All Forum Posts by: Daniel Akerman

In NYC, cap rates are hyper local and vary from under 2% in high end Manhattan neighborhoods, to about 5.5% in parts of the boroughs. They can get a bit higher but that would the exception.

Sounds like you need a new Realtor. No disrespect to the one you have, but he should be feeding you all this information and more, and making sure to crunch the numbers for you before he ever presents a property to you. Otherwise what is he doing? If he’s just a “door opener”, he isn’t providing you enough value or guidance.

This is what I would tell one of my own clients: As many here have already stated, it's not about a number, it's about understanding the overall picture. For sure, a score below 600 is a risk -- so the questions are, what accounts for that score, how do you account for that risk and hedge against it? If 48 applicants all have low scores, it's clear that you're unlikely to get a unicorn with a 750 score. I would suggest several things:

• Don't trust applicants. Run your own numbers. There are tons of services online that allow you to run credit checks and background checks on applicants. A tenant-provided FICO score is both unreliable and doesn't give you the whole picture. Look at their score AND history and look at the root of the low score, as well as their payment history on all their accounts. Did they default on student loans 5 years ago (and if so, why?), or are they maxed out on their credit cards now, and barely scraping by? Those are two very different things. 
• Institutional guarantors. There are several services online that the tenant can sign up for that will serve as a guarantor for renters. Kind of like an insurance company, they use the pool of money from their customers to pay out in the case one of them runs into issues. This benefits you in that you don't have to worry about an individual guarantor/co-signor and their financial qualifications, or chasing them down in the case of a default.
• Several months rent up front. Charge 3 to 6 months of rent up front to protect against late payments and cover you in the case you need to evict. Evictions can take some time. Charging the money up front gives you a cushion if the tenant stops paying. Of course, someone with a 500 score is unlikely to have a pool of cash sitting around either.
• Larger Deposit. I like this strategy less, because a security deposit is ostensibly a refundable amount for the purposes of damages -- not for rent. Nevertheless, it's an option.
• Individual guarantor. This person should have financials that allow them to cover their own housing costs PLUS those of your tenant. In NYC, most landlords require tenants to have annual earnings 40x the monthly rent, and they require guarantors to have annual income of 80x the monthly rent, because the assumption is they have their own housing costs in addition to the ones they are guaranteeing.

Finally, look at doing deals in the future in areas that have a different tenant base. Getting a cheap deal in a war-zone or area with low employment does you no good if you can't fill the units with good renters, or anyone at all! Remember that the ultimate goal is cash-flow, not getting a cheap deal.

Originally posted by @Michael Beeman:

This is a brief overview of how I went from a family business employee (with 7 children), only earning 60k/yr, filing bankruptcy in early 2016, to someone who will be completely financially free 18 months after I purchased my 1st property May 15 2017.

I began my Real Estate Study in late 2015, I mostly read books. All the Rich Dad books (but they are full of motivation and mindset, but don't have any actual substance), I read and listened to many podcasts, while driving for my regular job, or while working on my "side gig" where I cut, split, and delivered firewood after work hours. The idea of financial independence when you are working that hard, is incredibly inspiring. So I listened, learned, and saved money. I saved money as much as I could out of my paycheck and saved all of my proceeds from my firewood sales. I found some great podcasts, Joe fairless has a good one, along with Rod Khalief, and BP had a great one. I found it eventually then realized BP had this great website. I found the BRRR method and I was hooked. I live in Rural Illinois and while few podcasts cover rural investing, the principles remain the same. So I began talking about it with friends and family, and when it became apparent that I knew what I was talking about. I had 2 people that wanted to start the biz with me. They both invested $20k each for 1/4 of the business and I kept 1/2 (400 shares) and 1 non-paying, voting share (so that I remained in control, of the final decisions). So now I "owed" my new business 28k dollars, but we had enough to get started.

We purchased a vacant 6 unit building that needed 4 units completely remodeled, and a large old house that we planned to convert into a Triplex. Even though we floundered for almost 6 weeks with a contractor that did horrible damage, We finally found the right guy, ended up finishing 25k over budget and tied up over half of our initial 52k we had to invest, with no way to BRRR out of that messup. Fron there on out, I found much better deals, a SFH that I bought at auction for 12k, it appraised for 40k, we refinanced it, put a 25k lien against it, and it rents for 650/month, pays it's mortgage, and cashflows. Plus we created 13k out of thin air. We also did this with one other house, and a 10 unit building. Altho the 10 unit refi is coming up in May/June. There were growing pains in learning how to use systems (we use "Rentec Direct"). There were growing pains in how to manage tenants, But, all in all, we've been very aggressive when we find a deal. I and my partner @John Hagen have learned a lot, been a little surprised by the speed of what we were able to do. I can say this, you can't do it alone. 

I built a great team. That started with my partner @John Hagen, but continued with my wife who works tirelessly for our rehab crew, which is also headed by our maintenance man, and he's been amazing. My mom (who is the other investor that owns 1/4 of the business) is more of a silent partner, but she has done some small loans from time to time to our business to help it get thru cash crunches that come with growing and rehabbing nearly every dilapidated unit we buy. But I am extremely proud of this team. We currently own 29 multi-family units and 2 SFH's (95% occupancy). We have 7 more multi-family under contract for April, and we are steaming forward. I am proof that even tho u may be middle class and have a lot of things going against you. You CAN DO THIS!!!!

*I "Dave Ramsey'd my budget, and "Robert Kiyosaki'd my investment mind.  You can too!!

What an amazing story. So inspirational and so pertinent to my own goals! My mother and I are currently in conversations about partnering with each other on an investment business, and possibly bringing in my sister (who is also an attorney). I'm an agent, so I have the knowledge on property analysis and sourcing deals, my mother is a retired manager of large departments at a large university, and has recently renovated her condo, so she has experience with budget and project management, and working with designers and contractors. Between the three of us, I think we'll have a lot of the necessary skills to execute a BRRRR strategy. Seeing stories like yours just adds fuel to our fire.

Originally posted by @Rich Weese:

I had two "aha"moments early in my career . . .

. . . Moment number two – as a broker, I began doing real estate syndications and raising money. I determined it was much easier if I did not have to raise the extra 6% in cash from investors just to put in my pocket as my commission. I would simply add a second, or third, or fourth mortgage on a property as my commission. It all spent the same. At a very young age, I was able to retire. The biggest part of that was notes in the amount of $1,600,000 on close to 100 notes that was paying 10 to 12% annual interest! I was making in excess of $150,000 annually without going out the door and with no reduction of principal. There was other income also from additional commissions and investments of my own. This was a tremendous amount of income in the 1970s when I retired. Leverage was truly my best friend and the IRS was truly my worst partner!

 I am VERY intrigued by this strategy, but I'm not sure I understand it. Were you pulling out 2nd or 3rd mortgages on properties you purchased, and then using that money to purchase notes on other properties? I would love to learn more about what you did, and get your recommendations for resources on learning about purchasing notes.

Ditto @Christoper Phillips. There's a lot you need to answer @Andrew Reyes before anyone can give specific guidance. If you were looking in the 5 boroughs, for a cash flowing property, I'd say look for multifamily (3-4 family) buildings in outer Queens or parts of the Bronx. Be aware that the cost basis versus income potential of most properties will likely require you to keep your LTV below 65-70%.

Regarding cash-on-cash (and depending on your goals) I would say be careful about getting too wrapped up in that number. 1) it changes year on year and 2) it is far less important in most cases than other factors, and the totality of the investment picture OVER TIME. Remember that your total ROI will be the cumulative sum of your pay-down equity, accumulated market appreciation, forced equity (improvement) and accumulated cash flow. The effect of those 4 things together is far more powerful than your 1st year cash-on-cash, and focusing on cash-on-cash can often seduce you into an investment that is riskier and returns less over time, or conversely, make you pass over a great opportunity.

The answer to this question depends a lot on the particular type of condo and the particular community you're talking about. In NYC, a condo is part of a high-rise structure, and generally 20 years old or newer, and primarily in the luxury market. It's generally a terrible investment if you're interested in cash flow. It will have a very high price-tag, come with substantial monthly fees in the form of "common charges" (similar to HOA fees), and the rent basis won't get anywhere near to providing positive cash-flow unless you're leveraged less than 40% or so. In addition, they are difficult to rent because you need to find an individual with a very high salary, and the condo fees to tenants are enormous (example: a two-bedroom luxury condo here can easily cost the tenant $1000-3000 in application fees plus a month's rent or more in broker fees), which makes these units much harder to rent out.

That's NYC. I'm sure it's similar in other high-priced markets. But I'm sure this picture changes substantially in other communities that have a different makeup or where condo inventory is quite different.

I'd love to hear about where people are investing and finding success!! I'm a real estate agent doing residential sales in Manhattan, and a beginning investor looking to invest out of state. I've done my reading and my research, and now it's getting to be brass-tacks time and start looking for and finding deals. Anywhere in the U.S. is fine. Some areas I'm interested in are northern Florida; Columbus, Ohio; Detroit, Michigan; Philadelphia and Pittsburgh; Denver and surrounding areas, but I'm open to anything, anywhere. Share your success stories ! I look forward to learning from you all.