STUCK BETWEEN A ROCK AND A HARD PLACE

[Jackson Ramirez]

It's not often you get a deal like the one that I got. It started back in 2004 when my building decided to go condo. I never bought anything in my life but I figured this was one thing or opportunity that I would not let go by. So I decided to go to the meetings and see what was this about. They offered me my apartment for 55% below market value. At the time I had no idea what market value was so I got on the internet and looked it up. So happens that the price was close to 650K market for an apartment like mine. So I ended up working my butt off, and saving up to finally purchase my apartment. Fast forward 11 years later it is now worth 1.2 million. I am very knowledgeable when it comes to construction and have crews working for me on a few projects. I live in it and now feel that it's time to go ahead and make a move. My problem is do I sell? Do I rent? I think about the economy, the stock market the Bitcoin rally. Having this, my biggest asset, I question you most experienced folks.....what would you do?

[Llewelyn A.]

@Jackson Ramirez

@Ryan E.

@Dave Foster

Thanks for the shoutout Ryan!

Jackson, Just a little bit more about me.

I have been buying properties since 1997 in Brooklyn, NY.

Your experience in 2004 which took you 3 years to work hard and save up to buy (in 2007 as I interpreted it) a single investment which the Market Value was $650k (in 2004) that increased in value to $1.2 Million, roughly a 100% increase is FANTASTIC in any other market EXCEPT in many neighborhoods in NYC.

My hats off to you in regards to what you have done by buying it at 55% of Market Value at the time.

Just to do some calculations, you would have purchased the property at 55% below $650k Market = 55% x $650k = $357,500.

I want to break it down in 2 different scenarios since you didn't mention that you bought it with a Mortgage or not. I want to assume you had a mortgage because $357,500 is a lot to come up with!

Scenario 1 - Bought it all cash

Profit: $1.2 Million minus $357,500 = $842,500

Total ROI: $842,500 / $357,500 = 236%

Years: 2018 minus 2007 = 11 years (assuming you bought it 3 years after the deal was offered in 2004 as you indicated)

Simple ROI / Yr: 21% PER YEAR! FANTASTIC!

Scenario 2: You put down 20%, borrowed 80%

Purchase Price: $357,500

Down Payment %: 20%

DP $: $71,500

Mort: $286,000

3.5% Closing Costs: $12,513

Total Investment: $71,500 plus $12,513 = $84,013

Assume 5%, 30 year fixed rate Mortgage principal is $286k, currently at 132nd Month payment

Selling Price: $1.2 Million

Mort. Balance: $225,689

Commision %: 5%

Commission$: $60k

Seller's Closing Costs %: 4%

Seller's Closing Costs $: $48,000

Proceeds: $1.2 Million minus $225,689 minus $60k minus $48k = $866,311!

To do the ROI calculations this way, you basically turned your investment of $84,013 into $866,311!!!! EVEN MORE FANTASTIC!

Now we can do the calculations for Simple Annual ROI:

2007 Invested $84,013

2018 Returned $866,311

Profit: $866,311 minus $84,013 = $782,299

Total ROI: $782,299 divided by $84,013 = 931%!!!

Years: 11

Simple Annual ROI: 931% divided by 11 years = 84.6% ROI PER YEAR FOR 11 straight YEARS!!!!!!! AWESOMELY FANTASTIC!!!!!!

I will tell you that from the world of ALL INVESTORS... including Stocks, Bonds and Real Estate, that kind of return is probably among the top 1% if not the top 0.1%!!!!! IN THE WORLD!!!!!!

Now, let's get back to what I originally stated that this is a AWESOME appreciation for just about ANY area.... EXCEPT in certain neighborhoods in NYC and other rare appreciating markets!

I will tell you that I invested since 1997. The returns in my 2nd Scenario with a 20% down payment and 80% LTV is just about what I normally do and the Appreciation Rates is a little bit higher than what you achieved from 2007 to today.

An example would be a property I bought in Clinton Hill Brooklyn in 2004 for $890k is now worth $3 Million today.

A second example is a property I bought in Bed-Stuy Brooklyn in 2014 for $900k, renovations of $375k, now worth over $2 Million.

I've done this 8 times consecutively and by intelligent decision making.

I think that you can look at certain up and coming neighborhoods in NYC that are primed for future appreciation where you can still buy in should you decide to house hack it.

I included David Foster in this posting because I think one of your option is to do a 1031 exchange into another property if you feel your area is currently peaking. There are definitely other areas that are still continuing to appreciate and have a way to go. David, if you don't mind letting me know your opinion on a 1031 Exchange in this circumstances, that would be awesome!

However, Jackson Ramirez also has the option to sell the property outright and benefit from the Primary Resident Capital Gains Exclusion of $500k if married. I would have a talk with a CPA to go through the tax aspects of it but doing the Exchange will defer your taxes until you finally sell.

Most people on this Forum will probably tell you to sell out and buy elsewhere. Ryan knew I would be one of the few that continues to Analyze high Appreciating markets like NYC and continue to invest here. I'm currently in Contract with a 3 Family Brooklyn property so I'm putting my money where my mouth is again.

Ryan is also correct. If you love where you live, you can take the Equity Line and buy another property versus doing the 1031 Exchange.

The fact that you have a Construction Crew available, I think you can do a 1031 Exchange to say, a 3 Family property and house hack a renovation and force appreciation from the start. If you picked a up and coming location, you can get huge appreciation in less than 5 years.

It's funny how one property, choosen in the correct neighborhood can give you the ability to retire in just 10 years.

Again, Congrats on your achievement and hopefully I added to the conversation!