All Forum Posts by: Llewelyn A.

Some who posted here are right that Appreciation may not occur during some part of a holding period. BUT Cashflow can also disappear during a holding period. We have all witnessed that during the last financial crisis.

HOWEVER, some of you may not have seen the drop in your Rents.

AND some of us who are in Appreciating Markets may not have seen a drop in our Values.

BUT, as @Jay Hinrichs and @Russell Brazil and @Dan Mahoney mentioned, Cashflow and Appreciation are just inputs to a more comprehensive calculation, normally called an Internal Rate of Return (IRR).

To discount Appreciation as if it's speculation but to claim Rents will always be the same seems to be inaccurate, at the least.

Both Appreciating Markets and Cashflow Markets are just different kinds of investing strategies. But they can both be calculated the same way in a Comprehensive IRR calculation, taking into account both Cashflow (growth and/or decline) and Appreciation (growth and/or decline).

I personally have made over $10 Million in profits for my Partners and myself over a 20 year holding period in Brooklyn, NY.

What's amazing is that over the 20 year period, my Rents on a typical rental had QUADRUPLED..... from $500 per month to $2k per month.

What do you think will happen in another 10 years from now?! That $2k per month rental will move up. Based on 20 years of historic data on both Value and Rental Appreciation, IF someone tells me that you cannot take into Account Rental and Value appreciation...... well.... we will just have to disagree. The Rate of Appreciation may differ than the last 20 years, but there are factors that may cause Rental and Appreciation Rates to move even higher as the Bond Markets are indicating right now.

Maybe those of us who use a comprehensive IRR calculation should just NOT try so hard to correct an inaccuracy so we can continue to buy great Rental and Appreciating investments that are being ignored by the vast amount of Cashflow NOW Investors as this eliminates our competition and increases the competition for those Cashflow Centric Investors.

I also wanted to point out that during the Financial Crisis, a LOT of Dividend paying stocks reduced their Dividends, DRAMATICALLY. Some totally eliminated it and restarted it years later.

I'm not sure why so many Cashflow Investors feel their cashflow is so protected that they cannot contemplate having a hardship in the future, but this is as dangerous as thinking a Dividend paying Stock cannot reduce it's Dividend payout.

I'm also sure that if both Jay and Russell have been Investing in Appreciating Markets like I have, we survived MANY crisis, including the Financial Crisis of 2007/8. 

What would be curious would be the statistics of those that have done well after going through this Crisis. Did the Cashflow NOW Investor as a Group do as well as the Appreciating Markets? I haven't done the research, but it's probably a good idea to find statistics as it may shine some light over this difference in Strategy.

I will say that Manhattan had such a low foreclosure rate during the Crisis that you can literally count the foreclosures on your fingers and toes.... and that's all you needed.

But take the other areas which were known for it's Higher Cashflow Properties.... it was really bad. But again, that's from personal observation. If there are statistics out there, it's probably a good idea to research it.

Investor Llew

@Lisa Phillips

I just want to point out that America has a very divided Wealth Gap. I believe it's very close to 5% millionaires.

I read a report that only 5% of Community College students graduate on time.

In my former program, only 5% completed it. But of the 5% that made it through.... 99% made well over $50k and one student over $2 Million.

5% seems to be a repeating percentage. I HOPE everyone here on BP makes it into that 5% category, no matter what their endeavors are! Whatever you do, do it with the best of your abilities and strive to be in the top 5%!

BTW, among the 5% of my students who made it to the highest level was the person I am most proud. He was an ex-Felon who became homeless for a long time. No one would have ever Partnered with him until they got to know him. He had to be an Entrepreneur in order to survive. He sold old time songs on CDs and Essential Oils on a Harlem Street. He had leadership abilities as he recruited other homeless into his Street business. So my program was a natural for him.

So I'm not sure why you are choosing to focus on the 95% who's motivation and time just wasn't compatible with my program? If you asked me if I would have done it in hindsight knowing I had only 5% graduate from the top? YES! I would certainly do it again! Seeing who had made it, the kinds of rags to riches that had occurred, is really inspirational.

I have to say I'm proud of the 5% that made it to completion and I never shut the door to the 95% who could have re-attended had they asked. I'm still very accessible to them.

I'm sure you have your inspirational stories as well. Maybe that can be a blog to start.

The other 95% who had some of my program's education but didn't complete the program, I would never call them a Failure. They are my students and my friends and they are always welcome to connect with me, which they do from time to time.

The Story of my program wasn't about making every single Student Rich.... it was about making myself accessible, donating my time, to help transfer my knowledge, experience and education, for free, to ANYONE that wanted it, no matter what their background was.

I didn't charge anything but $20 per student per week which paid for the room (this is NYC, it's expensive to rent a conference room) and many times I had to take a loss when students couldn't afford to pay even that.

Let's just say that in regards to the 95% Failure Rate, instead, I would say that I see the glass as 5% full.

BTW, 100% of my former students can take any other courses. I never forbid them. They should have a full spectrum of education. They could certainly take yours if they ran into your ads.

I would also encourage that those who are Successful, also do Charity. You just never know the kinds of rewards you can get from doing Charity. That's worth your Time.

Investor Llew

@Stephanie Walkes

@Anne N.

@Amit Kal

Stephanie's Daughter's strategy of House Hacking the 2 Family (duplex) house is the exact strategy I did when I started in Brooklyn in 1998.

Back then, the house I bought in Ditmas Park Brooklyn was $340k and my Partner and I got a Mortgage of $306k (10% down, 90% financed).

Of course we heard all the remarks by Family and Friends and other people who believed that NYC properties are so expensive and not worth it. Imagine that in 1998 a 2 Family in Ditmas Park Brooklyn is not worth the $340k we paid? Let's see what happened.

By 2002, the property skyrocketed to $550k. See Appraisal:

Here is where it seems I differ than most investors. When you Calculate an ROI.... you don't just analyze the Cash on Cash Return (CoCR) because if we did that, we would never have bought this Brooklyn Property!! The CoCR would have been negative at 10% down!

So, the property was bought in 1998 for $340k with 10% down and closing costs of approx. $17k. We did about $15k of renovations so the total investment in 1998 was $66k.

In 2002, we could have sold the property for $550k, paid off the remaining balance of the Mortgage and walked away with a hell of a Profit. Here is the Calculations:

Here is the Purchase Entry in NYC Register. They didn't record the Purchase Price but they recorded the Deed AND the Mortgage which was $305,100 back then (as opposed to my $306k in the calculations which approximating the 90% LTV but not using exact numbers) in 1998:

Next, I'm going to Calculate the ROI based upon the Appraisal on 10/2002:

The Total ROI, calculating both the Purchase Costs and the Sale Proceeds from 1998 to 2002 resulted in a total ROI of 232%! The Average for the 4 years is 58% Per Year.

Where else will you get that kind of Return?!

Now, the Cashflow is quite different. It was negative for about 2 years, but then also skyrocketed by 2002.

Today, that Investment property is now worth $1.5 Million and cashflows $2k per Month!

Why would I invest anywhere else?!

For these kinds of Investments...... you find anyway you can get into it. Partners, house hacking, etc.

Where are you going to Match this kind of investment?!

BTW, I've done this 8 time in 20 years with similar results (or better).

I have proven this time and time again. But I keep hearing the same responses..... you cannot depend on Appreciation... negative cashflow is a bad investment... etc.

No matter what I say or prove, the 20 years of my investment successes will never convince a lot of other Investors who only do initial Cashflow investing. That's why I call it the "Cult of Cashflow." They will only see their way of investing as the only way.

Investor Llew

If you think you might want to live in NYC (or major Metropolitan City such as SF) for the long term, but not as an owner, then you risk getting Priced out of your NYC Rental unless you are lucky to get a Rent-Stabilized Apartment.

Rents will generally climb much higher than your Fixed Rate Mortgage payments over the years.

In the year 2000, for example, I owned a 2 Unit Rental building near Prospect Park, where the rents were around $600 per month. Today, those same apartments now rents for $1,800 per month with no other renovations other than repairs for normal wear and tear.

There has been a few of my REI colleagues that Invested in other areas which were paying them some cashflow. They never bought in NYC. Unfortunately, the increase in their cashflow from the investments outside of NYC versus the increase in their NYC Rental Apartment didn't match.

One of those same friends moved out of NYC because he couldn't afford to live here anymore. As one of the Presidential candidates said about NYC rents.... "The Rent is too Damn High!"

Living in NYC, even in cheap neighborhoods will always be expensive and will continue to climb.

To Graphically illustrate what happened to the Rentals of my building, here is a Chart which shows what the rental increases would have been, taking into consideration that the Apts rented for $600 in 2000 and wound up at $1,800 in the year 2016.

I extended the years so that we can see what the future Rent could be like if the same Rental Increases continue at the same pace. You many not imagine that if you are paying $1,800 per month now that your rent will increase to $5,784 by 2033. HOWEVER, that was probably the exact thought of my tenants in 2000 when their rents was just $600 per month.

Obviously, if the rents increase so much in the last 16 years, the value of the building increased hugely as well.

This is JUST observations based on facts from one of my multiple properties. The other properties have similar experiences and they are in different neighborhoods in Brooklyn.

I will say that past experience does not indicate future experience. But if you intend on living in a good neighborhood in a Major Metropolitan City...... you risk being priced out of both buying and Renting if you don't actually own your property before the inevitable Value and Rental Increases become overburdening.

Let's say that in the year 2000... you were thinking that the particular rental I eventually boughtwas expensive with Mortgage payments being a bit above what the rent would be, say, $750 per month versus $600 per month renting during that time. 

Using hindsight today, if you actually purchased the unit versus just renting it, you would absolutely had done incredibly well as you are saving over $1k per month from the current rent of you unit you own.

If you owned and you wanted to increase your cashflow now that it's 2016,  you can move out of your place to a low rental City and rent the unit you owned since the year 2000 for $1k per month cashflow!!

Now, let's look at it in the future.

Today, you can rent the apt for $1,800 per month. That apt, if bought, will have a 30 year fixed rate Mortgage Payment of say, $2k per month.

However, in the next 16 years, the rent will obviously move up. If it moves up to $3k per month, and that's going to be a conservative rental increase, was it worth it to the homeowner to have bought the Apt to lock in their fixed rate mortgage payment now at $2k when their rents is at $3k in 2033 if they didn't own?

Some will say it wasn't worth it. OK... what about $4k in the year 2033? What about potentially $5k per month?

You cannot treat good neighborhoods in NYC the same as non-Metropolitan cities. They two are like Apples and Oranges.

But again, IF you really want to live in a Major Metro City for the long term....... Buying your home should be part of your consideration. The risk of being outpriced is very high.

Investor Llew

@Simon Leger

Thanks for the Congrats. But your point is valid and the readers should at least consider the analysis of the two.

I don't really make the comparison using AVERAGE ROI per Year Return. I usually make the Comparison using Rate of Return (RoR).

I also buy and hold stocks and trade using Options.

The Average STOCK Investor may not have access to 4 times leverage and they would still have to pay out an Interest on that Borrowed money. Usually it's 2 to 1, not 4 to 1.

I'm also not including the positive Cashflows as Rents over the last 8 years have skyrocketed. The SP500V doesn't pay dividends which would have been the Equivalent when doing the RoR comparison.

This is another reason why we should use more sophisticated calculations. I'll probably post a comparison when I have time because it's really intriguing and I think the BP Community should see it.

Investor Llew

@Cheryl Fielding

Unfortunately, I'm busy with 2 other businesses and I generally am using BP forums to Consolidate my time. I'm hoping that my Posts will be useful for those seeking to have a different point of view than the General Consensus of what I have been seeing posted here.

@Simon Leger

If you looked at the SP500V Index, the Index traded at a value of 460 on Jan. 2, 2009.

Today, it's at 1,014. That's a 115% increase in 8 years or an average of 15% per year.

If you bought NYC Real Estate in good neighborhoods with 20% and an 80% loan, you would have done FAR better, and I certainly HAVE.

As far as Back-trading, my properties purchased pre-2000 has done so well in NYC that it really makes anything but the most high flying stocks in the last 20 years difficult to beat, despite all the Crisis in the last 20 years.

@Lisa Phillips

I taught my own program from 2005 to 2013. It was strictly for Charity and if there were any costs, such as renting a room, I asked the Students to pay for it. That would have been the only Costs to the Student and it didn't go to me. 

During the pre-Crash era, I could hardly get students to sign up because no one seemed interested in the Math behind things like Internal Rates of Return (IRR). They also didn't want to take course longer than 3 Day seminars. It was my reasoning that when the Tide comes in, all boats float... and the RE Tide was coming in like a Surge. So there was no reason for Investors to take lessons, even for free, with challenging Math and Economics. The reality is that the only time these Calculations and knowledge comes into play is when you are preparing for a Crisis and will enter into it. Once that happens, and you did your IRR and investing Carefully with the Future in mind, as well as bought in stable rental neighborhoods that are well protected (Buffett would call this a MOAT), you are pretty much insulated from the upcoming Crisis.

If you see which books are always the top sellers, it's always books with no complicated Math. No Discounted Cashflows, no IRR. No Economics. Those books that have it, are put away in the dust bin by people learning to be Investors. The results were that I couldn't get enough students to make enough of them Partners because most people are Reactionary. They get motivated when things get good and pessimistic when things get bad. So during good times, very few people want to take a Course like mind which does Future Calculations in preparation for both the Good times and the Bad times. When I recommend a book like "What Every Real Estate Investor Needs to know about Cashflow..." By Frank Gallinelli, everyone falls asleep. Too much math. Not enough excitement. But Cashflowing right now! YEAH!! THAT's Exciting! Except the kinds of Calculations and Economics that I taught would have guided those who lost during the downturn to a very soft landing.

I think this saying is VERY true.... "You can take a Horse to the Water but you can't make him Drink." So I killed my Courses due to lack of participation.

BTW, I absolutely don't think that what you are offering, getting people into Investing with smaller sums of money in non-Partner deals is a bad thing. I think it's great, really, and you should keep it up. But I don't want people who believe solely in Cashflow NOW (because you want to buy a property that cashflows immediately as opposed to waiting for a year or two for the Market to drive up the Rental Rates) to suppress voices like mine. I not only have an opinion, but I am successful in what I preach. I am hoping you are understanding what I'm saying.

@Eddie T.

I'm selling a different point of view than the "Cashflow NOW" or what I like to call it, the Cashflow Cult. It's free.... are you buying?!

Anyway, I like to inform the readers of these posts of my success and experience because I have certain rules for Students:

1) NEVER TAKE ADVICE FROM SOMEONE WHO IS NOT AS WEALTHY AS YOU ARE

I've seen this time and time again. Instructors from courses that are bankrupt but they make money from your Tuition, etc.

I had a Student who really wanted to get into an Investment. She found me  via word-of-mouth. She told me she paid $10k for a Coaching program and I told her to take a look at Craigslist ads.

When she did, she saw an ad that said something like "Become a Mentor! Teach People how to Invest in RE over the Phone! NO EXPERIENCE NECESSARY. Pay Rate: $15 per hour"

The Student realized that her particular Coaching program had hired people off of Craigslist to become Mentors to others over the Phone where you cannot verify their experience. Those "Mentors" memorized scripts and taught people over the phone although they had NO experience whatsoever.

When she asked the Mentor for SPECIFIC and provable examples of what they did, the response was they are not obligated to give out that information. WHAT!?! ok.. so... how do you prove you are getting your money's worth?!

Anyway, I don't know if all Phone Coaching programs are like that. I don't know if a lot of Instructors went Bankrupt and that's why they are teaching and earning money rather than making money from Investing, I am just giving some of my personal observations.

Then there are the large amounts of Law Suits such as the one recently settled between a certain Presidential Candidate and his former RE Students. We can expand this on and on. But I think you get the point.

2) BE AWARE THAT THE PERSON WHO IS GIVING ADVICE MAY WELL HAVE A WORSE CREDIT SCORE

So, what I like to do is do the same due diligence on my Partners and I, any instructors or anyone who is trying to give me advice. After doing Credit Checks on tenants for 20 years, it's not necessarily 100% correlated, but, if you have BAD Credit, how can I take advice from you if you cannot even handle your own personal credit?!

Really, there is so much you can learn from doing the same due diligence that the Mortgage Banks and Landlords do if you applied it to your Instructor.

To illustrate my case further, there was a Cashflow Group that I attended in my earlier days when I was bored not having peers to talk to. So I tried out that Cashflow Group. There were people coming up to a podium who had deals which they themselves vouched were awesome! And they would lead Investors into these deals.

Unfortunately, for the poor, non-financially educated, gullible people in the Audience, they fully believed in the two so called Experienced Investors willing to cut you into their deals.

To make a long story short, those two wound up in Jail for Wire Fraud and other kinds of crimes against the people who gave them their hard earned money.

I had decided to help the Group of Investors put away these two criminals and had their Background information. The first guy had went bankrupt 3 TIMES. They both had terrible credit.

Had that information been disclosed, I'm sure there still would be people willing to throw money at them. After all, it was the pre-Crash era and there was a lot of Hype. But it would have saved some of them who would have felt uncomfortable with that disclosure.

My program, when I did teach it, first divulged how to Research the Instructor's Investments so that you know it's absolutely 100% TRUE. Credit Scores and Reports were always disclosed.

To this day, I do not see any of that stuff happening. You really don't know who your instructor is but you are hoping and praying they are legit.

So what I am selling, Eddie, is the Truth. It's BUYER BEWARE and always find out the TRUTH.

Investor Llew

@Lisa Phillips

Even though I had been investing for 2 Decades, the reason why I started teaching in 2005 was so I can form Partnerships with people who had shown me that they were willing to learn Real Estate. It's funny, but most people are more interested in giving you their money and having it invested to make money for them.

I implemented exams in my Courses which you had to pass in order to move up to the next level. The first Exam is to calculate a Rate of Return (RoR) of an Investment giving the Purchase Price, Down Payment and Closing Costs. Then you are given the Sale Price and the year it was sold. You then had to calculate the Sales Proceeds based on a 6% Commission. You had to calculate the Mortgage Balance and the Seller's Closing Costs.

That was the FIRST exam. From a field of 100 students who all answered the same questionnaire, who said they were extremely motivated, proved that 50 of those 100 students were not motivated enough to get through that BASIC Financial RE Calculation.

There were lots of complaints from those that could not get past it as they paid for the beginner course (only $20 per week for 1 class per week). They strongly believed if they paid for the Course they should go on to the Intermediate level, despite not passing the very first Foundation Exam, the RoR calculation.

The group that passed, the other 50 students, went on to learn how to put together a Business Analysis Model. They built a Profit and Loss (P&L) statement and did various calculations including NOI, Cashflow, Mortgage Payments which was based on their own qualifications. They had to understand how things like Pre-Payments work, Buying Down Points, etc.

Again, I gave the exam and yet again, 50% of the students who claimed to be motivated failed to pass and to continue to move onward to their Advanced Class. Now 75% of the student base was weeded out.

The Last Course was the one that would determine if you could be invited to be one of my partners. You had to put together the Advanced Business Model which takes your P&L and projects it out to 10 years, make certain assumption on Appreciations using Historic Data, calculate the 10 year Mortgage Balance, 10 year NOI and Cashflows, and boil it down to an Internal Rate of Return (IRR).

You needed to learn about how Economics work, what are the various Economic Indicators, especially with regards to Real Estate ie. Existing Homes Sales Data, New Construction Data, Movement of Long Term and Short Term interest rates (what is interesting is learning things like the Yield Curve Inversion which is a signal for an upcoming Recession), etc. You had to know the Cycles and the approximate events that proceed a Neighborhood as it either declines or increases (such as how a Neighborhood gentrifies), etc.

In fact, this is basically the same calculations that's done with the BRRRR calculator. The difference is that you can tweak my Advanced Business Analysis so well, that it should be 90% accurate, given conservative pro-forma numbers.

This weeded out another 75% of the students.

If you had taken the entire course from beginning to Advanced, you would have probably paid around $500. But you would have been so educated, that it would have been very close to a CCIM.

Of the remaining students, approximately 20 of them, ALL but 1 became successful. The one that did not when back to the old ways of doing the Cash on Cash Return versus the 10 year pro-forma IRR calculation in the Advanced Business Model. He also bought the Investment property by himself without allowing me to Model it in class. I believed he knew I would have been very upset with him diverging away from the teachings he already had. But that's fine as long as he can make it successful.

Unfortunately, he didn't. He got taken for a ride by the Real Estate Agent that gave him bad Renovation Numbers. I would have easily caught that since I have a team of trusted Contractors who were also available to the Student, but he ignored that as well. While he was capable of buying the investment, which in itself was very fraudulent since it was inhabitable but he was able to get a Primary Mortgage without a Construction Loan, he couldn't come up with the money to finish the project and it went into foreclosure.

Aside from him, 100% of my advanced students have all become successful. They were not rich. They were so motivated that they were able to go all the way to my Advanced Business Analysis Models.

The program they went through evolved them into natural partners. They learned for a long period of time, approximately 9 months. They studied together and analyzed deals together. Several Partnered with me, several grouped together one their own.

I think what really is the problem is these short, 3 Day Seminars. It's made to give you some education, but the problem is that most people just cannot absorb the information in such a short period of time. Then they are put into a situation where they must sink or swim. Most are not experienced enough to swim, unfortunately.

BUT, put people together in such a long term program, they get to know each other, learn about each other's personalities, socialize and speak the correct Real Estate / Business Jargon, and hear about each other's success.

You can say that the program failed because 95% of the student did not go past to Advanced and only 5% became successful. But what ultimately happened was that those students that did go to Advanced, probably made upwards of $5 Million in profits total in about 6 years together.

They weren't rich in the beginning, but they certainly were rich at the end.

I am just saying that maybe there is a better way to teach people Real Estate Investing than these short 3 Day Seminars or courses where Students get passed to higher levels where there is no consequences and the only reason you move up is if you have the money to pay for it.

One of my Colleagues pointed out that 5% of the populations are wealthy. So having a Course where only 5% of student passed the Advanced and become Wealthy is pretty coincidental.

I have to say in order to really know if you are motivated, you would really need to go through a rather intense learning. That will prove to yourself if you really are as motivated as you think you are.

Then, once you prove it to yourself and your Colleagues, Partnering is just Natural.

Investor Llew

@Lisa Phillips

I fully understand that many Investors just don't want to Partner. But the Math behind Partnerships tell you that you absolutely SHOULD.

Many of my former students, about 95% refused to Partner because they had no one in their lives that they can Trust. To me, that's not a the real issue. The issue is WHY don't you have trustworthy people in your life? After all, part of investing is NETWORKING and we all know there is PLENTY of Networking opportunities out there. So why are you not meeting the right persons to for Partnerships to buy in NYC? When you open up your Investment Opportunities, you have more choices. Why  limit yourself to a single kind of opportunity? Why not explore the RE world fully and then make your decision?

Breaking down the Student numbers, 500 students break down to 475 who didn't partner and about 25 who did. That's pretty much what happened. Those that partnered with me or themselves, did so well it's mind boggling.

The other 475 even refused to go to the reunions I have normally so everyone can talk about their successes. Those 25 Students are very wealthy today.

Those who have read my past postings will know that when you look at the MATH of cashflowing a Property, IT'S NOT THE PROPERTY THAT CASHFLOWS, IT'S THE INVESTOR.

An example would be a property that cashflows with when Investor A pays all Cash. Let's say it cashflows $500 per month. Do we call that a Cashflowing Property? YES?!

OK.. so if Investor B can buy the same Property with full 100% financing, but he pays $600 in Mortgage payments each month, making it a NEGATIVE Cashflowing property, do we still say the Property is somehow NOW a Negative cashflowing Property?!

Which is it... is it a positive or negative cashflowing Property?

Indeed... it's not the Property that Cashflows...... IT'S THE INVESTOR that makes it cashflow or not.

Whether or not you decide to make a property Cashflow is UNIQUE to your own strategy. If you only investigate ONE aspect of making money from RE, you are severely limited in your opportunities.

There are AT LEAST 4 Ways to make money in REI. Cashflow is just one. Read my posts for the others, which I have done incredibly well with.

Now, in regards to Partnering.... the MATH tells you everything about why you need to Partner.

Let's say you can buy an Investment for $100k. You also know it will be worth $200k in 5 years. So that's a 100% ROI if you buy at $100k and sell at $200k.

So you can't afford the $100k.... which is the reason you are stating why so many people should not do it "my way."

However, since you can't afford $100k but you can afford $50k, you then recruit a Partner who has $50k.

GREAT... BUT.... since $100k returns 100% in 5 years, if you buy in with a Partner, you only get HALF the Return!

Wait.... let's check the Math. If you and your Partner put in $50k each or $100k TOTAL and sell the Property for $200k and split that for $100k each, you both invested $50k and returned $100k! Wait... that's STILL 100% Return in 5 years!

This demonstrates the reason to Partner. You never analyze the ROI of the Partner. You only Analyze the ROI of the complete DEAL. Then EVERY PARTNER gets the same ROI!!! AMAZING and this is the kind of math everyone needs to learn and understand.

So, first you figure out what you have.... say, $20k. Then you look at EVERY deal, whether it's in NYC or the boondocks. IF NYC RETURNS ARE MUCH HIGHER.... and in fact, THEY ARE.... then you Partner with other so that you ALL can get that High Return.

BTW, I don't overlook sub30k communities. I analyze EVERY community. What I see time and time again is that those with SUB30k outlook are the ones that overlook the above30k communities. That's because the really don't know how to Analyze these higher priced investments.

By limiting yourself to only you.... you exclude yourself from other deals, be it NYC Investment Properties or large Apartment Complexes.

One of your BEST SKILLS that you have as an Investor is to learn how to attract the Partners whom can mutually help you succeed in your Investments.

The Readers of this post should know that you should be looking at yourself as a Potential Partner. You will need to ask yourself "What do I bring to the Table" in order to attract good, experienced and successful Partners. Good Partners will absolutely supercharge your Investment Career.

Investor Llew

@Lisa Phillips

@Darren Sager

@Krystof Pilisiewicz

I am a VERY successful Brooklyn Investor, holding onto approximately 7 multi-family Properties valued around $15 to $20 Million, Revenues around $700k and cashflowing extremely well when compared to the other properties that people here are talking about.

If you go through my postings, and you might need to be my Colleague to do that, you will see that there is a lot more to RE than just calculating whether a property Cashflows or a Cash-on-Cash Return.

I have taught Real Estate between 2005 to 2013. There were many students that did it the "Cashflow" way and indeed, ALL of them worked harder than I every did with my properties.

Part of the problem is that the non-Quality properties lack the ability to do proper due diligence.

You cannot expect C and D neighborhoods to have high Credit Score renters. In Fact, the Investors that I have known to invest in these neighborhoods generally throw out the Credit Scores. It's just meaningless to look at them other than, hey.... it's so low I better do a Criminal Background check because this person's credit score indicates he's been absent from life for a while (possibly incarcerated). I don't mean to Generalize, but there is a big difference when you can accept Prospective Tenants who have 800 FICO Scores, $100k's in the Bank than someone who generally has a terrible Credit Score and no money. If you are expecting that the work will be the same, I don't know NOT ONE Investor who has seen my properties basically run itself as compared to those non-Quality ones.

Another problem is the Math behind the Property Manager. A PM gets 10% of the rent roll. If your rent roll is say, $500 per month per apt, the PM gets paid $50 per apt per month....... THINK about that. What would you do for $50 per month?! Honestly..... there are a lot of People who would ignore working if that's what they get paid. If you are not doing things in bulk, eventually, your PM will need to be replaced. I know PLENTY of cashflow investors in these low income properties that CONSTANTLY have to replace their PM. Of course others can chime in because that just may be only my opinion and others that I have had the opportunity to question. Some of the stories from my CF Investor friends are horrible. PMs will rent an apt, not tell the Investor, collect the cash for themselves... etc. One Investor friend of mine had his plumbing and appliances stolen from the PM. I'm not saying this happens all the time.... but when someone gets paid so little... I can see why they would want to take other kinds of opportunities.

When I taught classes, this came up quite a bit. To give people an understanding, I had to ask them, "What's the difference between an Investment and a Business?" Don't read further until you at least try to answer it yourself for a few minutes. You'll find it difficult.

ANYWAY, the Answer is that a Business requires the active participation of the owners, paying expenses, making a product, finding tenants, etc. An Investment is very passive. All you do is buy something like a Stock. You don't participate in the Day to Day activities.

Investment Properties are sort of a hybrid. There are elements of Investments even when you are managing the property yourself. For instance, the Value Appreciation is much like an Investment.

The way I like to put it is if you are looking for an Investment, then you want to buy a property where the managing of it is very easy. These ARE generally the higher quality properties in good Neighborhoods.

If you are looking to make a lot of initial Cashflow (notice I said INITIAL because a lot of times high Quality Properties will have high cashflows in the Future, but not necessarily now), then you may very well be buying a full time Job. In some cases, you may be buying a heart attack.

Anyway, these are strictly my opinion, but I have a LOT of experience... 2 Decades in Brooklyn, taught RE from 2005 to 2013.... some of my students were so successful that one made $2 Million in appreciation over a 5 year period.

The Readers of this Post should take everything with a grain of salt. Look at the many alternatives and understand why there is a willingness to buy High Quality Properties in High Quality Cities and Neighborhoods. Don't dismiss it because it doesn't cashflow as well as the low income neighborhood properties.

And if you really think about it... had you invested in NYC from the Financial Crisis until today.... you would easily have been on your way to be a $millionaire.

Investor Llew

Hi @Ryan Fortier

Yes, that's exactly what I'm trying to say.

Basically, treat everything as a CD where you would invest your money.

In this case, $30k.

Then, at the end of 10 years, total up all your Cashflows. In this case, $25,967.

Regardless if you used the cashflow every year, we pretend that you did take it out of the Bank at all but left it in. You did nothing with it but left it sitting there, earning interest on it.

What this gives us is a Compounded Rate of Return (RoR) of 6.43% for each and every year for the next 10 years.

Professionals use this number but usually in the form of an IRR. However, the IRR is really not as accurate as the RoR, in my opinion.

What I'm trying to say is that when you are speaking with those that are doing BIG business... They don't speak about the AVERAGE Return per year. That's because you cannot compare the Average Return per year to other investments such as a simple CD Rate, a Treasury Bond, the Purchase of a Mortgage Note, the Appreciation of a Stock or Buildings, etc. All of these are Compounding Rate of Return Calculations.

In fact, if you think about it, let's say you worked in a job. Your annual salary is moving up 3% per year. That's also a Compounded Rate of Return (RoR). It's not an AVERAGE Return. Virtually everything we do is a RoR.

What I'm saying is that the AVERAGE RATE OF RETURN.... calculated by Profit / Investment / Years CANNOT be used to compare against other investments as easily as the Rate of Return (RoR) or the Internal Rate of Return.

That's exactly why the Bigger Pockets BRRRR Calculator boils everything down to an IRR.

It's a very difficult concept. I know. I've been teaching this for 10 years and still there are a lot of people from all kinds of educational levels and degrees that have a difficult time absorbing this concept.

One reason why I taught it was to keep these calculations fresh in my mind and how it should be used.

It really takes a while before it sinks in but it can only sink in until you do a number of comparisons of a diverse group of investment types.

Investor Llew