All Forum Posts by: Ray Johnson

@Karl Butenhoff What condition are the units in? In my experience when analyzing these Owner Financing properties with below market rents, the units will need the rehab which is the typical reason rents will be below market for all the units. Has he done any extensive rehabs in the 20 years since he built the building? If not recently, the owner doing the financing is basically getting the new owner to assume the rehab cost, the vacancy absorption cost during rehab, and the marketing for new tenants to lease units at the higher rental rate. I don't see any of this cost factored into your analysis. You covered your various cost scenarios out for a long-term hold with the 10 year balloon/30 year Amortization. 

The owner is also having you pay at market rate, or slightly above as you noted, Unless all units have been recently rehabbed to compete those units with units at the higher market rent rate in the area, there is zero reason to pay market rate, as you will blow this deal up by doing the rehab, and holding the vacancy cost in a non appreciating area. 

Let us know the state of the units, and the last rehab on the property.

Also, $200 a month on the laundry, I would assess the age of the washers, and dryers, are they 20 years old as well, have some been replaced, ect.. this could have an impact on your projected $200 a month in laundry income. 

@Jonathan Doescher There's no such thing as investor pricing.

Some investors get volume pricing for repeat business, or multiple projects.

In places like California where's there is a large undocumented illegal immigrant population, the documented person (aka...business owner) undercuts a lot of other business to offer significantly lower pricing on work. You buy the materials, they provide the labor.

I've had a Master bathroom done with mid-grade finishes for $6,200

I think location and product type will also play a part in this so called "investor pricing "

@Edwin G Cruz Jr You're going to need to be a little more specific. It's going to depend on the product type you're interested in, Row House, Condo, etc.

I have rentals in Brentwood, and Adam's Morgan. Two completely different product types, tenant types, and rent demands.

What product type are you looking for?

Are you looking in any parts of DC? NW, NE, SW, SE

@Danny Webber I think this professor is looking at this either with no vision, or discounting what mitigation efforts are in place. It's very clear we will not have a crash similar to what we experienced in 2008-2011. With the exception of risky homeowners where the entire household of income earners lost their jobs, and can't get work before the no-foreclosure policies expire, most will have an opportunity to restructure mortgages. Then there are others within the homeowner/investor channel that learned some tough lessons last time, and have placed mitigation efforts in their plans.

Looks like all the Big Banks have set aside billions to cover loan losses, what this means is there won't be the same type of 'Fire Sales" like last time when banks were unloading properties for pennies on the dollar, they're already accounting for the loss so they can be more aggressive on the REO, which means less of a discount for us investors. Banks are also in a better position to restructure the notes since unlike last time, the debt is already covered by the reserves, so a restructure of the note keeps the future income on the books. The commercial side will be a little different than the residential side of the business.

Since a lot of investors got wiped-out last time, if they're still in the REI industry, many of them also learned a tough lesson and made sure to stack the cash reserves so they don't have a repeat situation of losses, and end up asking their parents, or in-laws if they can move-in until they get back on their feet. I'm sure we'll see the typical RE gambler who calls themselves an investor getting wiped out but that won't be enough to create a repeat of the last crash.

We see on bigger pockets daily many people talking about how they're sitting on the sidelines with a pile of cash waiting for a crash so they can get a great deal, seller agents know this so they will be trying to get their clients as much as possible to get a bigger commission. then there's the fact that there will be competing buyers unlike the last crash when we had many options for properties, and the sellers were begging for buyers to show-up.

From what I've seen is most major metropolitan areas, Los Angeles, New York, Seattle, Miami, Washington, DC. etc. all have implemented policies to prevent widespread evictions of tenants far beyond what the banks are noting as the deadline for no foreclosures, to make sure they don't get devastated like last time, so it's back on the small to mid-level operators as to how much damage will be done.

I'm not an Economist so this is just my own opinion, and expectations.      

@Mohamed Mahmoud Seems like you need a better agent. Any agent I've dealt with provides the actuals as Rental Comps. I usually ask for 6 months recent rented history within 5 miles of my asset, you can go to 12 months if there is low volume, you can expand the miles distance if needed as well. 

The next thing I do is evaluate the furnishings to see what's different from your asset, keep in mind just because there are 6 SFR's at 1,800 sq ft within 2 miles, doesn't mean the same rent can be charged for all, your property may be the $2,800 property, or it could be the $2,300 property in the rent comp scenario your agent provided.

You can use your open listed Comps to see what your competition is offering. If the open listings are all way above recent  closed rental comps, it just means owners are trying see what they can get for rent, and will most likely drop to a negotiated lease price for a qualified tenant.  

In regards to accepting lower rents, You should only do that if the market shows it's required. 

@Susan Ferris When I first started out, to avoid the 20% down for investment properties, I would move into each property as Owner Occupied only putting in the minimum down payment to secure the property. I would then move every 18 months or so repeating the process. Since the lender Owner Occupant period is 12 months, I'd meet that obligation by staying in the property for at least 12 months, and property shopping while waiting for the 12 month period to end, then move on to another property. 

Bank Underwriters will want you to sign an Owner Occupant Affidavit since they will see you're buying properties every 14-20 months as an Owner Occupied property, One you affirm you'll be living in the property, you'll be good to go.  

The upside of this strategy is you can acquire properties much faster, with less money out of pocket, a shorter break-even point in which you actually start making money on the property (keep in mind, if you put 20% down, you don't actually make any money until you've recouped your 20%, and all closing cost), for some people this could be many many years when you're cash flowing at $150-$300 per month, unless you do a BRRR property to recoup your cash you put into the deal to start profiting faster.

The downside is your partner has to be ok with moving every 12-18 months as a part of the plan in order to make it work. My girlfriend at the time (now wife) was good with going along with my plan, now she enjoys the benefits. 

@Igor Nastaskin  You mentioned it's "Newly built", How old is the building you're purchasing? If there's still new construction happening around the neighborhood, How close is it to your potential property? 

Will this be competing product in style, and size? If so, take a look at what the newly built properties are renting for, if you're only a couple of years apart, you should be able to rent at the same rate. Take a tour, look at the other properties inside, see how comparable they are with what you are getting ready to purchase. this is going to be your competition so I would look at what they are doing closely. 

Also, take a look at how long the comparable units are staying on the market vacant for rent.  

@Andrew Joseph On a 40 unit property, If you've already done your on paper due diligence, do your in-person due diligence and just spend the $1,000-$1,500 for full 4 days in the area, walk the property with your project Manager, and find out how much this property will really cost you, and what it really needs. No need to take short cuts on a 40 unit property when it will only cost you $1,000-$1,500 to fly out to get it right and not guess on numbers. 

@Matthew Davis You and your wife will need to stay in her house for 12 months after closing the Refi loan. Because your two properties are in close proximity, when you get to the underwriting phase of the refi, the lender is going to ask you to sign an Owner Occupant Affidavit stating you will move into the property within 60 days of closing the loan, and occupy the property for a minimum of 12 consecutive months.

After the 12 months in the property, if you two prefer the other property better, move into your house, and turn her property into a rental.    

@Brian Larson There have been many articles, Tech Roundtables, and CEO interviews about teleworking in the last month, many with wishful thinking of an easier more relaxed workday. Before COVID-19, some companies were starting to pull back on teleworking due to lack of production, or reduced production. Google did a study and after announced not all employees want to work from home, and 2 days ago Google said they will not be going to a mass telework environment. Other Silicon Valley CEOs, have made similar comments after polling employees. I forget which CEO is was during an interview on Bloomberg TV said, during this era of layoffs, we know many increases in production are simply employees fearing losing their jobs while their coworkers are being laid off, so they are performing far above normal productivity level.

I think companies will have to find that middle ground between cost savings, workplace morale, and loss productivity.

My company has been in the office every day during the pandemic