All Forum Posts by: Sebastien B.

I'm a proponent of having as little equity in my investments as possible. The only time I see a need to have more equity in an investment is when its the only way to increase cashflows.

I.E if cap rates are 10% and interest rates are 11%, I make 1% more for decreasing debt instead of decreasing equity.

Right now, for every dollar you take out of equity and use for another levered investment, the better off you are.

Why pull out money to flip anyways? Seems silly.

Either hold the asset and refinance, or just sell and repeat the flip process.

Not really that big a stretch for a commercial property in a good location dedicated to that sector.

They cant exactly move into a fast food building.

For a customized asset such as that? Probably around a 10-15% cap rate triple net. No one does deals like that without a lot of value to be generated, safe or not.

He could turn around and sell that deal for almost half the cap rate to some large investor looking to park cash.

He'd probably be able to refinance every penny he put into the place and get stable free money on the asset too..

By pay itself off, I meant that by the time you reach a balloon payment, you'd have refinanced the original investment out, while also making a compounded return from the reinvestment of the cashflows made over that time period.

I personally wouldn't spend a penny on principal payments right now. The current market conditions suggest putting the least amount of money into reducing the note balance in order to maximize liquidity of funds. Why on earth would I want to convert liquid cashflow into a physical asset?

There is high chance of a long-term (10 year) trend in the US of moderate to high inflation. With high inflation, the fixed debt gets washed out by the inflation. Your relative fixed cost of capital drops significantly while your potential income increases with inflation.

The money is better invested in growing cashflow as interest rates rise until they return to normal rates in future (around 10% in the next decade). At that point, principle payments could potentially yield more return on your cashflow than investing in more property.

Cash(flow) is king in today's economy. Any equity you have in a property today is a liability (your hard earned money placed in vehicle that may get wiped out in the next debt crisis/default/whatever). If house values suddenly drop again, I'd have had enough cashflow growth to still give me a strong return on my original investment. They can take the property, and I'll be happy with my large returns that I had generated up until that time.

To be honest with you, a decent sized property is going to cost around $10 million in Manhattan. Anything less is probably a waste of time unless it in an emerging area, half full of regulated apartments and in poor levels of repair. Even then, you will have to invest a lot of equity into renovation and improving tenant quality. If you aren't a reit, you are better off in the sub $100 million market. A lot of the big companies have minimum sizes that they can invest in a single property, so you invest under that cut off where there are less competitive bidders.

It's a very tricky system. Please consult this link for in depth understanding: http://www.housingnyc.com/html/resources/faq/rentcontrol.html

Just because a tenant dies does not automatically mean a controlled apartment becomes free market. There may be family/spouses/significant others who can claim rights to continue renting at a lower rate provided enough evidence.

If I recall, as soon as a RC/RS tenant vacates, the rent shoots up a certain percentage. Then the landlord can do CI/renovation and petition to increase the rent based on the amount of capital/cash spent to renovate the unit. Once a unit hits a rent of $2,500/month and is vacant, it becomes 100% uncontrolled. If a tenant vacates, the landlord may also automatically increase rents to whatever he/she chooses so long as tenant’s right to file a Fair Market Rent Appeal is submitted to the next tenant. Then it's a whole other mess.

A landlord faced with a number of rent regulated vacancies that are found to be under the $2500/month threshold required by the law, can decide to invest enough capital to increase the rent by 1/40 to 1/60th the amount put in based on building size. A 34 unit building that is fully RR and vacant but currently deemed to be valued at $2000/month would have to put in approx $20,040/unit in renovation work. So a 34 unit property would require at least $700k in improvements.

Correct on the 15 year loan at 4.2% bringing the cash on cash down to 2.4%. Are you sure the people you know are doing full amortized loans at 15 years? Most the people I know are doing Interest only loans at that range and interest rate... IO for the first 5-10 years then amortizing afterwords. By then ,the place has already paid itself off.

Under the FRM IO circumstance, you get something along the lines of $1,440 cashflow after debt service and a monthly NOI of $740, which is a roughly 18% cash on cash which is pretty good to me for LA.

As far as I can tell, she is going in at a 7.5% cap rate, which is a lot higher than what I see in other metro areas (NY, Miami), so I can't see how she'd be doing too bad on it unless she is really overdoing her projections (which appears to be the case). Most people in NYC/MIA dream of 7.5% cap rates for such little reno work.

Gross rent multiplier

Rent(yearly) x GRM = Purchase price

The lowest I would consider for acceptable cost would be 35% of gross. High side of 50% works pretty well.

I've seen Manhattan buildings return (noi) about 75% of gross. Just to be clear, if you aren't in Manhattan, don't assume getting anywhere as low as 25% cost.

I've seen Miami properties return (noi) about 60% of gross.