All Forum Posts by: Ray Johnson

I’m on the fence between buying a Class A- rental property where I’d be putting in the typical 25% cash and financing the remaining 75%, or to just purchase a Class C/C- rental property for 100% cash.

I know there are several articles on BP discussing the advantages of leverage and I’ve considered them when thinking about this decision however I’m a fairly conservative investor always looking for ways to mitigate risk.

The two risk factors I see in this scenario are:

1. The Class A- property allows me to leverage my cash into a better property in a better neighborhood minimizing the risk of higher vacancy rate, the need to rely on subsidized rents, and getting a better qualified tenant mix for the long term, minimizing the possibility of fewer headaches.
2. The Class C/C- property comes with a lot more cash flow due to there being no debt on the property, however it also comes with a lot more risk in the form of all the issues that come with renting a C/C- property and there seems to be a lot of them.

I currently only have Class A properties with zero tenant or property issues however I’m thinking about going with this property class to increase my overall portfolio cash flow.

I know the saying “More Risk = More Reward”, my question to the BP community that have dealt with both Class A properties and Class C/C- properties:

1. Is there really that big of a difference in managing the tenants, and property?
2. If I went with a C/C- property is it better to pay the 8% Property Management fee and not deal with the issues that typically come with the C/C- property class?

Thoughts?

If this is your only route of funds, Hopefully you have a credit card with a current 0% interest rate up to a certain time period and the use of convenience checks, this will give you a better overall cost benefit since there's no interest while you work out your property strategy. 

Example: I have a credit card with a  $10,000 credit limit and 0% interest until May 2017 I could write a  convenience check for the  $8,000 property. 

I'm a more conservative investor so I wouldn't go this route using a credit card, but good luck with the deal.

I'm not sure if the owners have shopped this around to the Apartment brokers already and they've all passed on the deal, or the owners don't know what's going on.

Ask if they've approached any of the regular commercial players like CBRE, ARA Apartments, Starwood Trust? These are the players I dealt with when I worked for a REIT.

The deal seems off based on just the numbers but it never hurts to try, they can only say NO

Check out Lima One Capital at limaonecapital.com they have a variety of program options 

An owner in Arlington, VA requires all tenants to have active renters insurance as a condition of the lease and they have the owners insurance, I'm not sure what else is needed.

There's so many vacant and uninhabitable homes it makes it hard to be competitive in the REI business in the area.

The upside is the city has selected the Master Developer for the 62 Acres of the Park Heights Master Planned development, and the city officials told me they will be extending the project to 84 acres total.

There should be several avenues of opportunity through that project.  

All the HML I know want you to have some skin in the game and are asking for 25% down, You're probably better off looking for a PML that's going to be more flexible.

I agree with you 100% Jonathan, I'm in the DMV area as well and I have not seen one good Wholesale deal that made sense this year. I'm not sure if it's because there are so many new wholesalers entering the industry due to all the get rich quick with no money needed advertising or if it's simple price and demand with buyers willing to overpay for product.

I agree with you 100% Don, I'm a true Real Estate Investor and when I find myself at RE events and I'm standing around 15 Wholesalers trying to pawn off overpriced bad product calling themselves investors, it makes me feel reluctant to say I'm an investor because I don't want to be associated with the Wholesalers. Maybe if they stopped calling themselves investors and just called themselves Wholesalers when dealing with everyone there wouldn't be the "ill will" towards the wholesalers.  Sincerely an actual Real Estate Investor!

Hi Lisa, I'm a little late to the conversation but wanted to add a few things. I invest in the Baltimore area and have a few suggestions.

There are several avenues to buy properties with better pricing over what you're looking at. Some things to consider;

1) Why Hampden for your first project? This will be a Class A property for Baltimore once completed based on the rehab cost you're projecting, you can have Class B or B- property for far less money generating a much better return on your investment. As a newbie you have to remember you aren't living in this house so choosing financial planning over a product you could see yourself living in is a key mindset for this business as a newbie.

2) The rehab numbers you're quoting sound like retail numbers or a home with higher-end finishes. Keep in mind that you'll want to connect with a good contractor that will not be paying retail pricing and shouldn't be charging you retail pricing for the rehab.

3) Regarding the contractor, contact several and make sure to get a few bids before selecting a contractor to do the work.

4) Try to connect with a good realtor in the area that can give you hard numbers for your analysis, I don't use "Zestimates" for my rental projections, I use prior 12 month rents for trending and current rent listing actuals in the area of my projects. If you can take a Saturday and visit properties on the area you're interested in and see what the interior finishes are like before overspending to compete with current product on the market. 

5) Baltimore can be a good area to build a portfolio, make sure you understand the market within the different neighborhoods, How to use them to obtain your financial goals, and establish relationships within the industry, It'll make investing much easier and cheaper whether you're only doing one property or starting your portfolio.

Hope this helps, Let me know if you have any other questions.