All Forum Posts by: Ryland Taniguchi

@Ryland Taniguchi Thank you Ryland for your feedback. It's really such a benefit to have someone of your knowledge and experience.

I also wanted to comment on the point that I went through 2 catastrophes in the NYC Real Estate Market.

2001 - the destruction of World Trade Centers.

2007 - 2008 - The Meltdown of the Financial Centers where Ground Zero was Wall Street.

These 2 catastrophes did not cause much if any slow down in the wealth building potential of NYC Real Estate for me despite owning several multi-family investments.

There are various hedges that a big Metropolis like NYC offers.

Detroit, being a one Industry Town (Automotive), follows the same risks that Billy Joel's "Allentown" lyrics speak about when the Steel company closed down.

NYC has so many Industries, even when one, such as the Financial Crisis causes a Great Recession, even that did not lay waste the Real Estate that was bought correctly (in otherwords, soundly leveraged with reasonable loan terms and equity cushion and in good locations to protect against loss of rents, etc.)

In 2005, I started a program to teach Real Estate because I felt that the Market was getting way over heated when I saw very sophisticated leverage being used by very non-sophisticated people who would not otherwise have qualified for their loans. It seemed inevitable that we would head into a Crisis, but I had no idea it would have been so devastating.

I found that most of the people whom I was trying to educate to protect themselves by buying Quality properties in Quality locations where in a downturn you can still find renters and can still hold onto it's value, did not wish to go through the education I offered for free. 

I managed to have a set of students who did not have ANY experience or knowledge, and they went through a rigorous program in about 6 months to a year.

One Student was so successful, she made $2 Million in unrealized profits. Others were also successful to lesser degrees.

The program was highly successful by the time I quit teaching in 2013 and there was only ONE student out of the set of around 30 students who failed to do well. 

That student continued to buy into the normal beginner model despite learning the more sophisticated calculations from me. He wound up buying a potential Cashflowing property in Staten Island in a very poor location. He was mislead by the Real Estate Sales Agents without doing his homework and found himself unable to finance needed renovations to even try to find renters for Section 8 Housing.... IN NYC where it is in HUGE demand. He failed not because of the education I was trying to impart to him, but because of his own enthusiasm and lack of discipline to fully assess the scenario. He also failed to bring the deal to me before he bought it so I could give him my opinion.

Either case, to get back on topic... yes, I do believe everyone should take a hedged portfolio approach to Real Estate Investing.

I also believe that some Cities, like NYC, have built in Hedges, which helped me do more than survived 2 Major catastrophes. 

I want to re-emphasize that there are MicroMarkets here in NYC. Not every neighborhood is a Hedge. That was one reason why I pointed out the Only one student's failure.

I also have a Partner, Marshall, that has a tendency towards being "Cheap." Before Marshall and I met, he had bought a Coop in the Bronx, in a location called East Parkchester around 2006 and paid around $72k.

Unfortunately for him, he did not understand what is the difference between a Coop and a Condo and did not understand why Investors like me would pay 10 times more for a particular location.

Fast forward to today. That same Coop suffered through the Financial Crisis. The Management of the Coop increased restrictions to prevent buyers from being risky and the Banks increased their Standards.

Marshall's $72k Purchased Coop is not even worth $60k today. Further, he cannot even rent because the Coop Board has prevented it.

During the same time, a property I bought in Brooklyn's Clinton Hill moved up from $1.2 Million to $2.5 Million.

So, even within a big Metropolitan City like NYC...... there are areas that will offer hedges and others that offer very little hedges.

I don't want the readers of my post to discount any of the things you are doing, especially for a beginner. However, there are things that I feel that even a beginner should learn. The more you learn, the more you can avoid life devastating Mistakes. The less Mistakes you make, the more likely you will succeed.

Investor Llew 

General question.

I frequently read posts wherein a wholesaler, birddog, or similar, talks about finding buyers, finding sellers, connecting them, and this sort of thing. And the questions are invariably about what contracts to use, how to make it legal, why homeowners don't take them seriously, how to get legally paid, where to find buyers, where to find sellers, why investors don't take them seriously, and the like.

Mostly, I read unlicensed folks trying to find a way to lawfully make money from engaging in real estate agent activities, typically via arbitrage instead of commission. 

So the question begged: why not just go do all those things you wish to do, but as a licensed agent? What's so scary about getting a real estate agent license and doing all those things you wish to do, and perhaps are already doing, within the framework that already exists to do exactly those things? 

Let's take one common wholesaling model: Find people willing to sell for way under market value, tie it up in contract, go find buyer willing to pay more than the seller is willing to sell for, and pocket the difference. Why not get a license, list it, go to those same buyers you already have, present it, and take 5-6%? 

It seems to come down to arbitrage ("pocket the difference") versus commission as the only tangible difference that I can identify (you know, aside from the pesky legal stuff like "is this legal at all?"), unless I am missing something. 

One might suppose that the average arbitrage paycheck is larger than the average commission paycheck (2.5%-3% if you just list, 5-6% if you list AND bring the buyer). But from everything I've read on here, and the few wholesale deals I've been involved in, the wholesale ones are MASSIVE time sinks per-deal relative to the vanilla get the listing -> present it to your buyers -> identify a buyer -> close -> collect commission route. If you have that existing wholesaler skill-set, it seems to me that you could apply it to vanilla or vanilla-ish (as a REI specialist agent) transactions, and net more at the end of the year by simply closing a crap ton more deals.

So, wholesalers, educate me: What am I Missing? 

I'd like to chime in on investing in Hot Areas. I have 2 Decades of experience in the Hottest City currently, Brooklyn, NY.

First, if I used the 1% or 2% rules, I would never have bought here. Those rules are really for Cashflowing properties, not really properties which will take time to Cashflow as the Rent and Value appreciates.

Second, to invest in a Hot Area, you will need a different kind of Analysis. One that is much more extensive. I have seen some of it done here, and there is a really good analytical tool that BP offers called the BRRRR Calculator.

Unfortunately, the BRRRR Calculator hides all the Calculations from you which is why it's easy to use, but then you really don't learn anything other than using the Calculator and hoping that the numbers are correct.

FORTUNATELY, I'm an expert in these calculations and I have been utilizing it for the last 15 years in my own Investment Property Purchases in Brooklyn.

The bottom line of the BRRRR Calculator is that it calculates your Internal Rate of Return (IRR) for the next 30 years.

Why is this the most important Calculation you will need to know? Because it helps you to Drive your Investment Vehicle by looking through the windshield.

Here is the Analogy.

Treat every Investment like a Vehicle. So we call it an Investment Vehicle.

You are Driving your Investment Vehicle like you drive your Car.

If you only look at the Rear View Mirror and NEVER through the Windshield... you have a good potential to Crash your Vehicle.

If you only look at the Side View Mirror and NEVER through the Windshield... you have a good potential to Crash your Vehicle.

If you ALWAYS look through the Windshield and occasionally through the Side View and Rear View Mirror... you have the BEST chance to succeed. 

Let's define the 3 ways you can look.

The first is the Rear View Mirror. This represents the Past. That's the History of the Investment Property which would include past Sales Data, past Rents, past Renovations, past Economics of the Area, etc.

The second is the Side View. This represents the Current situation. This is exactly your 1% and 2% rules, your Cap Rate, your Cash on Cash Return, etc.

The third, AND MOST Important..... is the Windshield. This is the FUTURE. It forces you to think of things like "What will be the future worth of my Investment Property in the future?" That question implies the following:

- What will the Future Rents and Future Expenses be? 

- What are the Economic Factors that will be affecting my Investment?

- What can will the Appreciation Rate?

The Calculations you would use here is Discounted Cashflow, Rate of Returns (RoR), Internal Rate of Return (IRR), Appreciation Rate, Future Value, Present Value, etc.

Many beginning Investors are taught only about Rules for the Current View, the Side View of your Investment Vehicle. Hardly is there a mentioning of the Windshield view, the Future View. In fact, you are generally told you cannot depend on the Future like Appreciation.

HOWEVER, that is FAR from the truth and it's critical that you think of the Future.

Let's say you bought your Investment Property in Detroit in the year 2000. The only View you had for this Investment Vehicle was the Side View, the Current situation. You calculated the 1%, the 2%, the Cap Rate, etc. It meets your entire Criteria. You then purchase your Investment Vehicle.

Years later, what was a good Investment Vehicle, was laid wasted because it went over a cliff. The reason why was because you did not look through the Windshield of your Investment Vehicle to see the warning signs that the Bridge was out. You did not notice that you should have taken a different route.

The interpretation of this is that what you should have paid attention to when you bought your Investment Property was the Big Three Domestic Automotive companies that 90% of the Economics of Detroit was dependent on. Had you followed their economics, you would have seen the warning signs and veered off in a different direction.

ANYWAY.... I'm trying to make this short, but it seems I cannot really write a posting short these days!

To invest in a Hot Area like Brooklyn, NY.... you cannot use just the Side View which is the Cash on Cash Return, the Current Cap Rate, etc. You need to anticipate the rising rents and expenses, the migration of people, the potential for good and bad economics, otherwise, it doesn't make sense at all.

The BRRRR Calculator gives you some of that. However, I did not subscribe to it to see if it had the things I normally use.

For instance, NYC will have a vastly different appreciation rate than nationally. In an area that conforms to National Averages, you will use somethings like 3% to 5%. NYC, depending on the area and the local economics of the neighborhood, it can be something like 7% to 15%.

An example would be a property that I purchased in 2014 for $900k. I put in approximately $300k for renovations, but this year, 2016, it was valued at $1.85 Million. This was the Bed-Stuy neighborhood which is a highly Gentrifying neighborhood.

Another example, in 1999 I bought a 2 Family house for $140k. in 2013, I sold it for $675k. There was no significant Renovations. Rents in that property tripled. If you calculated the appreciation rate, it was 11.89% per year for 14 years. Some would call that amazing... but it's fairly typical in the last 2 decades all over Brooklyn and NYC in general. I'm sure it was even better in many places in SF as well. This property was a negative cashflow in 1999.... but by 2013, I was Cashflowing more than $2k per month.

If you applied the Side View rules to any of my several Investment Properties.... or should I say, Investment Vehicles...... you would never have invested in them.

Now, YEARS later.... decades later I should say.... I am reaping the rewards of looking through the Windshield while I have seen lots of other Investment Vehicles which crashed during the financial crisis.

The theme here is to understand as much of the more sophisticated calculations and how to apply it to your potential investments. If you do, you will begin to see that you should not exclude ANY place.... whether your Goal is Cashflow, Appreciation or Both.

I hope the readers of this post can be inspired to learn beyond simple rule of thumb calculations.

Investor Llew

@Ryland Taniguchi - do you think brrrr out of state is feasible? If so, any state or city where still opportunities are there.

I am doing Brrr  in Tacoma area but deals are drying up.

@Ryland Taniguchi - Is the Tacoma area a good option?  Keep hearing it's the up and coming market with Seattle getting too expensive for most.