All Forum Posts by: Account Closed

Chris,

At the end of the day, I wish you guys success in your venture and my hat is off to you for going your own way. No hard feelings, just trying to help those asking questions. Thanks for the conversation. 

Chris,

Just emailed you your spreadsheets that you requested with the previous mentioned numbers.

Josiah

Chris,

I appreciate the response. My response here was to the investors considering doing business with you guys and wanting to know what people outside of your company thought. They need to know that they may be asked to pay more for the property than it is worth. In that scenario, if there is a crisis and they must sell, they could experience issues being upside down. I watched this happen a lot in 2008 as an appraiser and investor, and don't want these investors here to experience foreclosure. 

Most every seasoned investor gives this advice: buy with a good margin of safety in case prices drop or you need to sell quickly. In my eyes, that margin of safety equates to buying under market value and putting enough down on the deal. Many recommend at least 20% equity and buying below market. In your possible scenario, a buyer could pay $140,000 for a property worth $120,000 today in the hopes of the property appreciating in the future. It seems like a slam dunk from your end, but very risky for the would-be investor. 

Chris,

Based on your response below, you are asking people to pay more than the appraised value for their homes, putting them in an upside down position. How is this a good idea for your buyers? Would you pay more for a property than it is worth? I think I know the answer to that question. Why do it to your buyers then? 

Your response earlier:

'1. We do not require 40% down to purchase a property, but we want to be transparent and direct on the front end. We are not appraisers, but can easily see data and having been in this business for over 12 years, we are no longer surprised by the values that can come in on properties. If we feel that a property could appraise low, we always show that on the front end and go very conservative with values. We would rather you be prepared for a worst case scenario than expect 25% down and then be faced with a decision later if it appraises low. So, if you were shown a property or two properties that showed 40% down, that is a reflection of us showing you that a bank will lend based on appraisal and require you to bring the difference to closing and we want you to see a worst case scenario on that property.'

Thanks Chris. Your agent told me I must use your management company for 2 years, with the option to leave after that. I guess he was mistaken on that info. As for the returns advertised, based on the numbers in your excel spreadsheet, a direct quote from your spreadsheet based 'Estimated Annual Cash On Cash Return After Vacancy and Maintenance Allowance' = 6.56% for property 1 and 4.58% for property 2. We know that Vacancy and Maintenance should be included in this number too. You used 5% for vacancy which is believe to be low, I used 6%, and got around 6% Cash on Cash return for this 1st property. The 2nd property shows 4.58% in your spreadsheet, once again, based on your numbers. These properties are based on a 40% downpayment with 55 vacancy. When I run the numbers at 20% down, this second property yields under 2% cash on cash. I can forward you the excel doc if you want to see it. Again, the numbers you sent over say this. As for the management fee being around 12.75% per year, that is also true, is it not? When you consider the 10% per year + 1/3 of the first month's rent for placement. 

Folks here asked about using you and I am just trying to make sure they understand what I have seen. 

Jay,

The market is tight in Dallas/Ft. Worth - I own some there and you are correct - the sales prices are being driven up. I believe the appreciation aspects there are great too. Thanks for the info.

So I just talked with them about the Dallas market and wasn't excited by what I was shown. The two example deals they sent me yielded low cash on cash returns - one under 2% cash on cash return and one around 6% cash on cash return. Their conventional deal analysis is also run with you putting 40% down, which I never want to do. My goal is to put 20% down to conserve my cash. The all in management fee was around 12.75% per year, which is quite steep. That coupled with the low cash on cash return is hard to swallow for me. They also require that you use their management company for 2 years once buying a house through them, locking you in to the 12.75% management fee (above market fee). If you want to not touch a thing and pay for it, they may be a good option. If you want better cash on cash than 10%, you will likely need to look elsewhere. The company does seem to have a good reputation.

So I just talked with them about the Dallas market and wasn't excited by what I was shown. The two example deals they sent me yielded low cash on cash returns - one under 2% cash on cash return and one around 6% cash on cash return. Their conventional deal analysis is also run with you putting 40% down, which I never want to do. My goal is to put 20% down to conserve my cash. The all in management fee was around 12.75% per year, which is quite steep. That coupled with the low cash on cash return is hard to swallow for me. They also require that you use their management company for 2 years once buying a house through them, locking you in to the 12.75% management fee (above market fee). If you want to not touch a thing and pay for it, they may be a good option. If you want better cash on cash than 10%, you will likely need to look elsewhere. The company does seem to have a good reputation.

Thanks @ned carey. 

Thanks all. You guys are awesome. Is 30% below market value your hurdle if you already like the property's location, appreciation prospect, etc?