All Forum Posts by: Llewelyn A.

@Craig Gordon

What you are referring to is called a "Delayed Financing" or "Technical Refinance".

Follow this link: What Is Delayed Financing For Cash Deals?

Under the terms of a delayed financing transaction, you buy a home for cash, then immediately take on a mortgage to reclaim most of the purchase price. This method of financing allows you to both make a more attractive all-cash offer to home sellers (giving them the confidence that a transaction will close), and put money right back in your pocket.

Delayed financing allows you to use a cash-out refinance to obtain a mortgage and enjoy the flexibility of making long-term payments over a period of time, so you can avoid tying up all your savings in the home.

Cash buyers can see benefits immediately. If you’re seeking to obtain delayed financing on a property purchased with cash in the last 6 months, you can take out cash right away without waiting.

However, if you buy a home using a mortgage instead of paying with cash, your name needs to be on the property’s title for a minimum of 6 months before you can take out cash and refinance your home.

This is why buying properties with cash is so helpful for investors. Delayed financing is an important tool in real estate investors’ arsenal. Just over one-third of all home purchases are now all-cash deals, as these transactions help keep investors more liquid so that they can buy more properties.

I'll give you a non-cash flow real world example by comparing my very high priced Brooklyn Real Estate to a friend who bought in a high crime, higher cash flowing property in a bad part of Queens (Far Rockaway).

Over 20 years, my properties ran like a well oiled Machine. Easy to get GREAT tenants, high Credit Scores and high income, and no trouble during the Pandemics or other severe down turns.

It is truly an Investment because there was very little work to do other than paying the bills and calling a few contractors here and there.

However, a friend of mine bought in Far Rockaway. Over the decades, he had very numerous and severe problems with tenants as well as flooding that the stress really got to him.

Because of his location, he could NOT find good tenants, Credit Scores were useless since anyone applying had bad credit and he had to accept people with barely enough income.

He did about 5 or so eviction during this time, his life was threatened several times, the rental was damaged several times as well, and tenants with no assets had stopped paying during the Pandemic.

The Stress got to him. He eventually had 4 open-heart surgeries, was depressed, etc.

Now that it is 20 years later, comparing it to my well oiled Investment property, because of my prime location, the appreciation I received is far higher than his, my cash flow is also far higher as the rents skyrocketed in my areas, AND I spent WAY less in Medical costs that he did.

While I don't want to attribute all the Medical Health issue towards these difficult to manage yet higher cash flowing properties, I can see what it did to him as he would call me asking advice on what he should do.

If he were to add in the medical costs and health problems, over the 20 years, I'm so glad I did not go down the high cash flow route.

I can enjoy my Investments because of the lack of Stress from all these years. BUT, in comparison, my friend is a complete mess.

I think the answer to why only 5% actually succeed is that the vast majority of people DREAM about being an Investor. The problem is that it take far more effort to LIVE that dream that it is to wake up from that Dream.

I teach Real Estate Investing on the side and I will tell you 95% of the students are sitting in class dreaming or pretending that they are improving their lives just by attending the class.

In the end, they don't really study.

I give a Spreadsheet exam at the end of a 12 week / 1 class per week session on building a 10 Year Pro-Forma business plan for your Real Estate and I will tell you 95% fail out right.

Being in class is more about dreaming than it is about putting in the effort to learn the skills to be an Investor.

I think I'm very highly qualified on this topic to share my experience.

Here is a true story.

A fiend, let's call him "Bob", and I invested at the same time, in 2004.

He bought Cash Flowing properties in CT and I invested the same amount into a 3 Family Brooklyn, NYC property.

We both spent about $200k for our Investments.

This is an 18 year history of the comparison.

Bob's CT properties cash flows approximately $1,000 per month for all of this time.

My Brooklyn, NYC property didn't cash flow in 2004, but today, it cash flows $5,000 per month.

Bob's CT Property did get some appreciation, but the increase is something like $300k more than what he paid for it.

My Brooklyn, NYC property is worth $3 Million more than what I paid for it.

The one issue that is not being talked about is where do you want to live? This needs to be factored in.

Bob, unfortunately, in 2004, loved living in Manhattan. He rented an apartment for about $2k at that time when he made the purchase of his CT cash flowing properties.

Bob thought it was great that his $2k apartment was being subsidized by the $1k cash flow he was making per month from these CT properties.

HOWEVER, what Bob didn't take into account was the rent appreciation that would have eventually happened in NYC.

Bob's CT properties did not significantly increase over the 18 years.

HOWEVER, Bob's rent where he lived DID skyrocketed over the 18 years!

Bob, who was paying $2k a month in Rent in Manhattan, is now pay $5k per month today.

He went from a net of $2k rent minus $1k of Cash Flow to $5k rent minus $1k cash flow.

In other words, Bob's impact to his living costs went in exactly the wrong direction.

Not only that, Bob became priced out of the market in NYC.

He could have afforded to buy a property in 2004. But today, that is completely impossible.

Contrasting this with my own scenario, I am not only cash flowing $5k more than what I was in 2004, but my Appreciation is approximately $3 Million more.

The theme here is that if you really want to live in a highly appreciating City, which now seems to be EVERY desireable City everywhere around the US and the world, from NYC to Austin, even cheap places in PA and the boondocks of Florida seems to be completely priced out for many of the CASH FLOW Investors here, you should FIRST buy in the place you want to live in forever.

The problem with buying out of the area you wish to eventually settle roots into is that you may get priced out completely, even if you are building a cash flowing portfolio.

Something to think about.

Buy your first property, rental or otherwise, in the area where you are most likely to build your Roots.

There is a huge difference between those of my family, 90% of them, that did not invest or buy their home in the area where they live, and myself.

My Partners and I own 10 small multi-family properties in Brooklyn, NYC. This is where our families settled down.

The 10% of us who bought in Brooklyn, are incredibly lucky. We secured our homes forever. WE cannot be priced out.

The 90% is like "Bob".

My advice, don't be like "Bob."

At least buy the home you want in the area you want.

Investor Llew

Just curious if anyone had looked at or are investing in this Company that is backed by Jeff Bezos and Marc Benioff:

Arrived Real Estate

I haven't researched the competition, if there are any or many, but it's definitely an interesting business model.

You pick how much you want to invest and you buy that owner interest in a SINGLE property.

The Company manages everything.

I guess this is a turnkey operator but you can buy shares of that individual property?

Anyone has experience with this or any other companies like this?

Thanks!

@Eric Bilderback was absolutely correct in pointing out that the Debt is really the bet you are making.

You are betting that the Value of the Debt will decline in the future.

If you think about it, Real Estate is probably the only Asset Class that has this unique feature where you can borrow up to 30 years at a fixed interest rate.

Now, imagine the scenario where you borrowed $1 Million to purchase your Real Estate at 5% fixed for 30 years.

When a Wage-Inflation Spiral happens, there is a huge upside to the borrower of this debt because the Asset class pays a fixed amount for the debt but the Renters are bidding up the Rents as their wages increase in the Wage-inflation spiral.

If one borrows $1 Million at 5% for 30 years paying $5,368 per month for this debt AND wage-inflation doubles the rent revenues then you effectively received a huge benefit as the Debt per month does not go up with inflation.

No other Asset Class seems to be able to do this.

As a real world example, last year one of my Apartments was renting for $3,000 per month. I re-rented that same apartment today for $4,100 with just 1 day of Advertising. My Debt payment per month remained the same but my monthly revenue increased by $1,100.

Eventually, Wage inducted inflation will negate the monthly debt payment, which should be seen as eliminating the Debt itself.

That puts a $ Million into my Equity as the Debt essentially disappears.

What other Asset Class does this?

Also, if you think about it, because you are generally using 4 to 5 times Leverage, the Debt is your BIGGEST Bet. Not the Cash Flow or the Appreciation. It is really the DEBT that is your biggest best.

There are far greater Patriots for Democracy for the Russians in Russia that have been protesting against the Russian Invasion than even Americans that I see who are praising Russia. This Is WRONG.

Next, Energy prices are spiking, including in New York City, where I have been investing for over 22 years.

We have seen Electric Bills TRIPPLE.

I suspect Gas Prices will do so in the long run as well.

For Climate Change, Flood Insurance and regular Insurance are already spiking. In some areas, you cannot even get regular insurance.

I have been in the Real Estate game for a long time.... over 22 years. I have positioned my Real Estate Portfolio to start shedding Leverage since about 4 years ago. I currently have about a 40% Leverage and intend on move it to ZERO in 5 years.

If there is a time to run to safety, now is a great time to do it.

Why? Because I have survived 4 MAJOR Downturns, 1) The Dot Com Bubble 2) 9/11 and the Stock Market Crash of 2001  3) the Financial Crisis of 2008 and 4) The Pandemic of 2019.

I invest in NYC.... the 4 Downturns I mentioned are NYC Ground Zero. And I survived ALL of them. Not only that, I have made a very decent return.

Now for the next Downturn Crisis..... the Russian/Ukraine/European War of 2022.

This one, I am shedding Debt despite it being Cheap.

Good Luck to everyone and long live Democracies!

In NYC where I own my buildings, before I ever put in a bid for a home, I always go down to the basement and check the Meters.

For a 4 family, I expect to see 4 Gas Meters, one for teach Kitchen in the building.

I then need to see 5 Electric Meters, 4 for each apartment and 1 for the Common.

In NYC, these are all owned by the Utility Companies and they cannot add meters at will. They can only add them as according to the Legal Occupancy of the building.

If there is a discrepancy between the number of the meters and the units, I go to the buildings department and pull the current Cert of Occupancy myself.

Of course this doesn't help you now, but it might help others from getting into your situation.

One thing you can potentially do is look at your Contract of Sale, if you have one.

Was it done with an Attorney or other professional that has E&O? It may be possible to sue for misrepresentation if it's in the Contract.

I'm not an Attorney, but I would investigate anything that I can and sue for anything fraudulent.

@Alicia Marks

I currently have a total of 10 Partners and built those Partnerships over 21 Years. This includes 2 of my Brothers, several friends and a few that were recommended to me.

Without Partners, we could not have built a $20 Million Portfolio in Brooklyn, NYC.

Also, Partners help with Diversifying the Risk of the Investment. There has been several times where we need a few hundred thousand in unanticipated renovations, generally to transform the property into it's best and highest use.

In my 21 years of Partnering, which has been a huge success, I value honesty and responsibility to be the most important part of the Partnerships. Your Partner could say a lot of things, such as "Yes, I'm an experienced, responsible person." If they lied, you better know before you think about having that person as a Partner.

To make sure my Partners are honest and responsible, they go through a very meticulous procedure:

1) They MUST provide their Credit Reports. If they do not have a FICO Score of 740, I reject them. Having a poor credit score shows they may be irresponsible AND will cause a problem should we apply for Credit in the future as many Banks require a personal guarantee and good FICO Scores for the absolutely best rates.

2) They MUST have cash reserves AND make a good income. I don't Partner with people who don't have reserves. Also, good income can demonstrate that they are capable of attaining a higher level of achievement which comes into play when I teach them how to do their financial calculations.

3) They MUST learn all the Financial Calculations and can put together a 10 Year Business Plan. If they don't understand the Calculations, then it demonstrates that they may be incapable of understanding the details of how we are to achieve our Goals. Failure to understand Financial Calculations results in very poor communications. For instance, while many on the forum talks about Cash on Cash Return, this is a very poor calculation in big Metros. It's much better to understand the Internal Rate of Return (IRR), Discounted Cash Flow, Future Value (FV), Cap Rates, Appreciation Values given a Rate, etc. I will teach my Partners so that they understand the language in which we communicate with. When they learn the IRR and add it to the 10 Year Business Plan, there is absolutely NO issue with Communications.

4) They MUST pass a Criminal Background check. I have know several failed Partnership that wound up being Convicted of crimes, usually wire fraud. My procedures ensure that will never happen in my Partnerships.

I also want to point out that you do not EVER want to get into a legal battle with your Partners. Only the Attorneys will win. I personally witnessed a Joint Venture that fell apart because the General Partner (GP) was depositing the Partners money into his own Personal Bank Account. Additionally, the GP, claimed that the Rental Market was soft and couldn't find Tenants for the building. The GP in fact, DID rent the Apts but was pocketing the Rents.

By the time that the Limited Partners won their case, the Attorneys took so much money that their Principal was decimated. It was very difficult to sue the GP to remove him from that position. You really need to make sure that the GP is as honest and responsible as much as yourself.

During the trial, it was revealed that the GP declared Bankruptcy not just once, but TWICE. Additionally, he had a history of fraud.

NONE of the Limited Partners ever checked that GP's Criminal Background and Credit History, which would have prevented the Limited Partners from ever becoming part of this Joint Venture.

Basically, my Partners are evaluated at a higher level that I evaluate a tenant. They must also be able to qualify for a Jumbo Loan as it's required here in NYC.

In return, my Partners all know my Credit Score (I have an 850 FICO right now), Net Worth and Experience. There really isn't a better Partner than myself. Also, I don't need Partners anymore.

This puts me in a great position to be incredibly picky with choosing my Partners.

I'm not saying you should do all that I mention, but when you consider that you might get a Partner that has a very low FICO score, no cash reserves, and is well below your Net Worth, why would you choose that Partner?

It's the same way I evaluate a Financial Advisor. If the Financial Advisor does not have a good Credit Score and their Net Worth is not greater than mine, why would I choose that Financial Advisor since I'm doing so much better than them? That doesn't make sense.

If you think about it, the more you have to offer in the Partnership, the more you should be picky in choosing your Partner.

When you bring a lot to the Table and demand every Partner have skin in the game and meet a high qualification, that should mitigate getting into a bad Partnership.

Another way to think of this is to understand how large Corporation chooses their Board Members. Why would they choose someone that has little Experience, no responsibility and doesn't understand the business?

Also, I don't care if you are my relative, you have to go through the same evaluation.

Maybe the above isn't for everyone, but it has worked for me over 2 decades.

@Nathan Yarnell

I would like to offer you a different perspective than almost all the posts you will read in reply to your situation.

Imagine you bought this property all cash. Will the Property Cash Flow? YES! That's a Cash Flowing property!! AMAZING!

Now, back to your situation. If you are financing the property and it will NOT Cash Flow, WHAT?! That's a Negative Cash Flowing Property!

WAIT... is this a Positive or a Negative?! It's so confusing?! Right?!

NO... the point is that the characteristics of Cash Flow for an income producing Asset that may or may NOT be financed should NOT be on the Asset.

It's not the Investment that Cash Flows... it's the INVESTOR that Cash Flows the properties.

I have bought most of my properties where I decided to allow the properties to break even or maybe slightly cash flowing initially.

HOWEVER, I have been buying in Brooklyn, NYC for 23 years and own approx. $20 Million in RE today.

Today's Cash Flow FAR exceeds any break even or negative cash flow I initially have had when I originally purchased the property.

I will say that generally, when someone tells me that a Property is Negative Cash Flowing which is a bad investment, I generally don't correct them that it's the INVESTOR that Cash Flows the Investment. Not the other way around.

It's difficult to change the confirmation bias for those that only see the Investment as either cash flowing or not. So I am reserved in my opinion and just continue to out perform many Cash Flowing biased Investors.

Regardless, you should make your own decision, but do it being well informed and not getting just one side of the equation.