All Forum Posts by: Ray Johnson

@Iram Vimawala I see a few 4 bedrooms in the mid-to-high $300's, and a couple in the mid $400k range a little further away from you, best case scenario that additional 5th bedroom you have shouldn't cost a buyer more than an additional $100k which means you should be priced in the high $400's best case scenario if I were buying. I would go with one of the following:

1) Counter the $435k offer if it's your highest offer received, they offered $85k less than list, see where the middle ground is at with Zero incentives to the buyer, It may be Mid to high $400's

2) If there are no buyers where you can come out of this with an after tax profit, flip it into a Rental, It's a very nice looking property and you should be able to Refi out of the Hard Money loan without any additional out of pocket as long as you don't hold it too long, the Hard money adds up quickly.

3) If you really think the property is worth $520K, Spend the $425.00 dollars for an appraisal to get the actual value, If the appraisal comes in near your $520K you know the market doesn't have a buyer at this time of year, if the appraisal comes back in the Mid-to-High $400's you know you need to take less profit if you want to sell because if you go into escrow with a buyer at $520K all you'll be doing is sitting in escrow accumulating Hard money fees only to wait 30-45 days to fall out of escrow when the buyer says they aren't going to make up the difference between appraised value and sales price.  

Not sure if you have partners or not, If not, I see rental rates in your area should come in above the mortgage so you won't get a $100k payday but you won't lose the property either.

By the way, Great job on the rehab, it looks great!    

@Mark Cruse @Alex Hymanson @Shadonna N. a little over 15 months ago I looked at all of these areas, I decided to go with the Brentwood neighborhood because of the redevelopment plans already approved. While the redevelopment is running behind schedule, they have been tearing down large areas of the neighborhood housing in the area to build the new construction. This is the project link to gentrify the Rhode Island corridor -  Link - Almost 1,800 housing units  

I purchased an REO from Bank of America for $199K, rehabbed the property for $23k to Buy-and-Hold for the long-term, it has appreciated to $310k in 15 months. I looked at Deanwood and H Street as well but chose to get the overflow from NW into the NE neighborhoods.

@Jeremy Sharp I'm a Financial Analyst by trade and I've noticed many missing pieces in the calculators as well, I basically think the calculators were designed for the beginner to be able to quickly evaluate a property for a quick acquisition. The calculators are not designed to provide Quantitative and Qualitative analytics on a property for the long-term.

An example would be with the Rental Property calculator which allows you to maps out a 30 year chart, however it doesn't account for any rehab or interior upgrades that will take place over the 30 year hold period, yet the chart will tell you what your profits are at varying phases throughout that 30 year period. If you were using an IRR template for a 30 year Buy-and-Hold you'd show cost to rehab the property somewhere between years 12-15, and if you were going to really plan to hold at year 30 you'd show rehab/upgrade cost there as well, you'd also factor in a percentage of the cost of inflation for the rehabs, $5,000 for floors today most likely won't be $5,000 15 or 30 years from now.

Maybe we can get the Bigger Pockets leadership to provide a good IRR template so investors can plan a complete deal throughout the property holding lifecycle.

@Jackson Howell It's important to know which direction you're going to go before purchasing. How you purchase can make a difference, your interior furnishings on a flip may be a little nicer than the interior furnishings on a low-priced rental, meaning you need to know if you're spending more or less on this property. 

Also on the $15k profit, Is that after tax or before? That also makes a difference. 

I'd have this planned out especially as @Jason Hirko pointed out, On small dollar value deals like these, you can end up getting nothing very easily. Map out a couple of different exit strategies to see if you can offer more money and still make a desired profit.

@Russell Brazil is spot on @Gregory L Hobbs He definitely pointed out something that I missed and it's a great point to consider, that's the concept of being able to use a 1 Bedroom in your portfolio if the SFR and 2/3 bedroom competition is too strong where you're looking. I have three 1 Bedroom Condos in my portfolio, all are in areas like the Adams Morgan neighborhood of Washington DC, or the Irvine Business District, The Adams Morgan neighborhood is sought out by young up and coming professionals in DC who don't see paying $2,150 a month for a 1 bedroom condo as an issue. While it's not my favorite product mix, following Russel's advice can make a difference in "How to win with condos".

@Ryan Kennedy Good to hear on the re-zoning of the property, Some municipalities make it very difficult to rezone lots so you're off to a good start. 

@Gregory L Hobbs The Condo versus Single family is a never ending debate on BP. At the end of the day they both have advantages and disadvantages depending on your investment criteria and the type of portfolio you have, some people even have both products in their portfolio.

I invest in Condos as a main part of my portfolio, It started with my first purchase after college I bought condo to live in and rented it and continued to acquire additional properties. 

Location is one of the main must haves in Condo investing, those that discuss Condos not appreciating or talking about Condos being a bad investment may be buying in bad areas, small towns, or the wrong type of product. I only buy in major metropolitan cities, Los Angeles, Orange County, CA, Washington, DC, and Arlington/Alexandria, VA. I also Do Not buy the typical C- and D class properties chasing higher cash flow, those properties will not appreciate at a good rate, I'm getting cash flow between $200-$300 per door on Class A and Class B condos, this has worked well for me and I get great appreciation.

Some of the other thinks I look for beside being in large major metropolitan cities are:

1) Choose condo buildings that are low-rise or mid-size, Since the HOA dues contain cost to maintain the common areas, the less common area the less the dues.

2) Make sure the HOA Board reflects a minimum of 12 month leases in the bylaws, this means they've already addressed renters and have agreed on the line in the sand.

3) make sure you're on the Board or at the very least attend every meeting to vote on this that may change your investment.

4) Only do major metropolitan cities to increase your applicant pool, I've been doing this since 2003 and I've never had an empty unit more than 1 month.

5) Don't try to compete with the large apartment buildings with large pools and gyms. If you follow the aforementioned metrics of staying with small buildings to minimize cost, a small building with a pool is a waste of your money, you want the tenant that doesn't use the pool and doesn't want to pay the extra $100 a month at the complex down the street from you that has a pool.

6) If you can purchase and move-in as an Owner Occupant for the first 1-2 years that works out great as you can get OO financing and rate which helps with your long-term cash flow.

There are many more, these are the basics that I go by as a starting point.   

@Ryan Kennedy The downside to going the Condo/Townhouse route is the additional cost. As the developer of your lot, you will have to form the HOA for a condo or townhouse, This cost is typically spread out when developing many Condo/Townhouse units and isn't as big of a hit to your Soft Cost budget, When you are creating an HOA for one Dwelling consisting of Two units, the cost is higher per unit. You will also have to address the probability of having to re-parcel the property since the Cottage will not be a part of the HOA and new construction property.

What is the current Zoning for this lot? Can you execute your plan immediately or do you have to get the lot Rezoned and breakup the parcel?

Current zoning and potential new zoning will most likely guide you into the cheapest and most profitable plan.    

@Vasundhara Ranjani Your assumption that it's all about the cash flow is wrong, maybe on BP where we see a lot of small investors targeting cash flow for retirement income, to pay the bills, and/or to supplement whatever income shortfalls they may be having.

When I worked in the Private Equity industry, nobody invested for maximum cash flow. The minimum equity placement was $20 million and those were the small guys looking for low to mid double digit returns, they were willing to accept a B Class asset in a gentrifying area within a major metropolitan city. 

The wealthier the client the less focus they were on maximizing cash flow, one Institutional client was obligated to place $2 Billion per year, the portfolio requirements were Class A or B+ New Construction, minimum return of 7% which is close to the S&P average. Most people with money are looking to diversify from something other than Real Estate into Real Estate as a portion of their portfolio for stress free returns on their money for the long-term. They would not do business with you if you were trying to offer them a Class C or D property in the Midwest taunting double digit returns.

For me personally I prefer Class A, Class B properties, and Syndications, I'm willing to forgo the issues I see on many of the BP post.