract (Listing Contract).

Generally, once the Seller's Contract expires, he can sell the property to whom ever he wants EXCEPT for  Buyers who were already introduced to the Seller, which is your case.

There is usually a protection period in the Contract which would state the length of time after the Listing Contract Expires in which during this cooling off period, the Seller is still obligated to pay the Commission to the Listing Broker if the Seller sells to a Buyer that was already Introduced.

I'm not sure how State specific this might be, so your Seller should check his Listing Contract for this information.

If time has passed which included both the Contract Expiration Date AND the protection period, I see no conflict of interest here.

I just received my Broker's License so I may not be entirely accurate and perhaps other Brokers can confirm.

@Rick M.

@Jim Cummings

Hi Rick, Jim.

That's actually a good work flow for tenant screening.

One more thing I would add that should accompany the Letter of Recommendation from the current Landlord is recent Bank Statements to prove that the rents are up to date and paid on time.

It's incredibly important to make sure that the last rent is also paid.

You can imagine that a lot of Landlords with problem tenants are happy to give a letter of recommendation just to get rid of a tenant.

BUT... that usually means the bad tenant isn't paying rent.

If someone gets a letter of recommendation, I still think it's important to verify if that's accurate... or NOT!