All Forum Posts by: Ray Johnson

@Sean DeRue I got my Bachelor in Accounting and Master in Finance. I ended up working at a commercial REIT my last year in Grad school, 3 years after that I moved to a Private Equity firm crunching IRR templates for deal analysis. I had a lot of options when I finished school.

You're going to get some crossover with those two degrees, I took both Micro and Macro Econ, business management classes, and I even took Business Law, and Contract Law courses while obtaining these two degrees.

In regards to owing properties while in college, I bought a 1 bedroom condo as my first property while in college through one of those low income first time buyers programs where you get down payment assistance and closing cost. I still have that condo in my portfolio.

I never had any intention of becoming a Real Estate Agent or Broker as I had other goals. I think my path may be a little overkill if your goal is an agent or broker. If your goal is to end up on the commercial side of the fence it will help you be better suited for that area of RE.   

@Robert Fritsche I don't stay away from investing in California, I stay away from investing in C and D neighborhoods where there is a higher likelihood of encountering tenant issues. While tenant issues happen in all property classes, they are minimized as the property class goes higher. I've been investing in CA since 2003 in Class A and B neighborhoods/properties and I've never had to evict anyone.

I've heard the extreme stories as well but they tend to be in a riskier property class, I'm conservative so I stay away from the riskier investments classes.

@Michael Osborne The "reasonable amount" is Zero dollars until you renew the lease. You agreed to a number in the contract, be a good businessman and honor the contract the second half of the lease.

Did you give them a discount for the 2 year commitment instead of market rate for a 12 month lease?

@Robert Guilfoyle PenFed credit Union does 80% CLTV, and Navy Federal Credit Union does 70% CLTV on investment properties

@Demetris Moore I'm seeing the same items as @Allyssa McCleery and @Steven Kleppin are seeing. On a building with all 1 Bedroom units, at $600 per month in Rent per Unit, I would not factor the Vacancy at a Flat 5%, I know this is a common practice mentioned in many of the BP podcast, it's done to simplify explanations for newbies. Your vacancy reserves should be tied to the monthly rent of a unit and the probable vacancy coverage. I see you're at $2,520 for per year, that's 4 or your 7 Units  with a one month vacancy turnover per year.While some tenants in a One bedroom are 1 year tenants, I have other one bedroom units with the same tenant for 3-5 years. This is going to depend on your area to make those assumptions. 

What is the age of the building? Status of the mechanicals, HVAC's, boilers, etc.. when were they last replaced? What is the status of the roof? when was it last replaced? At $4,200 per year set-aside for "Other Cost", you will want those other items to have a lot of life left in them before a replacement is due.

Lastly, Is this building and all Units pure Turnkey, meaning no additional rehab will be taking place or value-add to increase rents?

@Angel Rivera The "Buffer" you speak of should already be a part of your cash flow calculation. If you have $500 per month in cash flow, that is your Net number that includes money set-aside for repairs, large Capital expenditures like HVAC, Water Heater, etc...

If you're doing your calculations correctly, you shouldn't be worried about an additional "buffer" of funds to cover unexpected cost because those items are covered in your reserved prior to claiming the $500 in cash flow.

In regards to your current place showing $300-$400 per month if rented out, Find out which one it is, you have a $100 per month spread in that projection, Is it $300 or $400 a month in rent?

The next thing is you'll want to see what the property cash flow will look like after you factor in the HELOC. Currently if you cash flow $350 per month and you factor in your HELOC when fully accessed and funded will cost you $400 per month, then the answer is no it's probably not a good deal unless you're willing to go negative on the property every month in hopes of acquiring another property with more cash flow to make up for the negative on the current property. I don't do this but I have seen people that will take less or lose cash flow on one property while making a lot on another property, this typically takes place in areas where equity builds quicker in place like Southern California.

@Ben Leybovich Great explanation and insight into some of your strategy on underwriting this deal!

Congrats! 

@Ben Leybovich and @Sam Grooms Congrats Guys!

How aggressive are you on the remodel of the Unit turns? I didn't see what the current occupancy rate is, Will you get to do any substantial turns early on due to any vacancy? I see you get a 1.1% cap change by end of year 1, then it's more than doubled by end of year 3 at 8.25%, Am I correct to assume not many vacancies to turn in year 1? 

I see your 10-year IRR target is 14%+, What did you underwrite as the holding period on this deal for exit?

@Nate Murdoch I think I'm starting to see what you're talking about in regards to risk and getting to the market late, I get the notifications on my phone all day every day regarding properties hitting the for sale or rental market. Like @Jay Hinrichs hinted looking at the days on market are becoming more important.

Not sure if I would call it a Bubble, I'm interested in seeing how the absorption plays out once the terrible winter weather comes to an end.   

@Account Closed Is the dirt in Fountain Square really $80-100k per lot or are the owners looking for people that don't know what they're doing and taking the plunge based on the hype? I don't build so I wouldn't be a customer for new construction but what's the long term plan on these streets that have a $180k rehabbed house on the market then the next 3 houses on the block are $300-$400k houses?