The Growth Booth

#22: Wealth Building Part 2: Property Investment in New York City & Beyond

June 07, 2022 Season 1 Episode 22
The Growth Booth
#22: Wealth Building Part 2: Property Investment in New York City & Beyond
Show Notes Transcript

Over 90% of millionaires are invested in real estate for a reason. Learn more as Aidan dives into using Real Estate as an investment in part 2 of our wealth-building trilogy.

Welcome to the 22nd episode of The Growth Booth Podcast, a show focused on supporting budding entrepreneurs and established business owners alike, towards achieving lifestyle freedom through building successful online businesses.

In this episode, Aidan interviews New York City property expert Weimin Tan about property investment, and why it’s a good investment vehicle for some people. Take an inside look at how Aidan invests in the Manhattan real estate market, what to look for in a property, and a basic ‘numbers game perspective’ to guide your real estate investment journey.

Whether you're looking for step-by-step strategies to start building an online business, simple game plans to grow your business, or proven lifestyle freedom frameworks, you’re in the right place.

Stay tuned and be sure to join the thousands of listeners already in growth mode!


Timestamps:

00:00 Intro

02:10 Special Guest

05:16 Episode Sponsor

05:49 Why Get Into Real Estate Investments

09:05 The Manhattan Real Estate Market

13:43 Negotiating Property Deals

16:54 What To Look For In A Property

20:44 Return On Investment

25:25 Rental Contracts

28:45 Expenses When Buying Real Estate in Manhattan

31:34 Starting Price of Manhattan Property

33:18 Where To Check Out the Manhattan Market

33:47 Common Mistakes and Problems To Watch Out For

35:09 Property Brokers

37:59 Other Mistakes to Avoid

40:25 Talking to Kids About Investing

42:47 Recommended Books On Real Estate

45:30 Outro


Links Mentioned:


Resources:


About Our Host:

Aidan Booth is passionate about lifestyle freedom and has focused on building online businesses to achieve this since 2005. From affiliate marketing to eCommerce, small business marketing to SAAS (software as a service), online education to speaking at seminars, the journey has been a rollercoaster ride with plenty of thrills along the way. Aidan is proud to have helped thousands of entrepreneurs earn their first dollar online, and coached many people to build million-dollar businesses. Aidan and his business partner (Steven Clayton) are the #1 ranked vendors on Clickbank.com, and sell their products in over 100 countries globally, as well as in 20,000+ stores across the USA, to generate 8-figures annually.

Away from the online world, Aidan is a proud Dad of two young kids, an avid investor, a swimming enthusiast, and a nomadic traveler.

 

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Connect with Weimin Tan via castle-avenue.com


Thanks for tuning in! Please don’t forget to like, share, and subscribe!

Welcome to Episode Number 22 of The Growth Booth. This is the second in a trilogy of episodes that we're doing where we're focused on investments and wealth building in general.

Today we're going to be talking specifically about property. Now, an area that I've invested a lot of time and money over the past few years has been in the Manhattan property market. We'll talk more about that on this call.

It's not how I got started. My first property was actually in Buenos Aires. And I've got some interesting stories that I can share with you about that. We've got a portfolio of different types of properties in New Zealand, and we diversified to the Manhattan marketplace for a bunch of reasons that you're going to find out as we dive in here a little bit more in this episode.

My special guest is Weimin Tan. He's been someone that has been absolutely instrumental in helping me and my wife build up our property portfolio in Manhattan. We've got a whole bunch of properties up there now, and many of them we've been able to purchase without even going to New York just because of the relationship that we've built and the expertise that we're able to tap into, thanks to Weimin Tan, who you can find out more about by searching on Google, Weimin Tan. He's a New York real estate agent, or by going to Castle-Avenue.com, and that's where you can find out about investing in the Manhattan marketplace.

But before we get into all of that, I want to give you a little bit of a background. Our journey into real estate in Manhattan started by doing a Google search. I did a Google search because I didn't know anything about property in Manhattan. And this guy that we're talking to here today, his name came up at the very top of the list. I sent him an email and I didn't think he would reply. And then I think like five minutes later we were talking on the phone, and that's how our journey started. It must have been six or seven years ago now.

AIDAN

Weimin, thank you so much for taking some time out of your busy schedule there to join us here today.

 

WEIMIN

Thank you for having me, Aidan.

 

AIDAN

One of the first things that I did before knowing a single thing about the New York property market was I hired a guy in Serbia, and he built a little program for me that scraped all of the different listings, I think, on this website called Street Easy and ran different calculations. And there were like thousands and thousands of listings and ran calculations and gave me different listings and told me what my return on investment would be.

I sent that spreadsheet to Weimin, and that was kind of how we started off our journey. Do you remember that, Weimin?

 

WEIMIN

Yeah, I definitely remember that. 

 

AIDAN

Probably a little bit unusual. But anyway, as it turned out, you can't just choose a property based on the numbers. I sent this spreadsheet to Weimin saying, "Look, here's one that's got a 12% return on investment annually." Turns out maybe it wasn't in the right kind of location for easy renting and so on and so forth. I learnt a lot after doing that.

 

Weimin has been down here to Buenos Aires, we've hung out together. I see him a couple of times a year and we're really good friends now. In fact, Weimin is one of the guys that I go to whenever I need to find a new book to read because we like reading a lot of the same books. One thing that I think I'll never ever match Weimin on though, is his fitness exploits because he can do 352 burpees in 23 minutes, which I think is just insane. I'll do 20 of them and I'll be panting on the ground.

Also a black belt in Taekwondo, which I didn't actually realize that Weimin, but definitely someone who is dedicated to fitness as well. That's a little bit of a background for folks.

Now, I do want to get into the good stuff here, and I think the first question that I want to ask is why should someone consider investing in real estate? Why should that make up someone's part of someone's portfolio? What's your take on that?

 

WEIMIN

I think the key difference between investing in real estate versus stocks is that real estate is tangible and what that means is that it's a lot more difficult to invest in real estate as opposed to investing in stocks.

With stocks, you can just go online and someone will tell you, "Hey, I heard this company saying this and this," and all you do is just click on the mouse. It's easy, it's easy to get in, it's easy to get out, and therefore there's a lot more volatility when you're investing in stocks.

With real estate, you have to invest time, you have to go and see the property and there's a lot more involved as a result, there is less volatility when you're investing in real estate versus when you're investing in stocks. From that perspective, it may be more boring. But I'm a real estate guy because I grew up in a stock family and I've seen the volatility. I've seen being in front of the computer every day looking at the Greens where it's going up and the Reds where it's going down and so forth.

 

I decided that real estate is what I like to focus on. The other thing is that with real estate you can use other people's money, as in you can use the bank's money. You buy a property with stocks, typically, unless you are doing margin with stocks, typically you have to put in the full amount of the price versus in real estate, you usually would put in 25%, 30%, and you borrow the rest. That's called leverage, but when it depreciates, it's actually the entire property that appreciates. Your return on equity, meaning your return as a percentage of what you put in is magnified.

 

AIDAN

Yeah, I think leverage is huge. I mean, that's definitely one of the major upsides to investing in real estate is like you say, you could buy something that costs $500,000 and you only need $100,000 of your own money. You can get huge leverage there.

It's especially attractive in times when there are low interest rates. I think it's also a bit of a hedge against inflation. In inflationary environment, real estate tends to hold its value. I like it as a portfolio diversification method. As I've explained to people who listen to the podcast in the last episode, I sort of divide up my investment capital between property and stocks. I think portfolio diversification is really important.

You can actually build up that equity as well when you've got someone living in the place and they're paying off the mortgage for you essentially by paying rent. And then, of course, you've got cash flow as well, depending on the type of property that you're buying. I absolutely love it.

But talking specifically about Manhattan, because that's where you spend most of your time in real estate, and I know you've got real estate in other parts of the United States as well, but what is it that you like about the Manhattan real estate market with Manhattan?

 

WEIMIN

I think it's a few things. And I have properties in North Carolina, which I got before getting into Manhattan, and I have properties in Syracuse with Manhattan. Number one, it's a landlock island, and there's very limited inventory. Landlock island, meaning that the supply is finite. Yes, there are new developments coming up, but as a percentage of the total inventory, it's actually extremely, extremely small in terms of the inventory.

Manhattan, 70% are rental or mixed-use buildings, which means that you cannot buy an individual apartment. You have to buy the entire building. 

 

AIDAN

Wow, that's 70%. That's amazing. That's high. 

 

WEIMIN

Yeah. They can be big buildings owned by Wreaths, or they can be small buildings like four or five stories where there's a storefront down below and there's walk up apartments on top. But that's 70%, and then 20% are co-ops. 

Co-ops are where you buy to live in, and there are restrictions. And then only 10% are condos. 10% is the amount of condos on the island of Manhattan relative to if you go to any other US city, for example, there's so much land. There's the city core, and the developers are always building further and further out from the city core.

Therefore, your supply is not limited. Number one, supply is limited in Manhattan. Number two, I think we are dealing with higher credit quality tenants, which means that they have higher credit scores, and therefore it's safer.

 

AIDAN

Sorry to jump in there. It's quite interesting. During the pandemic, people often say, "How have you done with the real estate and stuff?" And we never really took a backward step. I mean, our Manhattan apartments were all rented all the time. We didn't have to do price breaks in the rent. And I know that in Manhattan, it's true that there are different segments of the market. Just like, anyway, you've got luxury, you've got a lower rate as well. Most of the property that we've focused on here has been at the higher end. I'm not sure what the other different parts of the market, how they would have fared during the pandemic, but certainly in the strategy that you and I have been putting together, we didn't have any issues really.

I think we were lucky, but I think some of that has to do with this supply and demand that you're talking about there. 

 

WEIMIN

We got a great deal during the lockdown. The lockdown happened between March to June of 2020, and we negotiated a great deal. The risk at that time was that we didn't know how long the downturn was going to last, and you took the risk and we just increased the rents by, I think, about 25%.

 

AIDAN

Yeah. To give people who are listening a ballpark idea for a one-bedroom apartment, which Weimin has been referring to as condos, that was actually a new term to me when I started investing in New York, because prior to that, I'd always just called them apartments. I didn't really know the difference. But if you're hearing us talking about condos, they are essentially just apartments.

A one-bedroom apartment could rent depending on the neighborhood and all that. It could be renting for $6,000, $7,000 a month. That's a ballpark figure for that anyway.

 

WEIMIN

Yeah. During the lockdown, we got an apartment which was in the West Village that had great views. Having great views is luxury because you want to be in an area where there's a lot of low-rise buildings, because when they are low rise buildings, you get a lot more sky versus when you're in Midtown, you are surrounded by all the very tall buildings.

What it means is that it blocks the light and you get a lot less sky. You look out, you're looking at another building that's right in front of you. The apartment we got was great. 

 

AIDAN

With real estate, you really can make a lot of the money when you buy versus when you sell, if you ever sell. And one of the things that I've always liked about working with you is it means that there's one person at least who is not emotionally attached to the deal.

We would be negotiating back and forth, and Weimin would say, "No, you should offer this number." And that number he's saying, might be $100,000 less or $50,000 less than what I was happy to pay. "Well, if you think that's about right," and we would do it, and then we've got some really great deals like that. Just having someone else negotiate on your behalf, I think it's a huge advantage in this. That's definitely one tip, I think, for people who are moving in to negotiate, especially in the Manhattan marketplace, but probably in others as well, not to get emotionally attached to deals because you end up paying more and getting worse deal when that happens.

 

WEIMIN

Sometimes when you offer the asking price, you may not even get it because sometimes when the asking price is such you offer that asking price, the seller is going to think, "Oh, maybe I didn't ask enough, so I changed my mind. Now I want a higher price." Sometimes the negotiation is to make sure you get the deal by offering less, and then the seller will counter a bit. You want the seller to feel that they have gotten everything he can out of you. 

 

AIDAN

Yeah. I've shared on a previous episode how one time we were buying a property in Manhattan and we were at a point and I think this one was in Tribeca. We're at a point where we're getting close to the price, but we weren't really agreeing on the price in the negotiation.

And then you said to the seller, "Well, okay, you can include the furniture and the fridge." And the fridge was a sub-zero fridge, which I think it's like a $20,000 fridge or something. When you've got an open mind and towards negotiation, I think it can really help with those types of situations as well to find that win-win that we often talk about. 

 

WEIMIN

Yeah. And being nice to the other party is so important because people want to do deals with people they like. And this is something that you don't really think about. Usually, people think negotiation is playing hardball, showing how tough you are. But when you do that, they are going to try to play hardball as well. 

 

AIDAN

Right. To protect their own ego. Yeah, absolutely.

There's so much psychology behind all that. I've just finished up doing a virtual course all around negotiation, actually, with Harvard, and we speak a lot about that psychology. People who think negotiation is just about back and forth power plays miss out on a huge chunk of the positive side of negotiation, which is really finding how can you make this a win-win. You don't need to be an asshole to be able to do that.

Going back to investing in Manhattan, if you wanted to invest in a property in Manhattan tomorrow or you were recommending someone and they hadn't done that before, what type of property would you be looking for? Let's say that at the lower end of the price spectrum, what sort of things would you look for in a property?

WEIMIN

Well, at a high level, it's a condo versus a co-op, because these are the apartments where you can buy. You want a condo because a condo allows you to rent out whenever you want. A condo doesn't require border approval. As an investor, you have to buy a condo. After you have decided on buying a condo, which is only 10% of the inventory, then there are three things to look at.

One is the location. Number two is the building. The building has to be a high demand building. Just because it's in a certain location doesn't mean that all the buildings are good in that location. It's also building by building. It has to be a high demand building, meaning you look at the number of sale listings, number of rental listings, how much they're asking for rent and for sale, you'll be able to tell if it's high demand building, and then you have decided on the building.

The third thing is that you need to select the apartment line. Now, Manhattan is a situation where you have one building next to another, no gap. For each building, there's a preferred exposure. For example, facing north, you may be looking at a park, but there's not going to be a view on the east and on the west because it's next to other buildings. But facing south, you are staring at the back of the building behind you. For every building, that's a preferred exposure, and you want to get the preferred exposure of the building. You may be in a great building, high demand and all that, but if you're staring at another apartment, then it's not that great.

Because when you're renting out, the tenants are going to say, "Oh, I'm going to be looking at this apartment the whole time." And when they're selling, the buyer is going to think the same also. 

 

AIDAN

Yeah. You spoke a little bit about I remember one of the things that you also mentioned to me relating to location is things like being close to the subway lines. Maybe if it's a residential area like Tribeca and West Village, having restaurants and so forth nearby, maybe having supermarkets nearby.

 

WEIMIN

Yeah. Being close to subway is important because 90% of people in Manhattan do not own a car. We travel by subway or by Captain Uber. When people go to work, it's usually by subway. The reason is that it's a lot more predictable. If you call an Uber or a cab, there's going to be traffic. It's a lot less predictable.

After people who just moved to Manhattan, they may be using an Uber or cab initially, but after a while, they are going to realize that it's a lot more efficient by subway. Close to the subway is important. Close to the grocery store is important. For example, close to Whole Foods is important because otherwise you would have to carry your grocery and walk for, let's say 15 to 20 minutes versus if you're close to a Whole Foods, then it may be across the street or across five streets makes it a lot more convenient.

And of course, having restaurants is what makes an area desirable because it's one of the things why people love Manhattan, right? It's the diversity. And that diversity includes the diversity of food and cuisines, because ultimately that's entertainment.

 

AIDAN

We spoke a little bit about the different neighborhoods and things that people might want to look for in terms of the numbers in a Manhattan condo, buying a Manhattan condo for the first time, what kind of a return on investment would someone be able to hope for or strive to achieve? Or perhaps we could talk about the rate of appreciation, because I know that's also important. What are your thoughts around that?

 

WEIMIN

Yes, there are two components to the returns. That is the rental return, and that is what allows you to compare the rental return versus the other parts of the world and let's say stock dividends or putting money in the bank. If you buy all cash in Manhattan, your rental return is anywhere going to be between 2% to 2.5%.  You pay all cash; you pay the common charges and property taxes.

Those are the operating expenses. Then you're left with two to 2.5%, which is low. The reason it's low is that it's a very expensive city. Manhattan and London are the only two Alpha++ cities in the world, which means that they are the most international and so forth. The rental return is low, and then the appreciation from 1999 until now, it averages about 6.5% per year. The prices go up steadily.

When there's a recession, it goes down for about two years, and then it goes up steadily. When there's a recession, it goes down for about two years. 

 

AIDAN

When you say it goes down, though, just to jump in there for a second. One of the things that I was looking at specifically before we started investing in Manhattan was, I had a look to see what happened in the 2008 financial crisis because we were thinking, "Well, we could invest anywhere in the world. It doesn't have to be Manhattan." I remember doing some analysis on property in Chicago. We did San Francisco. I think we looked at Austin and a couple of others as well, and all of these other cities in the United States in 2008, 2009, the value of property dropped significantly, whereas in Manhattan I feel like, and correct me if I'm wrong, I feel like maybe it dropped a little bit, but it's kind of like flatlined, sort of plateaued for a little bit, a year or two, and then it went up again. It wasn't like it went off a cliff and just plummeted the value of the property. Is that right?

 

WEIMIN

Yeah, that's absolutely right. During the Subprime and Lehman crisis, which was in 2008 2009, it hit Manhattan one year later. Prices only came down starting in 2009 when rest of the US started going down in 2008 and rest of the US went down by about 35%.

 

On average, Manhattan was down by 15%, and Manhattan was down 2009, 2010, and then it started going back up in 2011. And similarly, during COVID, prices were down by about 9%, and then it recovered in the first quarter of 2021 and it started going back up again.

Unless it's a recession, prices usually go up steadily. And why does it go down a lot less? I think it's because supply is limited.

 

AIDAN

Yeah, supply and demand. I think one of the things that has always appealed to me about the Manhattan marketplace is that I would struggle to think of a safer place in the long term to have money tied up in property, because like you say, it's an Alpha++ city, which is essentially a ranking for different cities around the world. There's always high demand there in the business sense.

It's the number one city in the United States and the world. I think from a long period of time, could you lose money 10% in your value of property? 15% if you're buying one year and you just get unlucky and there's like a pandemic or a global financial crisis potentially? But if you hold that property for three or four years and hopefully a lot longer, I think there's almost zero chance that the value is going to go down.

And I haven't actually looked this up, but I would bet a lot of money on it that if you looked at ten-year periods throughout the history of Manhattan, there's probably never been a ten-year period where the property prices or values have dropped from where they were ten years prior. It's been a continual climb. I certainly feel like it's one of the safer ways to tie up money. 

Regarding rental contracts now how do they work? How long is the typical rental contract? And the other question I have was around Airbnb. I know that in some cities this is legal and common. I'm not sure if it is in New York or not.

 

WEIMIN

Yeah. Rental contracts are usually for one year and sometimes it's two years. Usually, a tenant would want to stay for several years because there's a lot of upfront expenses for the tenant. For each move, there's the broker fee, which is usually 15% of annual rent. That works out to be about two months’ rent, which is very hefty.

Then there's the bought package fee, which is usually about $2,000. And of course, there are all the movers and all that. Moving entails big expenses. Rental contracts are usually one year. Anything less than one year would be what we would term a short-term rental. And right now, the short-term market, which are the furnished apartments where you have someone transferring from, let's say, London to New York to stay for three months, for example, they're really dried up.

Furnished rentals short terms are usually furnished. You can ask higher rents, but there are very few buildings that will allow short term rentals. Most buildings would require a minimum one year. The reason is that buildings don't want to have a transient resident population who's always moving in and out. 

That is with regards to rental contracts. And what was the second question?

 

AIDAN

I just asked about Airbnb? It sounds like it might be on a building per building basis. Or do you know about Airbnb in New York? Just curious.

 

WEIMIN

Yeah, Airbnb in New York City, they are not allowed on two levels. Number one is that they don't pay hotel taxes, so New York City doesn't allow them. There was a situation whereby a landlord was caught and was fined huge amounts.

 

And number two is that the condo boards or the co-op boards don't allow them because they don't want the building to turn into a hotel and have all these people coming in and out.

Airbnb and VRBO, they're not allowed in New York City.

 

WEIMIN

Interestingly, on two of our sort of longest tenants in Manhattan, we actually rented one of the times through Airbnb, and another time it may have been VRBO or another one. I wasn't aware prior whether or not it was legal to do or not, but once we actually rented it, I started questioning it because the person that was renting the apartment to us started saying, "Hey, I'll meet you down on the corner. If anyone asks, we're just good old friends and you're just staying here." And it was all very shady.

That was when I realized that maybe Airbnb is not allowed in Manhattan. Obviously because of that, the next question I was going to ask is whether or not subletting and things like that with the Airbnb was a good option for investors. But I think we can just skip over that because it sounds like it's definitely not a good way to go. 

In terms of the outgoings, when someone owns a property, they buy a property in Manhattan, what are the different outgoings that they're going to have? The different expenses that they're going to have on either a monthly or a yearly basis.

 

WEIMIN

The main ones are the common charges, also known as the homeowners association deals and fees in the other parts of the country. Here it's known as common charges and property taxes. Those are the two big ones.

Let's say you buy a property from $1 million and then your rent would be 5%, let's say $50,000 a year. Your gross rents are about 5%. But when you subtract the common charges and property taxes, that would be another, let's say 2.5% of the price per year. That is how you end up with anywhere from 2% to 2.5% in terms of your net rent. There's also the insurance expense, but the insurance expense is very low. It's something like $1,000 a year.

 

AIDAN

Just a moment ago you mentioned people tend to look for longer rental contracts because of the costs associated with shifting. Who would normally cover those costs? Is it the person that is renting, or is it the owner? 

 

WEIMIN

It's usually the renter who is covering these costs. It depends on the market. And right now, the rental market has been the strongest ever, even relative to pre-pandemic. When the market was really weak, in 2020, for example, the lender will pay the broker fee, but right now it has reverted back to the norm, which is the tenant paying the broker fee, the board package fee, and the moving fee is a tenant expense.

What the owner needs to pay would be the painting fee. Usually after there's a turnover, the owner would have to pay to have it repainted and you have a vacancy period. Yeah, those are the owner expenses.

 

AIDAN

Okay, that's good. I feel like we're filling in some of the gaps here, and this is all certainly stuff that I needed to find out and I had no idea about before I got started in Manhattan.

One of the other things that I realized was that I think every area in the United States, for me, it seems like it's almost like a completely different country. There's a completely different demographics, completely different markets. Everything is different. Whereas prior to investing in New York, most of the investing that we've done was in New Zealand, which is obviously tiny compared to the United States and Manhattan or Argentina, which is a whole other story, another rabbit hole to go down at some stage. 

If someone is looking or interested in investing in Manhattan, let's say they've saved up $100,000 and they want to get started in real estate, is that going to be enough money for them to be able to get into the New York City sort of market, get on the ladder there?

 

WEIMIN

For Manhattan, the studio apartment is generally a good one, generally will start at around $650,000. The down payment requirement, depending on whether the person is a foreigner or not, the down payment requirement for foreigner is 40%.

40% of $650,000 plus the closing costs. For a local, the down payment requirement is a lot lower, usually about 25%. It can be as low as 20% if you are living in there. But usually when you're asking from an investment perspective, the banks would require higher down payments. I think 25% to 30% down payment would be reasonable for investment purposes.

The barrier to entry is higher relative to the rest of the US. But we have to compare it on a global perspective, because Manhattan is actually cheap compared to the other top global cities. Compared to London, Paris, Hong Kong, Singapore, Monaco, probably Tokyo, Manhattan is actually cheap, despite being one of the top two cities in the world. The other top city in terms of the Alpha++ being London. Yeah.

 

AIDAN

Which is the best website for checking out local property? If someone's listening to this podcast or watching the video, what is the website that they can use to find out about all the properties that are on the market and get an idea about values?

 

 

WEIMIN

The best website is Streeteasy.com.

 

AIDAN

Streeteasy.com.  We'll provide a link to that in the show notes and we'll also make sure we have links to your websites and profiles there as well.

Weimin, just before we wrap up, I want to talk a little bit about potential mistakes that people could make or problems that people should watch out for and make sure that they sort of avoid when going down a real estate investment path. Is there anything that comes to mind regarding this? Maybe problems that you've seen or experienced or your clients have been through?

 

WEIMIN

I think one very common one is to try to look for a property from the computer when you're 3000 or 6000 miles away because the inventory is public information. You can go to Streeteasy.com or you can go to any of your other websites. But the photos and the information there, they are all posted by the seller’s agent, which means it's one sided, right?

The seller's agent is never going to tell you these are the downsides of the property. They are only going to say this is why it's the best property and therefore you should buy it. Real estate is so local, you have to be here to look at the property or if the foreign buyer or out of town buyer cannot be here, then have someone who will be able to act as the buyer's broker and to objectively let the buyer know.

These are the downsides; these are the upsides. Having a local perspective is extremely important. 

 

 

AIDAN

Is there always a broker for each party? Is there always a broker for the vendor and always a broker for the buyer or are these things optional or how does that work?

 

WEIMIN

The buyer's broker is optional. When a property is listed, the seller would retain a seller's broker. And here in the US, the buyers usually would have buyer’s broker because the commission will be coming out of the seller side.

If the buyer comes without a broker, the seller's broker keeps the entire commission. But here in the US most of the time the buyer will come with a buyer's broker because they know that it's already part of the price. Then when there's a buyer's broker, then the commission gets split between the seller's broker and the buyer's broker. If the buyer goes without a broker, obviously the seller's broker is going to prefer that and the buyer is not going to get objective information because everything is going to be coming from the seller side or the seller's agent site.

 

AIDAN

Yeah, I've always thought of having a broker as I'm buying. It just fills so many of the gaps for me. And even now that I feel like I know quite a bit about the Manhattan marketplace, when I was starting out, I definitely didn't. In fact, reflecting on some of the most common challenges, not most common, but some of the challenges that I had was one just coming to grips with the different terminology, because this was different to me. I hadn't invested in the United States, let alone Manhattan, before. And this is not just on the local terminology, but also the names of the loan structures and so on and so forth. 

 

Knowing who to go to for lending as an international person, not in the United States, how could I get lending? In fact, I had some of my best friends and people I knew told me, "You're dreaming. You're not going to be able to get lending there." Knowing who to go to for legal advice, knowing who to go to for ongoing management, knowing how to choose a solid property in the first place, and not being able to go into these properties myself, these were all challenges.

I think I really hit a home run when I was able to find you because I was able to fill in all of those blanks and get started in a way that otherwise I think would have been incredibly challenging for anyone who's not a local in the Manhattan marketplace to get started. I think having someone on the ground in Manhattan who knows the market, who can act on your behalf in your best interest, it's kind of this concept of building an A team around you. You need to have good legal team. You need to have good accounting advice. You need to have good experts who know the marketplace. And I think that's what you can do when you have a good broker like Weimin.

Any other mistakes that you've seen that come to mind that you think people should be wary of and try to avoid? It doesn't have to be related to Manhattan. It could be investing in property anywhere, really.

 

WEIMIN

Well, during the beginning of a show, you were talking about looking at things from a numbers’ perspective. Your programmer had done the numbers for you, and I totally remember that. 

 

AIDAN

It was probably like the most unusual thing anyone that had done in a while. "What's this guy up to?"

 

 

WEIMIN

Yeah, I thought that, "Wow, this guy is so prepared." It's amazing. I wasn't expecting that at all. And some of the numbers, I was surprised also that "So here, let's say the average yield is 2.5%..." Some of the examples you showed had like 4% or 5%, but then when I look at the location, it's too far away or sometimes it's a co-op and it's great where, let's say you may have a walk-up co-op that theoretically could give you 5% when the market average is 2.5%, but how long is it going to take you to rent it out? Because it's so far away and it's a walk-up co-op and no one wants to be renting a walk-up co-op and so forth. These are the things that number will be able to tell you. 

 

AIDAN

Yeah. I think the other thing I mentioned this earlier as well was just the emotional attachment. I think it's easy to sort of fall in love with the property, even if you don't see it in person or if you do see it in person as well. But you can fall in love with the property and you get your heart set on it that you want that one, and then you can even go down this slippery slope of it's almost like a competition. If other people are bidding on it and you want to bid on it and you want to win it and you don't want to lose that, that emotional attachment can be risky because it can lead you to paying too much for a property or buying the wrong property.

Then the other one that came to mind while you're talking there was about being over leveraged in terms of I think leveraging other people's money is great, but I think you can take it to the extreme sometimes, and if you can't service a mortgage that you've got, then that's not a good place to be. We've always taken a conservative approach, and I think that's always worked out quite well.

The last question I've got for you here is I know you've got two kids. Are they like 11 and 13? How old are your kids?

 

 

WEIMIN

Yes, 13 and 16. 13 and 16. 

 

AIDAN

Do you talk to your kids about investing or are they interested in what you're doing and stuff? Because as having young kids myself, and my kids are very young, five and three. Maybe a bit too young to understand all of this. But do you talk to your kids about investing and share your knowledge with them?

 

WEIMIN

That's such an important question. And I think that as a father, it's on me to make sure that they grow up remembering this. Yes. I try to teach them about how to look at properties. But what I tried to do, which I think is going to be more powerful, is that whenever I have a vacancy, I have a tenant moving out, I would have my kids go and help me clean the apartment. Because this is something that they are going to remember that I've always had to go and clean and prep these apartments whenever there's a tenant moving out.

Why is that important? Because that is more memorable than them doing numbers. It puts things into context. It makes them work, and they're going to remember that this is what being a landlord is like and hopefully they are going to be a landlord as well when they grow up.

 

AIDAN

I think the other thing that it does is it exposes them to different types of properties that are out there. When I grew up in New Zealand, I was growing up in a very small town, 20,000 people was the size of the town, and I lived 20 minutes away from there. I never had the opportunity to go into any of this kind of large, tall skyscraper, apartment buildings, or even just properties with that kind of value anywhere around where I was.

 

I think being exposed to that is amazing at that kind of an age and it could be exposed to any kind of a property. I'm not saying it has to be high-end Manhattan condos, but just understanding that someone owns this and someone else lives in it and they pay money to be able to live in it, and that's called rent. And if you're the owner, then you could keep that money.

I think that's something quite valuable. What about in terms of reading, are there any favorite books or things that got you excited about real estate when you started to get into real estate?

 

WEIMIN

This was back in about 2005, and I started reading the Robert Kiyosaki, Rich Dad, Poor Dad series. And I read all of the books and that was what got me to go to North Carolina to invest. I think that series of books really explains real estate and why it's important in terms of wealth building. But do be careful in that.

For example, a $25 positive cash flow, just because there's a $25 positive cash flow may not mean that it's a good deal because for every month of vacancy, you are wiping out, let's say one or two years of cash flow. It's important to understand that books are written because they want to sell books and real-life experience as well.

I think a combination of the book knowledge and also getting experience from people who have done it before, the combination is important.

 

AIDAN

I read all of the Robert Kiyosaki books as well. They were one of the first real estate books that I can remember reading, and it would have been in around about 2001, 2002. I think the big idea that it left me with was, "Okay, this is actually doable," and there's a way that I can build passive income here and I can build that pipeline of cash flow. 

 

To use analogy, instead of walking up the hill with two buckets to bring back water, I'm going to spend my time building a pipe that connects up to the water source and delivers the water right to my home. The analogy of putting in some effort and time and energy to build a pipeline for passive income rather than needing to bring those buckets down one at a time full of water, which is hard work and not scalable.

I think there is some really good content there. And those books now, I probably look at them at the time I was reading them, they were as important for me from a motivational standpoint as anything else because they painted this picture of what real estate investing could be like, which I wasn't really savvy to at the time.

I think anyone can head over to Amazon though and do a search for property investment. And there are hundreds, thousands of books on the topic and I'll be sure to include links to a few of my favorites in the show notes.

With that said, thank you so much for taking some time out of your day here, Weimin. Always a pleasure to catch up with you and looking forward to hopefully seeing you in the next few months again.

 

WEIMIN

Thank you very much, Aidan.

 

AIDAN

All right, guys. Fantastic. This is the wrapping up of Episode Number 22 of The Growth Booth where we've been talking about property investing and diving into the Manhattan marketplace.

In the next episode, episode number 23, we're going to be talking about investing in the stock market and talking about some of the pros and cons to doing that and that will wrap up this trilogy that we're doing here on wealth building.

 

Thanks for tuning in. Remember to head over to thegrowthbooth.com and episode number 22 to get show notes and a transcript, links to all the important places and so much more.

I'll see you on the next episode.