All Forum Posts by: Ray Johnson

@Matt Dabek There are many factors that go into Apartment funding. Yes, a 10 year term will typically be the highest they will offer especially since we're in a rising interest rate environment, on year 10 your loan resets to a higher rate inline with rates 10 years from now. 

What you're getting is this particular bank offer, most people will go with a 25 year amortization period, the cost and rate of the loans will vary depending on if you go with a 5/25, 7/25, or 10/25 term. Your IRR template should account for this rate increase in year 11, there should also be conservative rent increases to give you a better picture as to how this will look in year 11 when your rate resets to make sure it's profitable with a higher rate.

FYI - Commercial debt is insured differently that residential debt that's why there are no 30 or 40 year loans in the commercial sector like they have in residential, marketable commercial loans packages are only insured up to 25 years.    

@Chris Svendsen Since you weren't able to upload the entire report I'll just ask a few questions so I have a better idea as to how you got to these numbers.

1) Did you use an IRR template to come up with these numbers?

The reason I'm asking is a good IRR template will have at what point in the process you will have all of your rehabs taking place, the dollar amounts per Unit for the rehabs, which Units are vacant in which months due to rehab or after rehab pending a new lease, Property Management cost for leasing units that will coincide with the completed rehab schedules, Cash Flow increases in which months to get that annual number you're showing, and a lot more.

2) The 20 year amortization schedule is standard, some will get you to 25. when does your rate reset? Are you on a 3/20, 5/20, 7/20, etc... You'll need to make sure you factor this into your numbers.

3) You have a rehab number already, Does that mean that you've already selected appliances, flooring, cabinets, countertops, etc... Are they similar to the competition units that you are basing your rent increase on? 

4) What is your marketing plan to fill the units quickly, right now there's vacancy and you'll want to get the rehabbed units leased quickly, and find out if any of the current tenants will be staying, I'm assuming none of the current tenants will be staying if you're converting from Subsidizing housing to market rate housing.

5) In the rehab numbers, is any of that for exterior or is the entire rehab budget for interior upgrades. 

@Dennis M. While I don't speak for all Californians or West Coasters, I will say I looked at the low cost affordable business model in depth and didn't see how I could make any substantial money with the same level of effort for what I do now.

What most of us Californians or West Coasters see is on one property I can make more in one year than the typical $20,000 property will make in your lifetime.

I have an REO property purchased for $200k added $28,000 in upgrades, with market appreciation 15 months later had $134,000 in equity when it appraised at $334,000

On a $20,000 it typically is in a non-appreciating area and you're just relying on the cash flow. Take the $500 gross monthly or $250 Net monthly, it will take you 44 years to make what I did in one year, and that's if you had Zero vacancies in those 44 years, and I haven't factored in rental income yet.

This is where I get stuck when trying to compare the two different property classes.

I also know you operate in a specialized property category that requires a special skill set to succeed so my props to you, I don't have what it takes to operate in that category.

A little insight into what we Californians/West Coasters are thinking when comparing those $20k properties

@Chris Phillips I'm not sure what area you're located in, Is it an area that has steady property appreciation? If so, maybe the plan where you stay in the house a little longer while investing in the BRRRR business model. Additionally this may allow you to have more equity when you do move which would make the mortgage on the future property a lot lower, that way if you were to ever move again you could keep that property as a rental.

@Shaune L Clark II Well said!

@Dennis M. I'm definitely not reconsidering renting to Fed's, I have several properties in Washington, DC. and currently have tenants with DOJ, State Department, and DHS, I like the fact that the tenants always pay on time to protect their Clearances and credit score.

I will add that these are Class A, and Class B assets so these aren't rented to the low earning $45k-$55k a year Fed, they're all GS-13 and up in DC doing their HQ time for management so usually 3-5 years. The DHS tenant paid January and I haven't heard anything about not being able to pay February. They are all also dual income households and the spouses/partners aren't Fed's.

@Jerome Keizer there was a similar post that got a lot of rrsponses on both sides of the fence, some saying start the late fees, then eventually the eviction process like you would do with any other tenant, then others posted that since it's already approved that all the Fed's will get back-pay, you'll be wasting your time and money, especially if the shutdown ends in a couple of weeks.

The unknown is will this end in a few weeks or a few months, what do you do if it's a few months, Are you willing to cover the cost at that point?

If it's a great tenant personally I'd wait it out.

I saw a financial news segment discussing that all the big banks, Wells Fargo, Bank of America, USAA, etc... are all holding off on collecting mortgage payments, credit card payments, personal loans, etc... for up to 3 months and not charging any late fees or reporting any negative hits to the credit bureaus if you're a Fed and being affected by the shutdown.

While we're not big banks, they have the same mindset that I do, it's cheaper, less time consuming, and in the interest of the long-term relationship to work with the customer. If it were a job where the tenant wasn't guaranteed the back pay that would be a different story.

@Chris Phillips you have to look at this in a strictly business manner.

Yes, a refi on the property puts you back at the 30 year mark, however I'm assuming as you build your portfolio it will be filled with 30 year mortgages.

The day you turn the Property into a rental is day 1 of the Asset, not the last 10 years.

Do your calculations based on that information not the emotional or philosophical tie to the 10 years you paid down the mortgage. If the higher interest at 30 years allows the Asset to perform, problem solved, if the numbers don't work, then they don't work, don't force it.

@Abner Gomez Whether you pull out the equity and maintain the property as a rental or sell the property to invest in another property, I would consider this your first investment even though in your words you "accidentally" made a lot of money.

I did what @Christina J. is suggesting you look into. My first investment property was a condo I purchased while in Grad school back in 2003, I still have it as a rental in my portfolio today, When I purchased it I made sure it would work as a rental in the future since I knew I wasn't going to live there forever.

@Dan Taylor I have purchased several REO properties from the likes of Wells Fargo, and Bank of America, In my experience until you get the signed copy of the Asset Manager back will both parties agreeing to everything, there is no deal.

I'm always very aggressive getting the contract back with both sides signed just in case someone is trying to up their counter-offer. The bank did nothing illegal since they didn't agree to the deal via a signed contract.