All Forum Posts by: Llewelyn A.

It seems to me that the current Housing laws are trending towards one thing, shrinking the working class and destroying the achievements of the entrepreneurial small Real Estate Investor.

The reality is that the middle class pays for the subsidies of the poor without getting much of a break. Either their property tax or income tax or both go up because someone has to pay for it.

In GENERAL (note, this is not ALL), Government programs like housing projects seem to have subsidized housing for people FOR LIFE. In other words, they created a trap where people either can't or won't leave.

The working class who pays Taxes have never been asked if they agree that their tax money should be used to subsidize someone forever. Is there a time limit for someone who is being subsidized? The apparent answer is NO time limit. Would anyone vote to subsidize a particular lucky family forever while the waiting list for a new subsidized apt is decades? Stockholm's waiting list is 50 years PLUS! How crazy is that?

This then creates a cycle where Government Programs like Housing Projects have vast amounts of people who remain there for generations (or more), never being forced to do better for themselves or not given the proper access to the things they need to help themselves out of Tax Payer funded assistance, making room for the younger families that need the apt that is subsidized.

I'm sure most (if not all) the Middle Class Tax payers would say that they did not sign up for people to be on Government support forever AND that new families have to wait decades.

Knowing that this mindset has increased, it will eventually get to a point where subsidized people will have no where to go but are protected in a way that you cannot then build more housing (mainly because they cannot be forced to move to a different location so that new higher density housing can be built), therefore the only solution........

UNIVERSAL RENT CONTROL.

In other words.... my free market rentals will lose it's value completely and I will be forced to become a low paid Property Manager, managing tenants who are protected and subsidized forever.

Either that... or go bankrupt.

It's actually a very real and devious deception because if you ask a tenant would they like to lock in their rents now and forever, without much thought to any future new families that may need it, the vast majority would say yes.

I don't even know how to get out of this trap. I'm planning my exit strategy when the current Housing Market peaks for my Market Rate apts.

@Vincent Sottile

I don't think it is very wise to become a full time Investor without any real kind of group health insurance such as those provided by a full time job.

If you are single, I actually think you should continue to work full time and only invest part time or as much as you can handle. But, it might be best to do it in a specific way.

House Hack it on a multifamily. Make the Investment as easy as possible to manage while you work, continuing your full time job.

I am one of the few who would advise to continue to build up the profession that you studied so hard to become, excel at it, and then build up your real estate portfolio as your career moves up.

When you reach the point that your RE Portfolio makes you Financially independent, even if you have to live below your means, AND you can afford the Self-Employed Healthcare costs, then you have the option to quit your profession.

To do it differently is a Risk that I did not take.

It only took me 9 years from starting my first full time job to quitting after I had a property portfolio of 3 buildings. At that time, my salary reached 6 figures and I was able to pay off a Mortgage to increase the Cash Flow, which made me Financially Independent at the age of 36.

The discipline that it took me to learn and the experience that I built up during this time was very helpful for me. Now my Partners and I have a portfolio of 10 buildings worth $20 million in Brooklyn, NYC.

I continue to use the skills and connections I have in my previous career and have become a Partner in a Software company.

There are so many advantages and safety in progressing in both your profession and your Investment careers.

To me, unless you were born with a Golden Spoon in your mouth, an Entrepreneur that had nothing will be working harder than a 9 to 5 employee.

If you do it this way, I fully believe you will increase the odds of your success significantly.

 Ronan is correct, there are a new set of regulations that you will have to pay attention to, including that you HAVE to offer a renewal.

From what I understand, once an apt is regulated, it cannot become unregulated without substantial effort, like moving in to the apt once it is vacated. HOWEVER, I think, but not 100% sure, when you re-rent it again, it has to be under the stabilization rules again. You really need to research this, but the laws changed to get rid of the loopholes which allowed the apts to go back to Market Rate. It's really difficult now.

The other issue that I don't think you are considering is that you then will have to deal with the City agency, DHCR. It's more work.

I don't think there are any upsides to owning rent stabilized apts so you need to buy it at an acceptable Cash Flow that pays you reasonably well for all the risk and work you will be doing to own it.

It may be cheap, but is it cheap enough?

@Account Closed

There definitely is another side to it.

I was helping a friend with her tenant screening. She had a toddler and we advertised her apt.

A candidate came who had a really good FICO score (720), but owned a tattoo parlor, so his income was all cash.

His GF had W2 income that was just short on qualifying and also had a good FICO score.

He also disclosed that he had a felony for MJ possession 25 years ago when it was very illegal to even carry it.

He's been clean since. BUT, my friend was a bit shocked as she had never seen a candidate with a felony and there are so many other qualified candidates who also had high W2 income, he was turned down for not being able to prove his income.

However, he told us that he has been looking for a while and has been turned down multiple times as Landlords don't really check out the records thoroughly.

I'm sure he's a great guy, but I do understand the stigma. This couple would definitely get a good apt right away somewhere if their criminal background check wasn't taken into account.

@Eric G.

Things are very similar here in NYC.

HOWEVER, the way I do things as @Nathan Gesner mentioned is to use the normal criteria of Employment and Credit Score Qualifications, and potentially other checks.

So far, in the 21 years that I have been a Landlord in Brooklyn, NYC... I have not encountered a candidate that had a very high Credit Score (think 750 FICO here) and also had a criminal record. I can't say that it will never happen, but I have not seen it yet.

HOWEVER, what seems to have a correlation is that if a candidate had a criminal background, there is a high correlation that he will also have a low Credit Score (below 700 FICO or so). That may be do to the lack of ability to pay your bills while you are incarcerated, which makes a lot of sense.

The problem I find is that if you don't have at least a B class neighborhood, you just don't have a choice but to take on someone with a potentially criminal background or eviction if your State forbids these checks.

While I don't invest in any other place than Brooklyn, NYC and only in at least B class neighborhoods, an Investor friend of mine does invest in low income, C to D class neighborhoods in a different State.

He tells me that Credit Scores are useless for him because almost ALL the candidates are 600 FICOs or below. He has yet to see anyone above a 650. It's just the nature of the type of neighborhood.

I can't even imagine that if my Investor friend's State winds up forbidding criminal background checks, there is just no way for him to weed out criminals because he doesn't have a choice but to accept low Credit Score candidates.

I'll be curious what other Landlords have experienced in C and D class neighborhoods as well.

But for me, the eviction or criminal background check does not add to the qualifications because the candidates that I get with very high credit scores had always had zero evictions and criminal records.

Again, that's my personal experience. So maybe I have been very lucky so far. However, I don't think it's a matter of luck more than it's a matter of correlated qualifications.

@Neha Mittal

@Dan H.

@Basit Siddiqi

Just one last thought before ending this thread, in case others may be buying RE in an LLC.

The way I am thinking of it, when a property gets transferred to an LLC, it's not a "Transfer". That's not actually accurate and I don't know why people insist on using that word.

It's actually a Sell from the Owner and a BUY from the LLC.

The Transaction should generate documents on the sale of the property. The specific form that specifies how much the LLC paid for the property is a 1099-S which is issued to the Seller, who then must pay taxes if he made a profit.

Personally, I would need to see the 1099-S when the property gets transferred from the Seller to the LLC. Without the 1099-S, you have no idea what the cost basis of the property will be once you acquire the LLC.

Basit, in this case, if I told you I bought a brand new LLC that has a piece of real estate as it's asset, won't you need to know the Purchase price? How would you get it on a brand new LLC?

@Basit Siddiqi

@Neha Mittal

I would be interested in what a Tax Accountant would say, considering that the Cost Basis of the property won't kick in since the property wasn't sold to you.

Does that also transfer the tax obligation to you from the beginning of the seller's ownership?

Maybe he should just sell you the real estate so that you can establish the proper cost basis. That way when you sell, you will only be responsible for the tax from the cost basis of your purchase.

What do you think Basit?

@Faysal Alam

Hi Faysal!

21 years ago, I did EXACTLY what you mentioned in your first post.... bought a 2 family building in Brooklyn, lived in the basement and rented the other 2 apts, did not have cash flow but at least broke even.

Back then, I bought the property for $340k with a Mortgage of $272k, fixed.

That Mortgage is nearly gone and 21 years of rent appreciation has given me a very decent cash flow as the rents rose way above my mortgage and other expenses.

This is NYC, it is normal for Market Rents to rise very consistently for a long period of time, barely dipping.

That house is current worth $1.7 Million conservatively. The original rents which were around $1k each apt is now over $2.5k each.

Over the 2 decades, I have bought 9 other Brooklyn properties, all based on the ever increasing equity and cash flow of the 1st property. I was able to leave the rat race within 10 years of starting to build my portfolio. I hardly needed any other money since the 1st building, constantly leveraging off that equity, and then the equity of the 2nd, 3rd, etc... to eventually now, buying $1.5 Million buildings all cash in LLCs.

I'm not saying that this will be your future, but it's a very compelling future if you visualize it well.

Don't forget that if you used a fixed rate Mortgage, even if your property does not appreciation, the Mortgage balance decreases over time, and your equity builds up.

That equity then seeds capital to your next deal. The 3rd deal will be seeded by the 1st and the 2nd deal, etc.

The one thing I have to absolutely tell you to do is to become an EXPERT at Tenant Screening. This is your priority because if you screw this up, you are screwed for a long time. Get this right and buy good properties that you can get tenants that can pass a high standard tenant screening, will help ensure you will NOT encounter too many bumps in your road to achieve equity growth.

Lastly, I did rent to one of my brothers, but I had explained to them that it's a business. If my expenses go up, so do theirs. I also put my Brother through the same tenant screening process because like most of us here, we got screwed by relatives.

However, my brother had a good job and was financially responsible. So it all worked out in the end.

Good luck to you, even if you choose to not buy in NYC.

This will be a two part Thread actually. This is the first part of the Threads:

"Mentor Wanted for no $$$ - What I bring to the Table"

If you are not offering any money, what do you bring to the Table?

Here are some rules on what you can or CANNOT bring to the table:

1) Free Time - Your Free Time does not help a Mentor who must give his time to train you.

2) Skills - MUST be concrete and have experience.

2a) Spreadsheet skills - an EXCELLENT skill to bring to the Table! BUT... you need to be somewhat sophisticated and be able to use formulas like IRR, PV, Lookup Tables, etc. This skill can easily translate towards a Real Estate Business Plan if you don't have the experience.

2b) People skills - Just because you were a Waiter or Waitress, this may not translate to dealing with tenants if you have had ZERO experience other than being a tenant yourself. Maybe if you were part of an organization where you managed contractors, this skill can come in handy.

3) Above Average Credit Score - This is actually important. If you can't manage your money, how can you manage the revenues and expenses of a Real Estate business? If you are improving your Credit Score, I would wait until you get your finances together. Also, bringing a high Credit Score helps a Mentor because you can participate in a partnership or Joint Venture.

4) Motivation - I find this to be the hardest to verify. I ran free classes that only required people to learn the basic skills by meeting once a week for about 3 months. 95% of the students failed to study. So when I gave a suprised final exam, 95% dropped out immediately before they could make it to an intermediate course. They all claimed they were highly motivated but they were obviously not motivated enough to do any real studying. BTW, the 5% that continued became Millionaires.

5) List other relevenant information that you can bring. For instance, connections. You know a lot of people in a certain high income field, say Doctors. You can tap those Doctors as potential fund sources for future investments. Etc. That helps a Mentor!

So, what do you bring to the table if you are interested in attracting a Mentor? Maybe one of us experienced Investors would love to have you!

@Erik B.

@Wesley W.

@Joshua Edwards

As Wesley said, If you do your pre-screening in a certain way, the checks for verification should be done ONCE unless something comes up about the verification that doesn't match. Then at that point, continue with another candidate.

My pre-screening starts out with asking the prospective tenants to give me a copy of their Credit report and Score from one of the free credit reporting websites such as Credit Karma. Even better would be if they have their credit from one of the various banks via their online logins. Bank of America, Chase, etc. all have it.

The candidates can snap it from their phones and text it to me.

The pay stubs are sent to me via email, etc.

In a lot of cases, I wouldn't need to even pull a credit report because I tell them that they MUST log on to the website where they got it originally and prove to me what was sent to me was not altered.

Since I have been doing this for about several years, not one candidate has altered their credit report. Why would they? Then it would be considered fraud.

The only report I would need to pay for would be a back ground check to make sure there wasn't anything criminal in their history.

Generally, I have found that if someone has a very high credit (720+ FICO), and in Brooklyn, NYC, you will certainly need high credit for any apt, you have a very clean background check.

Given that and income has to be 4 times Annual Rent qualified from their Pay Stubs or W2 or both and verification from their employers, it's really difficult to get better quality of verification even from Companies that charge more than $20 for all of this information.

Also, I don't blame Cuomo for these things. He is doing what his constituents want. I blame the constituents.

Just in the news several Moms who were homeless broke into a vacant home. Their lawyer insisted that the Moms be given the home because they are homeless.

That's basically stealing the house from the owner to give it to the women because they are homeless. How crazy is that? How can an Attorney even argue that this is NOT against the law? BUT.... it seems there are a lot of poor people who support this group of women.

To me the problem is not a single politician. It's the craziness of the people who enable the politicians.

The problem is that people who think like this are getting more and more desperate and they are more numerous than us. It is eventually they will bully us and then make it worse for us AND them. It's a Scorch the earth policy.