All Forum Posts by: Ray Johnson

Found a Freddie Mac REO property that was in great shape.

My agent provided me comps from the last 6 months between $274,000 and $305,000 so I thought getting this property for $199,900 before it went to the investor pool and get bided up to market value was a good move.

I locked in financing and the bank sent the appraiser out, I get a report stating the following:

Sales Comp 1 - $224,300  (Comp from 9 months ago)

Sales Comp 2 - $276,500

Sales Comp 3 - $277,500 (same street 6 properties away and sold 4 months ago)

Sales Comp 4 - $274,000

Sales Comp 5 - $295,000

Sales price - $199,900

Appraised value to the bank came in at $225,000. It came in at $25,000 or 12.5% above sales price which is fine for a buy and hold property since this won’t affect the deal in a negative manner, but definitely not what I was expecting.

The appraisal report clearly states the property is in good condition, no problems, nothing needs to be repaired, there were no negative statements/comments on the report, no declining market conditions, etc..

 Is there a reason why the appraiser the bank sent out came back appraised as close to the sales price as possible, If it weren’t for “Sales Comp 1” on the report I wonder how this would have appraised.

Any thoughts or experiences with this sort of appraisal valuation mystery?

@Aaron Ray what @Lesley Resnick said is one of the best ways to go.

My very first property was a first time buyers property for people who made 60K or less a year. I got a brand new construction property subsidized by the city for allowing the developer to increase building capacity per zoning restrictions. Most of these programs like the DC Inclusionary Zoning program will allow you to get a property for less than what it will cost to rent in the same area. If you're just out of school this may be an option you.

You mentioned your girlfriend may not be onboard with house hacking so this is a better option to look into.  

@Simar Chahal there are so many variable that go into the question you just asked, the first being what is the zoning for the area where the land in located? Are you doing attached homes, detached homes, single level, two-level, tri-level, etc....

What utilities, sewer, electrical, and other infrastructure is already in place that will be reducing your cost construction cost? Are you purchasing already designed plans or hiring an Architectural and Engineering (A&E) firm to create them for you?

As you see this can go on for a while based on your question so as @Jay Hinrichs and @Jay Dewberry pointed out your broad question will need to be a little refined if you're asking the BP community for detailed input. 

@Carmelo Lopez I'm looking forward to seeing how this plays out, It will be an awesome opportunity for those of us that use good fundamentals to grow our business.

When the last bubble burst it was great for me because I was able to capitalize on all the gamblers who rolled the dice with excessive risk taking and got caught holding unmanageable debt packages. It will be tough times for those I see posting comments on BP about how they BRRR to acquire as many properties as they can in as short of a period in time as they can because the get rich quick Guru said this is the way it's done.

There will always be the irrational risk takers getting extremely overleveraged and then there are those of us that expect this behavior to exist in the markets and prepare to use it as a tool to our advantage when the time comes.   

@Peter G. Why are you so set on the large number of SFR units in your portfolio? When the get rich in Real Estate Guru's talk about people having large number of SFR units in a portfolio, I don't think they really anticipate many if any of the followers to actually do it, that's mostly hype for the sales pitch, If they did it would mean they didn't truly understand the next level in RE investing.

I would rethink your plan and conduct some analysis on obtaining Institutional grade Multi-family properties. AS @Callum K. and @Brian Burke and @Jay Hinrichs have all noted, once your SFR portfolio reaches a certain number of units and dollar amount in value it becomes less advantages and more riskier for you exponentially every time you add a property to your portfolio.

If you're serious about growing a portfolio of that size do it in dollar value on the Institutional Multi-family side NOT volume of SFR's.

The larger you become in RE investing the further away from the beginners strategy you should be using especially past the 10 million mark.      

@Jen Lucas One thing that hasn't been mentioned is actual taxation, I'm not sure what tax bracket you'll be in with the part time jobs, and income from your RE business, It's always important to factor in taxes when planning retirement as this will be an expense to your bottom line/goal.

@Mike Lowery the one thing you haven't mentioned is what is the prepayment penalty amount? If they're in the last year of a prepayment penalty clause, the amount shouldn't be that much since the penalty decreases as during the loan phase. You mentioned that your team is approaching this deal with conservative numbers, you should have a little room to negotiate, If it's a small amount for the penalty work it into the deal and get the deal done. 

@Zachary Taylor I keep two accounts per LLC, one operating business checking account, and one linked business savings account in which I keep rent deposits, and reserves. I do it this way since it's easier to keep track of the reserve balance, If not I'd have to run a report to determine what's excess cash flow versus reserves and deposit if all funds were in one operating account

@Akash Sky I'm originally from SoCal and still have a couple of properties in the area (Santa Ana). What everyone is saying is true, The only properties I've found that cash flow are in areas like Santa Ana (in Orange County), Compton, Southgate, and Watts, etc..In LA County. I recently looked at small Multi Family deals in Inglewood and Hawthorne that were barely cashflowing, and I mean barely. I can afford to look in Class C- and D areas because I don't live in the properties, since you'll be living in one of the units only you know if living in a Class C- or D property/area

I would recommend looking for a better deal, Upstate NY is tough for this scenario. I would also find out if she's in foreclosure proceedings after 18 months of not paying the mortgage that will help with your answer