All Forum Posts by: Ray Johnson

@Katie Pellegrin You're missing some key information needed for a good response.

What is the legal structure of the Asset ownership? Corp, LLC, Sole Proprietor, etc.

@Tony H. You seem to think one is better than the other. I will point out that the one with the maxed-out credit cards will get increasingly worse as interest rates continue to climb those minimum monthly amounts on those maxed out cards will increase cutting into their monthly available cash, and leading to someone not getting paid.

If you're willing to take such a low quality tenant, have you looked into Section 8, at least you'll know you'll get a portion of the expected rent assisted, and a lesser burden on the renter.

@Russell Brazil While the average is in the 38 percent range, there are markets that are far above that.

In February 2020, I purchased a property in Aliso Viejo, CA. for $585,000, a property one block over with the same plan, and similar furnishings closed at $990,000 last month, that's definitely more than a 50% increase in 2 1/2 years.

I think it's safe to say California isn't the norm in Real Estate markets, and this would definitely strengthen your argument regarding the average of 38% reference.

@Oren H. I missed acquiring in Boise before the boom, but have it on my watch list, so I cant answer about a vacancy rate.

I will add that last week I read an article in the New York Post about Top 5 "Zoom Towns" seeing an exit as people who relocated to cheaper areas over the last two years during the pandemic and work from home phase, are starting to leave those areas as they are being pulled back into the office.

Boise was number one (1) on the list of Top 5 " Zoom Towns" / cities seeing the negative impact, and expected to see continued negative impact. This may be what's impacting your tenant search.

@Rudy Ratner not sure where your property is located, I have properties in California, the home of water shortages and my water bills are pretty low.

● 3bd/3ba house - $52 monthly average (has the extra large washer and dryer from Costco that adjust the water based on the weight of the laundry load) Class A property. Long-term renter

● 4bd/3ba house - $67 monthly average, same extra large washer and dryer, Class B+ , Long-term renter

And the list goes on, my point is Class A, and Class B properties with Long-term renters will want that convenience of a washer and dryer and the cost they are paying for the water isn't that much.

If there's a joint meter issue, just bump the rental rate up a little. If a renter is choosing between you and the coin operated laundry location, a Class B tenant will pay more for the convenience.

@Josh Harper when I first started out, I had a similar plan. I would live in the homes 12-18 months then rent it out as I moved into the next property.

The problem I ran into was being able to find a good investment property that met the price, location, and property class in that same 12 -18 month time frame.

Sometimes I would hit the mark and have a new property within the 12-18 month window, other times I would find the right property between 24 - 36 months due to my high standards for what I want in my portfolio.

You may want to adjust your number to 10 properties in 11 years (+plus) as your best case scenario if you plan on buying with Owner Occupant (OO) financing to obtain the lower rate, you will find yourself going past the required 12 month OO window so 10 properties in 10 years isn't possible.

I think if you blend your strategy with non Owner Occupant properties, you can hit your target of 10 properties in 10 years.

The strategy works.

@Luka Milicevic I see overpriced properties being bought all of the time.

Real world scenario 35 minutes apart in CA

Property 1 - $590K

Neighborhood - class D

Schools rated 3/10 and 4/10

Neighborhood amenities- crime, gangs, shootings, on the street prostitution, etc

Property 2 - $595K

Neighborhood - class A

Schools rated 8/10 and 9/10

Neighborhood amenities - top tier parks, neighborhood Aquatic center, Tennis club, etc

With only 35 minutes separating the two, would you consider Property 1 to be overpriced?

Most agents I've talked to talk about neighborhoods in addition to the individual property.

In my opinion, one of these properties is worth $590K, the other is really worth $400K or less, you just have irresponsible individual buyers, and investors overpaying for the property.

Las Vegas, and Phoenix are filled with neighborhoods like the Property 1 scenario

These two cities historically have had deep real estate crashes, and rapid real estate price increases because they have historically been overpriced.

In my opinion this is what the author of the article is trying to articulate

@Bruce Woodruff You're correct on the quality level of the Costco appliances.

I use Costco for my $3,600 and up Class A SFR rentals. I especially like the oversize Washer and Dryer sets at Costco when they are on sale, everything else Home Depot has the better pricing.

@Chance Schrettenbrunner I use Costco, or Home Depot.

I use the 10% additional discount for Veterans at Home Depot, that and they usually have good pricing.

All of my rentals are long-term Buy-and-Hold properties so used appliances are not a part of my business model.

We've all heard of the deals where one partner puts in Cash, and the other partner puts in Sweat Equity, Contractor/Site Management, etc..

I'm looking for suggestions on how to assign value to a deal that has an initial non-cash position from one of the partners until escrow closing, then that Non-cash partner will cover 20% of the monthly mortgage on a deal.

Property is in Southern California

Sales price - $650,000 

Appraised at $700,000

New Construction COO 12/01/2020

Owner passed away after 7 months in the new home as to why it's $50k under value at agreed sales price

Partner 1 - 

Sold their home in a not so nice neighborhood and wants to move to a nicer stress free environment. 

Partner 1 proceeds from the previous home sale being used are $200,000.

Partner 1 only earns $49K per year, and has an average credit score, and no reserves. Will not qualify for the loan on the new property by themselves, and cannot afford the monthly payment by themselves. 

Partner 1 will be living in the house as their primary residence.

Partner 1 will be paying 80% of the monthly mortgage cost

Partner 2 - 

Partner 2 has a very high income to qualify for the loan for the property/partnership. Credit score is at 837, has assets for security and underwriting hurdles

Partner 2 is not putting in any cash for the initial down payment.

Partner 2 will cover 20% of the monthly mortgage cost on the deal for the life of the loan. 

Partner 2 found the property for the deal

Partner 1 is planning to live in this home as their primary residence until the end of their life however long that may be. 

The property will be Joint Titled, and both partners are on the loan

I'm trying to figure out how do we figure out what the fair equity positions for the property are going to be.

Does the fact that the property could not have been acquired without Partner 2, account for some sort of equitable value for Partner 2, If so, how do you come up with the value that's doesn't appear to be greedy?

My thoughts are Partner 2 is paying 20% of the monthly mortgage, and should have a 20% stake in the property since they are covering 20% of the monthly mortgage? 

Basically if Partner 2 is asking for a 20% stake in the deal, Partner 2 is saying the Non-cash value of the use of their excellent credit, high income, reserves, assets for underwriting, finding the property, and the risk associated with the joint loan has a Non-cash value worth $40K, which is the equivalent of 20% of the $200K down payment Partner 1 will put into the deal at the close of escrow.  

Are there any other ways to value the Non-cash position, and equity percentage stake in the deal?