All Forum Posts by: Ray Johnson

@Deniz Eker I don't invest solely for cashflow, nor do I invest solely for appreciation, I use a model that leans towards both, with a focus on appreciation.

This is mainly in part to the fact that I only invest in Calss A- to Class C+ assets in major metropolitan areas like Washington DC, Orange County, CA, and Los Angeles, CA., and then only certain neighborhoods within these markets.

The lure to investors is like a property in DC I bought in late 2017 for $199,000 and did a cash-out refi in 2019 since the property appreciated $142,000 in 2 years, I now have zero dollars in the deal as of today, rents have increased $75 per month making the deal look better than the $-25 a month when I did the deal.

I will add that I would probably never do some of the negative deals I see that are in the 100's of dollars a month.

@Steve Chan Not all 401k's provide low rates of return, especially over the long-term.

Like other high W2 earners have mentioned, the 401K is used strategically. I also get a 7% employer contribution of free money. At my income level, that's more cashflow into the account than most if not all SFR rental properties.

I'll also point out another strategic use of my 401K, every time I purchase a RE asset I submit my 401K balance as the proof of reserves to acquire the asset with the bank. Had I pulled those funds to invest in a single property, I would not have been able to acquire assets as quickly. Whether it's good economic times or bad, bank tightening has zero effect on you when you have a great balance sheet with those funds as reserves.

The one thing I learned from dealing with millionaires, and billionaires in the Private Equity sector is not one single wealthy person we EVER encountered invested in a single sector. Even people who became wealthy through a majority of RE holdings, had significant diversification as they all know how important diversification is.

These are just a few of many reasons why I would have money in the 401K, and not solely in RE.

@Beth Traverso Congratulations on getting this project going! Where is it located? What's your rehab budget for a project starting from the studs?

@Edgar Daniel gonzalez @Patrick Menefee is spot on , and I'll add to it. I had a guy tell me he found this great deal, and just needed a money partner for the down payment, and credit for the debt portion. I said, send me the NDA, and the business plan for the project.

His response was he didn't have a plan written out yet, but could talk me through it. Clearly I didn't do a deal with him, but what investors are going to want is to see something showing you know what you're doing.

People have the money, and are looking for multiple ways to invest, they just want to do it wisely.

@Brian Davila  I use a variety of strategies. Santa Monica was just right-time, right-place, and also before the last RE bubble. I bought in 2003 while I was in B-School at Pepperdine. It has tripled in value, this was my first property, It's off 5th street and Pico, I will keep it forever. I miss living in Santa Monica, but I would never pay todays prices to own, or live there today. 

All the properties, I purchase as Owner Occupant, so I get the OO rate, and not the investor interest rate which helps with the cashflow, and the down payment/money I have to put into the deal, I live in them for 12+ months, then onto the next one. I did tell my wife one more time with the moving all over town strategy to build my portfolio. They are typically properties that fall into that sweet spot of not enough profit for a flipper to go after, too much work for the seller to make it Turnkey. Most of the time the owners don't have the money.

With Washington, DC, and Aliso Viejo, CA. being such high rent neighborhoods, buying right still covers the mortgage and any association fees. 

Lastly, buying Class A, and Class B assets in major metropolitan areas does come with long-term appreciation growth as well, so that's an added bonus. 

Let me know if you come across any properties that don't have enough in the deal for a good flip, but have too much light rehab to draw market competition. I think we may see more properties fall into that sweet-spot in the next 9-18 months due to the COVID-19 fallout. 

@Brian Davila Washington, DC., Santa Monica, CA., Santa Ana, CA., Aliso Viejo, CA., 

@Brian Davila well done! I love light rehabs as well, but to buy-and-hold as rentals. I'm curious, in a hot area, Why did you choose to flip this one instead hold as a rental?

@Lawrence Pearson It will depend on where the property is located. An example is I have a property in Santa Monica, California. It is illegal to smoke in all common areas of Multifamily housing, and Condo buildings. All that needs to be done is call the police to deal with the lawbreakers. 

All of my leases have a No drug use, or drugs on the property, including marijuana.  

@Gina Stern Looks like the investors saw dollar signs in their eyes, and didn't do their due diligence on the sponsor. As an investor, if you want to be in the drug business, Big Pharma has plenty of opportunities, no need to go down this route, There are a lot of gamblers out there getting burned in a lot of sectors.   

@Brett Baginski I didn't listen to the podcast to get the details, however they must not be talking about getting a forbearance during the current pandemic, or maybe they are talking about certain non-government backed loan types. The CARES Act says that if you request the forbearance there will be no hit to your credit. The only people that will get a hit to their credit are those paying late and not requesting the forbearance during the pandemic. Anyone hitting the credit report will be in violation of the Act. Did they reference a particular non-government backed loan type to justify this topic?