I don't get it??

Question

I'd like to apologize in advance as this is going to be long winded.  But I felt it was necessary to effectively communicate where I was coming from.

Ever since I put in an offer on a piece of investment property (my first), I've really caught the real estate investing bug and have gone down this deep rabbit hole.

I've decided I want to make a go of this, but there's still something I don't get and I'm pretty sure it's due to both a lack of knowledge and not having the right mindset. I definitely have the entrepreneur's mindset as I currently run 2 companies that I own. But there's still something missing that it just isn't clicking for me.  So I am humbly reaching out to the brain trust on this platform in hopes of getting educated.

I've been binge watching/listening to the BP podcasts and I hear words like "keeping the deal funnel flowing" or concepts like making sure one keeps on making offers to keep the deals flowing.

I'm finding it hard to understand how this is possible when in my own deal, I wouldn't be cash flowing positively if I didn't purchase the coop in cash. I plugged in my numbers in a mortgage calculator to see what my monthly payments would be if i did the 20% DP with a prime interest rate and if I take that number along with the HOA dues, I would be at negative monthly cash flow. Even a 50% DP would still yield a negative cash flow. So I can't even understand how someone with an FHA mortgage would be able to do it even with house hacking. (P.S. house hacking is not an option for me)

So when I realized there are a lot of you on here who do this constantly, day in and day out, I ask myself how? How are you guys doing this? How are you making the math work? I realize the environment is tougher now with where interest rates are now but I have this sense that, this doesn't stop you guys (and gals).  I'm missing a piece of the puzzle.

- Is it the asset class i'm looking at? (coop vs multifamily)

- is it market i'm looking in? (NY or Northeast vs. other parts of the country)

- or is there a real estate concept or principle that I am totally unaware of?

Any insights and inputs would be greatly appreciated. I am looking to learn. Thank you very much.

Joe Villeneuve · Answer

There is a lot to answer here.  I'm sure I'll miss a few things, sorry, but I'll give it a shot.

A - DON'T make offers just for the sake of making offers.  Constantly analyze "markets" to find out what the numbers ($$$) are in those markets, the find the correct markets to invest in.  Firing offers off like a machine gun is a waste of time.  Only make offers on properties, in markets, that will work out for you financially from the start.  If you can't find deals that work, don't make offers.

B - Don't increase your DP just to make the property cash flow.  That's an illusion.  All you'd be doing is paying for your negative CF upfront.  Profits are made, as you know from owning other companies, only after you've recovered your cost.  As a REI, your cost is exclusive to the cash you out in.  The more cash you put in, the higher your cost, and the longer it will take to recover it,...and start making a profit.

C - What your knowledge base lacks are three things (very common):   1 - How to analyze markets, not properties, markets.  When you buy RE, you're not buying properties, you're buying pieces of a market.  The market defines the properties, not the other way around.  2 - How Money Works.  Similar to business, but highly specific to REI.  This translates to "strategies"  The more strategies you know, the more opportunities you'll be presented with, and thus the more deals that follow it.  3 - A REI Plan.  This is a series of financial steps, with each step dictating a financial (not %) set of criteria that must be accomplished with deals, that will lead you from financial step to financial step.  Like prerequisites leading towards a collage degree.

All three of these knowledge bases must work together as one, with each depending on the other two for their/your success.

D - Focus on the math, with $$$ in front, not %%%% behind.  REI is nothing more than that.  These numbers don't lie.  They either tell you to invest, or not to invest.  Don't argue with them, or you will lose.

Mohammed Rahman · Answer

Hi @Carlo D. - I'm an investor and broker in NYC. A few things to point out:

- Congrats on finding a coop that's a "deal" for cashflow. Most coops & their boards don't allow relaxed subletting for owners to place tenants.

- "Deal-flow" from a real estate investing perspective is just that. It's the onboarding & exiting of properties that match an investor(s) buy box and in which a mutually agreed upon price is met with the seller... and then eventually sold.

You're looking at real estate investing from a retail investor's perspective: Buying with the cash you save up, and then eventually buying something else, etc. That's why it's not making sense.

Full time & institutional investors are always looking for deals because they know if the deal numbers are right, they'll be able to raise the money for it from other investors/funds. With this approach, you're not waiting to hit a certain number in your savings before buying the next deal... you hunt for the deal and when you find it you raise capital.

Hope this helps.

Carini Rochester · Answer

Most (all) of the books I've read about real estate investing have lengthy chapters dedicated to the benefits of leverage (borrowing, using other people's money.) Buy, or borrow, then read a few books, or at least those chapters.

You won't be cash flow positive even after buying the coop for cash because of that first month when you will be cash flow negative by the selling price. It will be many years before you actually start being cash flow positive.

@Joe Villeneuve has written one of his longest answers I've ever seen him write. (He usually writes in riddles. Riddles that are worth the energy to figure out.) Read and re-read his answer.

Carlo D. · Answer

@Mohammed Rahman In your opinion, how hard is it to find a coop in NYC that's a sponsor sale, wherein the traditional HOA rules on subletting basically waived?

Timothy Howdeshell · Answer

It sounds like you do get it! You've decided to jump in at a time of high prices and even higher rates! Rental rates have not kept pace with monthly mortgage $ increases and so the price/rent ratio is decreasing in many markets. Practically speaking, reduction in cashflow. Therefore you need to put down more money, use existing debt (sub-to), get the seller to finance some or all of the property to you, increase revenue (ADU, short/mid-term rentals, etc.) or some combination of all 3.

The big investors have millions of dollars sitting on the sidelines waiting for an opportunity. This money is almost always not their own, but money they've raised from others. Keeping a deal pipeline just means that you have a steady stream of "deals" coming across your desk to evaluate and see if they fit your buy box.

Every single piece of property has an attractive price where all of the math works well, but for some properties this number is negative. Big investors don't buy retail either which gives them potential forced appreciation they can leverage into various situations. For instance, get a steal of a deal, fix and flip, stack cash in HYSA, wait for something to change in the markets to move into buy and hold.

Darius Wade · Answer

Thank you for the post and reaching out to the community. I am in a very similar spot as you within my real estate journey. Many of the guru's and videos we see online make it seem like such an easy concept but in reality it isn't. The first thing I would suggest is that you may want to expand your search radius. Many areas of NY are very expensive and will not cash flow but in a lot of states if you look an hour or so out from the major cities deals can look much better. See all that is available within that distance. If that doesn't yield results then make sure to join your local REIA and look to network. Here you hopefully can inquire with other investors on there process for actually finding cash flow within your market. Hope that helps.

Mike Adams · Answer

This deal sounds  like a loser. Pass.  Very rarely do condos or coops make sense due to the HOA and surprise fees. If the numbers are not positive from day one, then pass. It's not worth it.

Mohammed Rahman · Answer

It's not impossible, but not always easy. You won't find something 100% of what you're aiming for.

If you're still on the hunt for a deal, happy to connect and share some thoughts. Feel free to DM me direct or reach out at the number in my signature.

Carlo D. · Answer

Thank you @Mohammed Rahman This definitely helped and quite frankly, hit the nail on the head for me.  Basically, it is what I thought it was..... I had the wrong mindset. Thank you again.

I don't get it??

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