All Forum Posts by: Ray Johnson

@Nick Dillaha depending on how long the Asset Manager has been holding this maybe you can offer much lower, Are you looking to offer more than 15% below list? The location and activity in that market will also play a part in the Asset Manager decision to accept more than a 15% discount. Because of the price point of this property you'll be limited to how low you can go. The Asset Manager can't go to him VP and say he sold a unit for 50% of list. The answer is yes, the property I got for $199,000 from Bank of America I put $27k into and it appraised at $305,000 after rehab. I purcased it to add to my Buy and Hold portfolio but I have been thinking about selling it to take the money now and move on to the next deal.

@Neil Quinn I own several properties in Washington, DC. you're numbers are very low on several items

1) property taxes are going to be higher

2) What area are you looking at for a property? The HOA fees will vary, As long as you stay away from the high-rise condo projects you can stay fairly low, however $150 is too low for any of the nicer areas of DC

3) Also if you're paying $400K for the condo, Are you in Northeast, DC or is this a 1 bedroom in Northwest DC. If you're looking in Southeast or Southwest DC, vet the HOA's as many are very delinquent which don't allow for financing causing them to basically be apartment building owned by individual investors.

4) I would advise looking in an area of Northeast DC that sits up against Northwest DC as that area has better growth potential without the risk associated with SE and SW

5) Your Cap number can be smaller if you get a rehabbed condo as items like Dishwasher, Refrigerator, Stove, Washer & Dryer will all be new like the condos I do. Cap-Ex will be geared towards HVAC as it is not included in the HOA, and some Misc repairs.

6) To minimize your vacancy, try to be near one of the Metro lines for commuting purposes

7) Also on the Rent, You can get $2,200 in NW, but finding a $400K condo with a low HOA will be hard since the investor price point for the NW neighborhood with low HOA's start around the $450K, The closer you are to the Metro the higher the prices are going to be.

@Nick Dillaha You're evaluating this scenario completely wrong, The bank will accept offers close to what the property is worth today, The price in which they took the property back will not weigh on the Asset Manager as he's pricing against the current market then expecting investors to come in somewhere between current value and current value plus estimated repair cost.

I bought an REO from Bank of America that they listed at $199,000, Because I know my market and looked at Comps, I knew this property was priced a little low to attract buyers, I also know most buyers are inexperienced buyers only doing what they are told to do on the many websites and that's offer much lower than what the bank is asking and not looking at all other variables in the deal, I offered the $199,000 the bank was asking and at closing the property appraised at $225,000.

I had no problem paying the bank listed price especially when it resulted in me getting $26,000 in equity from day 1.

Could I have gotten it for a lower price? Maybe but then that would have meant a risk of losing the property to other bidders and giving up the property I knew was underpriced.

What is the property currently worth?  

@Maxwell Milholland There are many ways you can look at this question

1) A 20-25% down payment means you don't actually have any cash flow until you've earned your 20%+ down payment plus acquisition cost back, depending on your rent amount some investors don't actually have any "True" cash flow for several years in the asset. Those that buy all cash the realization is even longer versus those using leverage. Ever do a break-even analysis on your properties?

2) I personally would not start off with negative cash flow because it just means you'll spend a longer time breaking even and building your portfolio.

3) If you bought in California in 2011 as a targeted appreciation play your negative cash flow property would be irrelevant at this point when you sell since some assets have doubled or more in value.     

@Alex Price First you must recognize that at the level you're discussing, the business models will be using a cashflow range because they are using IRR scenarios and not the simple calculators found on BP. When I was analyzing deals in the Private Equity sector, I saw everything from 26% - 42% IRR needed depending on the size of the company managing assets, additionally how many Management/Fee company's are factored into the business model and at what point in the expense model they're collecting fees.

There are payroll, Marketing, Office space, etc... now a part of your business model, acquiring an asset for cashflow becomes a small part of your equations. 

Every acquisition will be considered as to how it affects EBITDA, With that said, there is no easy answer to your question, a true quantitative and qualitative analysis will look at these metrics all the way down to the region and tax advantages of the area in which your company is held.

Maybe you can be a little more specific on your question.

@Marco Santarelli I sent you an email about this deal

@Lee Ripma I've thought about being the bank, When you're funding deals are you funding the entire deal (to include all rehab) and being the First position, or are you funding Acquisition/Down payment only requiring your borrower to have "Skin in the game" and leaving you in 2nd position?

As you've mentioned a good Syndication can get you a good rate, What type of return are you seeing when you're funding deals? I do Syndications because I come from the Private Equity field so it's comfortable for me, funding deals would be a new avenue for me and seems to be riskier.  

@Ash Townsend Are you trying to raise the rents now or waiting until the next lease term? Not sure if October 31, 2018 is the end of the lease term. The 10% or more increase is typically referring to an increase when you are ending one lease term and starting a new lease term, Since they are currently contracted at a certain rate until the end of that lease period, you would be in violation of the contract unless your lease states that the landlord can raise the rents anytime during the lease period. 

You will also want to keep in mind and prepare for them to not pay one months rent when they leave or at some point before they leave, It's clear they don't have any money saved and when they leave their new landlord will want rent and a deposit and that money has to come from somewhere, usually it's the current landlord. 

Also since you want them to leave willingly, you will have to lie to the future landlord when they do a reference check and ask about on-time rent payments if you want them out, or maybe articulate your response as "Their rent was paid every month" and not mention it was paid late every month just that it was paid every month.

@Todd Dexheimer Congrats!

1) What's your Exit strategy on this asset? Short-term hold, long-term hold

2) Since this is a Seller Financed deal, What does your IRR number look like? Doesn't have to be exact, I'm just curious with this deal structure.

3) I see you're doing Interest only up to year 3, What's your debt structure plan going forward if you're holding past year 3?

4) The asset is 78% Occupied at acquisition, At what point are you projecting 95+% occupancy in your IRR?

5) Did you uncover why the previous owner was at 78% after 3 years and only at 50% of the rehab?

6) Is this asset a "C Class" staying "C" or are you taking a "C Class to B-Class?

7) What part of the US is this asset located in?

@Benjamin Maciel I love the big banks, they do more for me than any regional/local bank or credit union could ever do. I have my financial life together so I've only had amazing experiences with the major banks, they seek me out offering assistance and services for deals. The best thing about dealing with the major banks is how easy it is to make money off of them. Everytime a major bank gets hammered on the market and the stock tanks, I buy blocks of the stock like I did with Bank of America at $10.05 per share, it's tripled in value, when Wells Fargo stock tanked I see the upside of the company selling a stock for $51 that will be over $80 in the next three years and these all include Dividends as well. Diversification is the key for overall success.