All Forum Posts by: Matthew Drouin

@Luca Perinuzzi

Just curious. Why not invest in Long Island or areas downstate outside the city?

Why Buffalo, Syracuse, and Rochester?

What are your goals or return requirements? I’ve been investing in Rochester for 17 years and there are many traps here.

Whenever I hear someone from downstate saying they want to invest in western ny, they are usually doing so because they want “cheap” properties because the cashflow is absolutely bonkers. Well that cashflow screaming out to you on the spreadsheet is a myth.

If you seriously consider our markets, only go for desirable expensive properties that have the lowest relative cap rate for our markets. Buy right and you make good long term money.

Happy to chat! Cheers!

@Mike Boss achieving an 8x return in 8 years by being a passive investor is involve taking a very high amount of risk and on several deals. One of those several high risk deals is going to result in a loss of principal at SOME point in time.

I think your goal would be realistic if you were focusing on being the lead on putting a few larger deals together by finding opportunities and marrying the opportunities with the capital, running the deal and earning equity as a result.

So let’s say you buy a $10M and raise the capital from passive investors. Your share of the upside is 30%. You execute a value add strategy and push the value to $15M and sell in year 5.

Your return on the deal is $1.5M.

By focusing on larger deals I was able to take a lot less risk and because of the economies of scale, spend a lot less time on the active management so I could pursue more opportunities.

You have aggressive goals but you don’t need to lose your shirt in the process.

Happy to talk more.

Cheers!

@Brenton Arriaga

I guess I have to ask. Why $100k or less? Is it because that’s what you can afford?

If you’ve ever read any Robert Kiyosaki, he always says:

“The poor say ‘I can’t afford that’”

“The rich ask ‘how can I afford that?’”

Price what you pay, value is what you get.

So if I was to find you a $100k or less property that was guaranteed to lose you money. Would you buy it? What about $50k? How about $25k?

Conversely, if I was to find you a $1M property that was guaranteed to double your money in 30 days, would you pursue that if lack of capital was not a bottleneck?

Many people think that Berkshire Hathaway is an expensive stock because it’s $500k + a share. However that’s not really true. It actually might be a great value stock because of its earnings power and future earnings growth and dividend yield. However a penny stock could be very expensive because it’s a junk company with no earnings and no earnings growth potential.

What I’m trying to say it this.

Michael Blank is right. If lack of access to capital was not a bottleneck would that change your thinking? OPM likes to marry OPT, OPE, and OPO

Other Peoples Time

Other Peoples Experience

And Other Peoples Opportunity

Can you create one of these three aforementioned OPs? If then, you can focus on true wealth which lies in value, not price!

@Elen Saar this is my method. Although, I can’t really speak to schools specifically because they are so subjective. Maybe check some local Facebook parents groups and gather a consensus there?

1.) General neighborhood curb appeal. Do the properties around the area seem generally well maintained? I mean there’s bound to be a stinker here and there (those are the ones you want to buy), but are lawns neat and tidy? Flowers? How are all the roofs in general. A lot of houses with roofs that are shot? Garbage blowing around. Tons of cars in every driveway or even parked on front lawns? This curb appeal check is indicative of a couple of things. Occupants going the extra mile is a an indication of owner occupancy and general pride of ownership. Secondly it signals that rents or incomes in the neighborhood are high enough to warrant reinvestment back into the properties.

2.) Retail check. Look at the adjacent retail corridors. What do you see? Starbucks? Chick Fil A? Whole Foods? Or do you see Rent A Center, check cashing stores, corner stores, smoke shops, and pawn shops. Also in these retail areas, what’s the tolerance of riff raff? Do you see panhandling and loitering? This is a general indication of income. Plus your tenants will find adjacency to a hip area a valuable amenity.

Hope this helps in your search!

@Abe B.

I love low cap rate product and areas. Especially historic areas, here’s why.

Low cap rate always gets a bad rap because your cash flow will be lower than high cap rate. Yes cash flow is important. It’s important to your investors and important to your bank. On low cap rate deals, you just to bring more cash and less debt to the table in order for the deal to work. Especially in a higher interest rate environment.

The really cool thing about a low cap rate market is that it signals that the market is very high demand and in demand by higher income earners and with a lot of future economic growth. This means that future rent growth will help this property cash flow much better in the coming years.

Plus because it’s a low cap rate market, each dollar of net operating income it that much more explosive to the underlying property value, which means you can pay your investors a nice return on a sale, or refinance it and pay them back on a refinance that much more quickly.

So let’s assume it’s a 4% cap rate. The gross rents are $300k a year but organic rent growth has been an average of 7% per year over the past 20 years. So Super solid market so it’s a got some long term historical data behind it. Let’s just assume you are able to grow rents by that amount each year over the next 5 years…

You’ll be able to push rents up to almost $400k per year! Or a $100k increase! Assuming you were able to keep expenses stabilized over that period (very unlikely but just for easy math sake) and market cap rates stayed the same (4%) that would have increased the investment value by $2.5 million. So assuming you originally paid $3.75 million for the property and put down $2 million for a downpayment, that’s a 25% annual rate of return!

Now all this analysis was on a fictional property but hopefully you get it on why low cap rate isn’t necessarily bad.

Plus the reason why I like historic areas is desirability and high barrier to entry. They are very difficult to build new in so competition is kept to a minimum.

@Shane W. Chapin "see" you soon buddy!

Join us for our next episode of Go Big! Live with the mysterious Shane Chapin.

Shane used to work in car sales after he got out of the Army; started out in the small single family rental space until he realized there was one issue... SCALE!

He started educating himself on the self storage investing business and became financially free with only a couple of deals.

Relatively new to the Real Estate space, Shane has been focusing on value add self storage facilities, implementing remote management processes and systems, while driving revenue and then selling for a profit. In his words, they are a flipping storage business.

Local to the Rochester area, Shane is a real estate mystery. A frequent Podcast guest and well loved named in the industry, Shane proves that you don’t need flashy websites or intense marketing to achieve your investment goals and financial freedom. You just need determination, a strong why and a great partner.

You won’t want to miss this opportunity to chat with Shane and ask your questions LIVE! This is a chance to elevate your real estate game and learn from from someone diving right in to the Real Estate world.

The live show is in our Facebook group.  The link is here.  So request to join and I'll let you in.  You can either stream it on facebook or go right into our zoom call where we will dissect Shane's first big deal; learn how he found it, how he raised the capital for it, how he structured it and how he brought it full circle.

@Julio Gonzalez hope you got some insights out of it!

@Scott E. I decided to take the cash because I want to have as much dry powder as possible for when sellers start to really capitulate in our market.  Keep in mind, we are opportunistic on asset class.  We've been an opportunistic buyer of office since covid, but we started to see some systemic cracks in the capital markets as it pertains to that product, so we've made a pause.

Here's why.

We had the opportunity to buy a 125k sqft trophy class A office deal at a smoking hot price. We went out to our preferred lender to request a term sheet and they came back with 50% LTV max! So we thought... maybe that bank is changing their risk appetite. So we went out to 3 more banks and they came back the same, 50%-60% ltv. I could have raised the capital but I am thinking that this tenor with banks and office is going to create some serious liquidity issues that us and our investors will be able to come in at even more attractive pricing.

In regard to the Securities Based Line Of Credit, some brokerage houses allow you to borrow up to a certain LTV against your investment securities. The community bank's wealth management group that I work with will issue you a LOC up to 80% LTV.

This does a couple things: 1.)  It gives you a flexible credit facility at a great rate (relatively speaking).  2.)  As your commercial real estate portfolio grows and your loan balances grow with new acquisitions, lenders become more and more sensitive to your liquidity position when you are filling out Personal Financial Statements.  We want to keep our strong position as principals so that we don't have to bring on as many other principals (Co GPs) just for the balance sheet purposes.

@Julio Gonzalez I had bonus depreciation that I had claimed on those properties because they were value add.  Also I converted to real estate professional status and absorbed the net loss carry forwards I had as well as washing out my wife's salary when she was working her W2 at the time.

Zero sum meaning, that if I did the Cost Seg is was going to cost $9k and save me $40k on the $50k worst case tax hit.  So I would net about $30k out of doing this but lose longer term tax efficiency out of that asset.  I haven't taken the cost seg off the table but it's not a slam dunk.  We are going to prepare 2023 taxes and do some tax planning and really figure out the cost benefit.