All Forum Posts by: Henry Clark

OP might be talking about a different product.  The product we looked at.

Minimum $300,000 input every year for 10 years.  So you need liquid cash.

You never pay the loan off until death benefit.

Returns were a lot higher than is mentioned.

This to me only looked good for a person less than 20 years old.  So you would do it as part of an estate plan to keep wealth going in your family.  

The pitch was more about living income versus a way to bank for investments.  

Numbers seem astronomical out in the future but if you NPV them great, but not astronomical.  

I actually liked this from a passive standpoint.  But can make way more investing.  This is great if you have a generation who can’t get it done with investing.  

OP. As mentioned they need to talk with specialists.  To many questions on an open forum.

1.  Early depreciation, can wife qualify as REP?

2.  His w2 upfront can he ask for deferred compensation instead?

3.  What does he do?  Can he invest in office space?

4.  Kids, deduct their college costs by paying them to advertise.   Depends on his business.

5.  Have they fully maxed out savings?

6.  Hopefully they paid ahead on their taxes.   They should have more cash on hand if they did not.  They should not have paid down on properties without setting aside for taxes. 

Really need to attack the W2 angle.  

Need a professional to go thru their entire portfolio and tax positions.  

OP talk with your 1031 Intermediary.

1031 can’t be between the same parties.  
Even with the legalese.  

Outside of will and trust I would consider the impact of 2 things in your planning.  Depends on your estate size.

1.  If you or your parent or parents go to a retirement home.  $6k to $10k per month.  They have to pay before Federal coverage kicks in.  You can only have $2k cash to their name.  Also they will look back at least 5 years for any asset disposition.  If they gave you assets say 2 years before, 100% of it has to come back as an example.  So plan dispositions at least 5 years out.  Which older people don’t like giving up control.

2.  Use the $250k capital gain avoidance. $250k each for spouses, plus $250k for any other listed owner.  It is usually better to sell the property and take the tax avoidance versus holding it to generate income.  I would rather avoid taxes on $500k appreciation than rent the house out long term.  

The will and trust definitely help with probate and to also follow your instructions.  

Read my post “What happens if you die?”.  

OP check your deal analysis process out.  

1.  I failed to include interest during construction. Added it to my deal analysis format.  $60k

2.  Failed in my water.  $150k.  Had a water hydrant on property.  Found out it was a private hydrant for the next door complex.  Was same owner at one time.   Added it in our deal analysis.

Build a checklist or deal analysis that will catch all of the big issues.  If you miss landscaping for $2k it won’t kill you.  


Don't just do fix flip. Look for unfair advantages. 1. Personal life, 2. Worst house in a great neighborhood., 3. ADU say a 3/1 into a 3/2., 4. LT capital gain tax rate., 5. $250k gain exclusion, etc.

OP we work in 2 markets.  Each one we stick with our Realtor on both the buy and sell side.  Can call them anytime.  Plus their offices have plenty of team members to pick up if I can’t reach them.  

Gets back to building a team.  Give your agent the easy Buyer agent commission.  

Sold our 2nd lot this year.  18 total. Doing good about 4 months into opening.  This buyer bought a small lot of about 2.3 acres for $90,000.  So no logic thus far.  Both the largest and the smallest lots have sold.  Good to have a mix. 

This buyer had been stationed at the nearby military base and wants to retire here.  Even though both buyers are using bank financing they are both existing home owners. 

 At Aslan.  Looks like you have 2 posts so let me lay some ground rules.

1.  Don't trust anything I say.

2.  Validate it.

3.  You're on BP, with ?,???,??? viewers and posters who all can call BS on me.  As @John Clark, not a relative said "rubbish" to my 5 year $30mm comment.

4.  I like Nasty situations and Unfair advantages.  Your description of NYC market and your background, starting investor, know how to "Fight" and are hungry fit those.  The problem is how do you turn those into money.

5.  You need two strategies.  A.  Cash Snowball either thru earning Cash or OPM other peoples money.  B.  Appreciation.  They can be combined.  Financing to scale, you will either need to Sale, 1031, use assets for collateral or develop strategies for OPM.

Every once in a while, I will say some Basic things, apologize if your already past that point, but I want to make sure the underlying base is there.

6.  We do Self Storage and Country Subdivision Lots.  Don't live in NY, live in Iowa.  Have been to or thru NYC about 30 times.  And I have Boxed.

7.  Your biggest issue will be "Scaling".  A.  You want to cover your living expenses as fast as possible so you can focus on RE investing.,  B.  Need to determine an RE strategy or two., C.  Build you team., D.  Financing will be tough at first and then "too" easy, if you're successful.  Money will find you.

8.  You have to develop History and Proof of Concept.  Or the funds and deals won't flow.

9.  Never ask a person how to do something if they have never done it.  We are not Billionaires, so ask one.  But we are Wealthy.

10. Especially at the beginning bring your personal situation and strengths to bear. Even if you don't think they have anything to do with REI, they do.

Strategies for you to check out.  Again depends on your personal situation and goals.  Have $10,000; 8 to 5 job, married with 2 kids, living at home, expert at ????? or better than 95% of all people, etc etc.

Due to the NYC market think in terms of warfare and battle strategy.  Land is limited.  Who controls the land controls the deals.  Distance from NYC is also land specific.

Residential Housing:

A.  Don't think in terms of NYC.  Think of your potential area.  We for example only do business within 40 miles.  That is the distance in an evening we could do a round trip if we had to, when we were working.  Also within that parameter are all the deals we will ever need.  Don't need to look beyond that.  Pick a time frame or distance you can get to.  Example:  Driving you might get 10 miles in 40 minutes.  Subways/Trains you might get 30 miles in 40 minutes.  Whatever you decide that is now your territory.  Now you're not limited to $1mm 1 bed/1bath apartments.

B.  People like- Boulders, trees, water, good neighborhoods, good schools, safe communities, close to interstates or subways, walk out basements, views, etc.  Determine what creates value.

C.  In your situation distance will impact value.  Each extra exit or stop reduces the price and number of potential customers.  Pick a range both min an max.

D.  Don't chase good deals on the 3/2 everyone else is competing for.  Don't do what everyone else is doing, the market is too tight.

E.  Look for Value Add.  Someone just died, then stepped up basis, no tax issues.  Kids live states away.  Use AI on GIS Property Tax files to identify ownership changes.  Pick the ugliest house in a great neighborhood.  Extra land with a house you can subdivide and sale.  Farm sales- look for sweet spots.  Most single homeowners will never buy more than 10 acres and larger developers will want 40 acres and up.  Farmers will want 40 acres and up, with little waste ground.  Waste ground is good for you, trees, water, rocks, hills, etc. Subdivide and sale.  Not all of these angles work for you.  You have to start with where you're at and Snowball upwards.

F.  Your housing, buy a place you can live out back or in the basement and rent the good spot above.  If in a great location, AirBNB it; and you stay at a cheap location you have elsewhere.

G.  Live for free with someone.

H.  Starts with your personal situation, then grow from there.

Self Storage and Country Subdivisions:

This is our expertise, but won't go there with you.  You need to get your snowball going.  That whole East Coast market is great for these two.

Commercial versus Residential Real Estate:

Before I talk about the next strategies you need to understand the difference in Valuation Approaches for Commercial versus Residential real Estate.  Would be a good investment to diversify once you become an expert in a different RE strategy.

Residential is based on Comparables.  Similar house, similar or same neighborhood, then comparable value.  Example:  you buy a value add house for $500,000; put $50,000 into it.  Think it is worth $800,000.  But comparable houses are going for $650,000.  It is worth $650,000.

Commercial is based on Net operating Income, tenant quality, tenant contracts. Say NOI is $100,000 and Cap rate is 7%. $100,000/7%= $1,428,000. If cap rate is 5% then $100,000/5%= $2,000,000. If cap rate is 9% then $100,000/9%= $1,111,000. Read up on what NOI and Cap rate mean. Instead of the cap rate changing lets leave at 7%, but change the NOI $100,000; $150,000; $50,000= $1,428,000; $2,142,000; $714,000. Basically a $50,000 NOI change positive or negative causes a $700,000 change in valuation. This is actually not linear. As the NOI profit increases the Cap rate will get better as the quality of the asset improves, and the Cap rate wont' stay the same. Example: $150,000 or a $50,000 improvement but instead of a 7% cap rate it moves to 5% then $150,000/5%= $3,000,000.

Key is you have more control over Commercial asset values than Residential, and the payout is greater relatively.  

BJJ-  "You are in Control". Let see what BJJ or fighting has to do with REI in NYC. Yes, you need to understand legal, personal risk, etc.

A.  House squatting.

B.  Dangerous areas.

C.  High prices.  

Remember above a commercial property, rental unit is valued based on its NOI. If squatting there is no NOI, thus the value goes down, and the headache goes up. You want to buy the "Squatted" house at an extremely low price. Pick the best property and go for Quality units. If you're going to put in the effort, get the most bang.

1.  Buy the unit.

2.  Get rid of the Squatter. Legally "kind" of.  As the buyer, you can't do anything without going through a long legal process.  Now "Rent" the unit out to your group so they have legal status to be in the unit.  Switch the locks.  Switch utilities.  Don't ever use the concept of fair or accommodating.  Bring Duress.  Move all of their stuff out in the next 4 hours.  If they have a legal complaint it will be "Civil" and not criminal.  Talk with your lawyer.  They won't want to go thru Civil court and the timeframe.

3.  Value increases.

Unit was worth $700,000.  No income due to squatter and unit getting trashed.  You buy for $500,000.  Move the squatter out.  Clean up.  Sale for $700,000.

Rinse and repeat. Put the least amount down, say 10% or $50,000.  Sale for profit of $200,000 or less as fast as possible.  Get your RE license to reduce turn over costs.  Don't keep these units as you mentioned.  Start your cash snowball so you can do more and better deals.  Do you want to keep units netting $500 per month maybe forever.  Or do you want to make $200,000 profit and do more deals every 2 months?  Yes, when your older as you accumulate wealth, you will want to start to cherry pick and keep assets.

4.  Don't offer this as a service.  Say you make $5,000 per squatter.  Not worth the effort, your just an hourly employee then.

What happened to the $30mm in 5 years?

Now think of the same concept as above, but for a whole building.

Say that building is 10 stories high. 14 units per floor or total of 140 units. Change figures to Boots on the Ground info. Rent is $4,000 per month or $560,000 potential per month or $6,720,000. Just for kicks say $5mm NOI. But due to both squatters and also the Building is Bad your only getting $3mm. Cap rate of 7%= $3,000,000/7%= $42,857,000 value as is. Now clean up the building from a renter and environment perspective increase rents "if allowed". Now let's say rent is $5,000 per month and say no squatters, all cash flowing. = $8,400,000 annual rent. Say $7,000,000 NOI at 7% cap rate= $100,000,000 or double the $42,857,000 as is. Actually, the cap rate would improve, say to 5%, then $7,000,000/5%= $140,000,000 value.

  Are the above figures accurate?  NO they are not.  Are the concepts accurate, yes, they are.  More importantly this is NYC.  The Order of Magnitude is this large.  And you can find buildings and units fitting the above.

But you don't have that kind of money to buy a building.  You need Proof of Concept.  People are greedy.  Once you have a track record then do Syndications, to take the largest portion of the value add.  Scale the above to your growth trajectory.  You can afford to 1099, don't hire, more guys as you grow.

If you can't think of how to get a person out of a unit in 1 week.  Don't do the above.  And you don't have to touch them.

 One thing I like about BP that is such a depth of experience that people can call BS easily from a knowledge standpoint.  

I was actually expecting someone to jump on the $1mm house condos for 250,000 and I could get 300,000 of them.