All Forum Posts by: Colin B.

@Dannialles Ben Dominguez, I've only invested in NYC on the equity side. While what @Christopher Winkler says is true regarding long foreclosure timelines in NY, I find that purchase prices further constrain me from investing in notes in NYC. It's important for me to control any lending situation that I enter -- whether it be a note or a hard money loan -- and the amount I would have to fund in NYC either would require me to bring in other investors, and thus lose control,  or would require me to tie up too much money in one note, which would be disastrous given the lag to a foreclosure. 

If you haven't yet, I would pick up David Van Horn's book on note investing and start going through all of his posts. I've invested in his note funds and have bought notes from him. $15K isn't a lot to get going but people have done more from less. Good luck!

I found the 11 pages of posts to be very informative. Thanks everyone for posting. I’ve been a “passive” investor for almost 10 years and an observer for 15. I have my own views and I disagree with many of the views on the 11 pages of posts. My gut tells me that we’re not looking at 2007 again but we are looking at something different and I expect to see some price softening, especially at the “luxury” level that is overbuilt and in particular markets. Reading the posts, however, helps me try to stay humble that I should be deploying my resources in a way that considers multiple scenarios. As one of my mentors, Jeff Brown, would say, “my crystal ball is as cracked as anyone’s.”

My question to all of you is what are you doing now given your views?

Given rising property prices and reduced cap rates, I’ve shifted from real estate equity and have become a hard money lender and debt investor so that I make a good return off my cash while staying relatively liquid and while watching the market. I’m also adding value to my existing properties to increase cash flow and increase my war chest after refi’ing.

First, congrats. What an empowering position to be in. I was in a similar position in NYC several years ago.

To me, there are several questions that you need to ask yourself. 1) Do you see yourself in LA for a long time (say 5 years or more)? 2) Can you find a building in the LA area in a neighborhood that you want to live and that will at least allow you to lock in your housing expenses at or close to your current housing expenses? I would look for something that you can turn into a 3 unit or 4 unit but a duplex may work at least initially — a shell is totally OK (and may be preferred) if you have the budget to renovate (note that you may be able to find a construction loan with as little as 3.5% down although you’ll need to run the numbers to see whether it will work for you).

If the answer to the first question is no (or the answer to the first question is yes and the answer to the second question is no), then don’t invest in LA because you are likely able to get better cash flow elsewhere to offset your current housing costs. If the answer to the first question is yes and the second question is yes, I think you may be in a better spot by buying in LA.

I initially was not sure that I was going to stay in NYC so invested outside of NYC. When I determined that I would be in NYC for a long time, I bought a duplex in a neighborhood that I liked that locked in my housing costs (including taxes, insurance and maintenance) at roughly the cost of renting. I didn’t plan for it but rents have gone up as have prices, which has put me in a better cash flow and equity position. I’m now in the process of expanding the duplex into a four unit. When this is done, the cash flow off the building will more than cover my housing expenses.

One final observation - if you think it is going to take you time to watch the markets before making a decision, consider becoming a lender over the short run (either by investing in hard money loans or re-performing notes). You can get good returns over the short run to increase your “war chest” without sacrificing the same level of liquidity as if you bought real estate equity. If you’re curious about the debt side, read articles by David Van Horn.

PM me if you want further thoughts. Good luck.

@Account Closed I would probably get rid of the coop and use the cash to get yourself into a MFH. It'll help your cash flow and would probably allow you to get into a better MFH. I agree with others that it is still possible (but very difficult) to house hack in Queens although you will have to work hard to find the right opportunity. One thing you should be doing as you investigate your options is figure out financing options. There are a lot of options other than a traditional 20% down loan that may allow you to get yourself into building and fund the renovations. 

@Heather Lavergne, if you really wanted to consider the request, you might be able to think through the many excellent risks that everyone else has identified (and others) and find a way to minimize them via a combination of, i.e., insurance, contract, up front payment by the tenant (to cover proper installation to your satisfaction), increased deposit to cover the removal costs, and increased rent to compensate you for this very unusual request. 

However, I highly doubt that the applicant would be willing to cover all of these costs and deposits (along with increased rent to compensate for the accommodation). Additionally, because you are a new landlord, unless you hire a lawyer you are much less likely to think through all of the risks and all of the ways to protect and compensate yourself for the accommodation. 

I would probably not grant this accommodation myself unless, to @Ned J.'s point, I had a lot of upside in it. 

@Chad Eatinger it is possible with your budget but it really does depend on the neighborhood in Brooklyn or Queens. I think your strategy of buying and renovating is the way to go (and maybe the only way to go) if your goal is have your tenants cover the mortgage and expenses. Cap rates are low in NYC so you should be focusing on three and four unit buildings to ensure that your tenants cover your costs (my tenants in my two unit in Astoria do not cover all of my expenses), which will be more difficult. For specific neighborhoods in Queens that are close to Manhattan and that may be within your budget based on my recent intel, consider (in addition to Jackson Heights), Woodside and maybe Sunnyside. I suspect with your budget that it may be very difficult (though maybe not impossible) to find a building in Astoria or Long Island City.

I'm not as well versed in Brooklyn but to Marcy's point, the L train is supposed to be shutting down in Manhattan for repairs for 18 months starting in (I believe) 2019. This will make the commute from the Brooklyn neighborhoods of Williamsburg and Bushwick, which are on the L line, more difficult. Like many investors, I'm curious as to how this will affect the various real estate markets and have my own theories. 

Specific blocks matter, maybe more than in other markets, so you really should plan on a heavy boots on the ground analysis. For example, there are blocks in Astoria, considered by many to be one of the best Queens neighborhoods (I'm of course biased but agree with that perspective), that I wouldn't live in and others where I avoid walking. 

As you're looking online before visiting, try to get a sense of pricing in a particular neighborhood as it relates to proximity to subway stops and specific subway lines, above-ground subways and parks. Though there are always exceptions, you'll generally find that there are more stores and restaurants closer to subway stops. 

Finally, if you're looking off market or for a foreclosure, etc., you should be ready for a lot of competition in NYC  (especially if you're looking for a deal) so get ready to hustle. 

Feel free to message me if I can be useful...good luck.

@Kristopher S. I know your pain well. It sounds like you're having problems beyond this one potential transaction so while not all of these strategies would help you with the facts of transaction that you mentioned, they may help you in the next one. The most important thing that I try to do in deals where I expect competition is to convince the Seller that if they choose me, I will get them to a deal. So I try to figure out what Seller and Seller's broker are concerned about and find ways of solving for their concern.  1) Find ways of giving Seller protection in the event that the appraisal is below ask. One challenge that you face (particularly in an up market) that a cash buyer doesn't face is appraisal risk. Appraisers tend to be several months behind the current market so there is a risk that an appraisal will be below your ask and give you a walk right. You can give Seller protection from this risk in a few different ways: a) deliver pre-approval letters from several banks and have your broker tell the Seller's broker that if there is an appraisal issue with one bank, you'll go to the other banks, b) agree that if the appraisal comes in low, you will fund cash for the difference between what the bank is willing to finance and your purchase price, and/or c) offer more than 20/25% down in your offer, which signals to Seller that if the appraisal does come in low you are able (and may be willing) to fund the difference between ask and the appraisal with cash. These strategies worked very well for me in one deal -- the Seller went with my offer despite having higher offers and all cash offers.  2) Find ways of giving Seller the ability to sell quickly. I do this by finding hard money lending (ideally you should do this before your next bid) and be willing to close very quickly.  Hard money lending is very expensive (but you could price it into your offer) and increases your risk (especially if there is any problem with the property that a conventional bank would not fund into, such as a nonconforming tenant) but it will allow you to present an offer that will allow you to close almost as fast as cash. Then, after you close, you can go to a bank and refi. Note that the hard money lender will probably require you to hold their hard money loan for a minimum period of time and you'll want to make sure that the loan is long enough to give you time to finance. 3) Find properties that for whatever reason have sat on the market so that you're not worrying about competition.  

One thing I would not do (and as you can see from above, I'm willing to eat some risk) is waive my financing contingency. I simply don't want the risk of a Seller coming after me for damages because my financing didn't show up. 

Good luck - I hope this helps!

To follow up on the nice post from @Jeff Hall, and while I understand that you’re trying to minimize your expenses so that you can maximize your return, I think it is particularly important to hire a lawyer when you’re forming a multiple owner entity. In addition to making sure that you form the entity properly, the lawyer’s job is to raise issues that may arise in the future between you and your business partners that, had you anticipated them up front, you would have agreed on. This is particularly true given the challenges of co-owner entities and the practical reality that many of them fall apart (and with unintended consequences) because the co-owners couldn't solve arguments months or years into a business. And it doesn't matter how friendly you are with your co-owner. I've seen best friends form businesses that fall apart because of disputes among owners. 

Let me give you a hypothetical example of how a good lawyer can protect you. Let's say that you are going to be a 20% owner and that your partner will own the remaining 80%. What protections are you, as the minority holder going to have? Can the 80% owner sell the assets of the LLC without your consent? Can the 80% owner, without your consent, issue more equity and dilute your interests? Can they sell, without your consent, that additional equity to third parties (so that you're in business with not one but two people)? If you had thought about these up front, you would probably want to include provisions in your LLC Agreement that addressed these and other scenarios (a.k.a., minority protections).

Let me give you another hypothetical. Let’s say that you are going into business with a partner and the equity will be split 50/50. Two years later, you and your co-owner can’t agree on anything and your business partnership is failing because you can't agree. Yet you agreed on Legalzoom that neither one of you can transfer your equity without the other’s consent (one of questions that LegalZoom asks). How do you unwind the business amicably and out of court and how do you do so while maximizing the sale price? The answer is that there are many strategies that a good lawyer would be able to help you consider.

This isn’t to say that hiring a lawyer will solve all problems or that these issues would arise if you didn't hire a lawyer. After all, it's much more important to go into business with the right people. However, having addressed these and other potential issues up front, you're giving yourself a better understanding of the potential issues that can arise, you're giving yourself a better chance to succeed (at least I think this is true), and you'll also learn something about your potential business partner in the process of considering these issues and making decisions. 

One other thing -- I would suggest that your accountant review your LLC agreement, as well. There are certain things from a tax perspective worth his/her consideration. (This isn't intended to be legal advice -- more my two cents so that you do hire a lawyer and get actual legal advice.)

I hope this helps. Good luck. 

Jacob - I think it comes down to your situation. Having done the analysis for myself a few years ago in the context of my real estate holdings (I own 100% of the equity in several 2 to 3 family properties), I haven't seen the need to form entities for my properties yet although I eventually will when I start paying off mortgages.  To Greg's point, the benefits of limited liability (which is what folks generally focus on in making the decision) are generally limited to an owner's capacity as the owner and not other capacities in which the owner may serve -- i.e., if the owner manages the property negligently, the owner may be liable in his or her capacity as a manager notwithstanding the existence of the entity. In my experience, having an entity is more useful from a liability perspective if, among other reasons, you're a passive owner, if you have multiple owners (particularly if some of them are passive and you are the controlling owner), if you have more complicated operations or if you have employees. Note that I am generalizing here and that there are other factors to consider in determining whether to form an entity and what type to form (including, i.e., tax treatment). It may be worth running this by a lawyer in the jurisdiction(s) in which you live and operate and by an accountant. 

I rely on insurance - I put $1,000,000 liability on each property and have added a $10,000,000 umbrella policy on top of that. Not all insurers or insurance policies are created equal, however, and you want to make sure that you shop around and speak with multiple insurance brokers.