All Forum Posts by: John Corey

Hi everyone,

New real estate investors here interested in fix/flipping properties. I attended an investment boot camp which helped us get a proof of funds letter, but I've had agents try to confirm that it is our funds when it's not exactly ours. I know there are websites that allow you to input your name and the amount of money you've been approved for and you can use hard money lenders to help with the closing, but is this a situation where you're supposed to "fake it until you make it"? We're new college grads and don't nearly have as much as the proof of funds letter states that we have, so I'm not entirely sure how to answer the agents who ask about our POFs. It's a little discouraging but I'm trying to not let it affect our ability to fix/flip properties. Any advice would be greatly appreciated, thank you! 

It's actually a pretty common feature of many of these types of funds. What they do is hold a certain amount of their portfolio in liquid assets (for example public REITs). A typical amount might be 20%. Then if they need to redeem, they use that money to do so to avoid selling assets. They will also have some sort of limitation in the contract as to how much they guarantee to redeem fund wide and perhaps at the investor level as well. In a well-run fund, this allows them to service all liquidation requests under normal circumstances.

Of course, if there is a severe recession and a "run on the bank" situation, then the redemption feature is gated. So it's not a guarantee, but still much more flexible than actually owning the property directly yourself.

Thanks for the insight and perspectives.  It looks like right now the general advise seems to be keep the property and do the appreciation play and not focus too much on cashflow.

@John Corey - great reference on Warren Buffet.  You're right - his perspective was that diversification is for ignorant people, and that he preferred to understand a particular industry/company really deep, and make bets based on knowledge and research.  With real estate being very local (even hyperlocal), that quote does have a lot of relevance.  SF is indeed land-constrained like you said.  As long as more people come in than leaving, you're right that it might be better to keep the property and use insurance and other means of de-risking for some black swan events than selling the property.

@Amit M. - I think your point on people who didn't hold the property 10 years ago might depend on what they did with the proceeds.  In a somewhat biased view, if they bought S&P ETF at the bottom in 2009 (i.e. 10 years ago) with the proceeds, they would have seen an even higher growth on stocks (2X - 4X, depending on when in 2019) than they would have seen with SF real estate prices.  However, if they simply cashed out and did nothing (or invested in things that didn't appreciate as much, including buying property in areas that saw less appreciation), then most certainly they would have regretted it.  We can't really time the stock market and right now the stock market is all time high, so that stock comparison might not be valid.  I think you do have a point as with John that if we are purely talking about real estate, then keeping the SF property might be a good idea for the appreciation plan.

Thanks for the perspectives!

John

@Matt Nettles how is he doubling the value in 2 years? Perhaps I am not reading this correct. Let's say for example and using simple math:

He buys a $1mm property. Raises 300k (20% down, $100k for closing costs, legal, reserves, etc.)

Is he rehabbing this distressed property?

So in this example after 2 years the value of the property would need to be ~$1.800,000k Refinance that at 20% down. you have 360k to pay off the 300k investment and the 10% per year prefered rate. Is this the idea of the plan?