All Forum Posts by: Carlo D.

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. 

Hi Carlo, I personally think it's always a good idea to sign a long-term lease over a 12-month lease, especially with a good qualified tenant. No vacancy expense for 2-3 years (that includes vacancy, possible broker fee, unit update after move-out etc). Just make sure you protect yourself with that 30-60 day move out term.

Quote from @Steve K.:

I don't see any advantage to longer leases...

One thing I often forget to point out: early termination fees. 

If your Tenant is on a month-to-month, they can give 30 days notice and move out without penalty.

If they are on a one-year lease and want to leave early, they have to pay an Early Termination Fee and meet some other requirements. It's almost always financially beneficial to have a Tenant break the lease early.

@Carlo D.

Nathan Gesner has the most concise and correct reply so far. The advantages for a lease longer than 12 months typically all go to the tenant and don’t provide the landlord with any substantial advantage.

(1) Tenants will move when they move. A longer lease will not substantially add to any sense of commitment.

(2) Unless you can predict the changes in property taxes, insurance, construction and repair costs, etc. over the lease term, you are putting yourself at a huge disadvantage.

Quote from @Carlo D.:

Quote from @Joe Villeneuve:

Quote from @Carlo D.:

I've learned that a COC ROI of between 7%-10% is what most RE investors look for when deciding whether to invest or not. My question is this. Is COC ROI still important if you are doing an all cash purchase?

Since CoCR is only measured for the first year of ownership, all that it will tell you is you shouldn't have paid all cash for the investment.

 I guess that's a personal decision.

Not really.  It's a math decision.  As an investor, your cost is only the cash you spend.  When you pay all cash you are paying full price.  Your profits start after your cost is recovered, so when you pay all cash, you have to recover all of it before you make a profit.  If you only put up a 20% DP, that's 5 times less to recover, and you'll recover that in far less time than an all cash deal.
Also, when you pay all cash, your buying one property worth exactly what you paid for it.  When you pay only 20%, you're buying a property worth 5 times what you paid for it.  Take that same cash you wanted to buy one property with, and split it up in 20% increments, that gives you 5 DP's, and that same cash you spent to buy one property, you're now buying 5 properties, at five times the value of that one "all cash" property, but you paid the same amount.
It's a math problem.

@Carlo D. actually if you are planning to leave it to your kids the exact amount of positive cash flow (yield) is less important compared to appreciation and inflation. 
I would pay attention to the long term capital needs of the property and where it is in the path of progress too.

Quote from @Carlo D.:

Most experienced investors will tell you this is a bad idea. It sounds good on the surface, but reality is different than paper math.

In my experience, most tenants will sign a long lease and then break it. We do one-year leases and I still get dozens of early terminations every year. Tenants are fickle. They move jobs. They change relationships. Most of them can't predict where they will be after one year.

Sticking with a one-year lease keeps you on schedule with rent increases and inspections. If you look back three years, most markets have probably seen rent increases of 20% or more. That's a lot of money you would miss out on with no increases. And what happens when your rent is low? You are more likely to attract low-quality renters who can't afford market rates.

STR = short-term rental. Anything you rent for 30 days or less is a STR. These are fully furnished with all utilities included. Most often used for vacation homes, but sometimes rented as an MTR for people new to the area, between homes, etc.

MTR = medium-term rental. This is a dangerous term that I wish would die an ugly death. It describes anything rented for longer than 30 days but is typically furnished and all-inclusive like a short-term rental.

LTR = long-term rental. Anything rented longer than 30 days is legally considered LTR. When renting an LTR, it is recommended you screen the applicants, collect a security deposit, have a strong, written lease agreement, etc. 

Many people make the mistake of treating MTR like a STR instead of LTR. If you rent for more than 30 days, you should have a written lease, security deposit, and do everything as if it were a LTR.

I do not furnish LTR. Most people staying for a year or more will want to have their own furnishings. People staying for shorter periods of time typically want a furnished rental.