Qwerty and Trojan how viable is Panda's 8 year investment plan in Johns Creek

[panda]

Qwerty and Trojan.... there are couple of homes i am looking at with the following specs. My strategy is simple. Buy one SFR every year from 2012 - 2020 with 20% down. Buy the cheapest, and the newest SFR in the best school cluster in GA, and buy and hold.

School District: Sharon Elementary: Rank #2 / 1176
                      RiverWatch Middle: Rank #3 / 479
                      Lambert High: Rank #7 / 400

SFR
Home price : $250,000
4 bed / 3 bath
2600 sq/ft : .25 acre
Rent: $1800 - $1900

I know i can get $1800 easily as the rental supply in the Lambert cluster is 1-2 months and I've seen the comps and time on market.

Numbers look like this:

Rent: $1800
Mortgage: $938.88 - 4.25% on 30 fixed on $200k
HOA: $50
Insurance : $50
Tax: $176.66

Cash Flow: $539.46
Annual cash flow $6473.52
12.9% cash on cash return on $50,000 invesment (20% of $250,000) with 0 appreciation.

What do you guys think? You think this is scaleable?

If we get an appreciation of 5% in JC - I am being conservative here with my numbers.

Appreciation: $12,500
amortization: $3383.67
Cash flow: $6473.52
Annual gain: $22,357.19 with $50,000 investment = Total of 45% ROI.

Trojan, I think i would totally suck as RE agent, but I can see myself doing something like this.   and maybe even flipping in the future.

My inspiration comes from the Irvine SFR my wife and her family lived in paying $1900/month back in 1996....
http://www.zillow.com/homedetails/28-Foxhill-Irvine-CA-92604/25487946_zpid/

....oh.. also inspiration comes from my 2 fortune cookies.

 

[irvinehomeshopper]

Once you have 2 homes you are considered a risk to the lender. You investment trail will just stop unless you have loaded in laws.

 

[panda]

One primary and two rentals... I could still easily qualify for 2 more loans with 20% down. now homes 6 - 10.... I need to be creative. In order to implement my plan... i need a loan of $2.5Mil. .SGIP can you help me... haha.

 

[socal78]

First plan of action... hear me and hear me well: Do not eat any more Chinese food! You do not want to risk your luck getting this one:

 

[IndieDev]

Incredibly risky considering the volatility in the market you're entering and the amount of leverage you're seeking. It could ruin you.

 

[irvinehomeowner]

Sorry bro... just because you think it is... doesn't mean everyone else will think Johns Creek is the East Coast version of Irvine.

Buy in Vegas! /sarcmark

 

[qwerty]

Qwerty and Trojan.... there are couple of homes i am looking at with the following specs. My strategy is simple. Buy one SFR every year from 2012 - 2020 with 20% down. Buy the cheapest, and the newest SFR in the best school cluster in GA, and buy and hold.

School District: Sharon Elementary: Rank #2 / 1176
                      RiverWatch Middle: Rank #3 / 479
                      Lambert High: Rank #7 / 400

SFR
Home price : $250,000
4 bed / 3 bath
2600 sq/ft : .25 acre
Rent: $1800 - $1900

I know i can get $1800 easily as the rental supply in the Lambert cluster is 1-2 months and I've seen the comps and time on market.

Numbers look like this:

Rent: $1800
Mortgage: $938.88 - 4.25% on 30 fixed on $200k
HOA: $50
Insurance : $50
Tax: $176.66

Cash Flow: $539.46
Annual cash flow $6473.52
12.9% cash on cash return on $50,000 invesment (20% of $250,000) with 0 appreciation.

What do you guys think? You think this is scaleable?

If we get an appreciation of 5% in JC - I am being conservative here with my numbers.

Appreciation: $12,500
amortization: $3383.67
Cash flow: $6473.52
Annual gain: $22,357.19 with $50,000 investment = Total of 45% ROI.

Trojan, I think i would totally suck as RE agent, but I can see myself doing something like this.   and maybe even flipping in the future.

My inspiration comes from the Irvine SFR my wife and her family lived in paying $1900/month back in 1996....
http://www.zillow.com/homedetails/28-Foxhill-Irvine-CA-92604/25487946_zpid/

....oh.. also inspiration comes from my 2 fortune cookies.

those numbers are impressive at first glance, however, i would recommend doing a more detailed cash flow calculation and include maintenance, vacancies, property mgmt fees (im guessing you wont want to deal with the headaches of being a landlord directly) as well as include the income tax components (deduct interest expense, depreciation of house only, not land, etc.) - in essence put together a true detailed P&L. Just so you have the most accurate P&L and set of cash flows available.  Taking your purchase prices and monthly rents at face value, the investments look pretty solid to me.  12.9% cash on cash returns are hard to beat.  the 30 year tbill rate is about 3.0, so you are earning almost 10% above the risk free rate. I would use 3% for the appreciation, i believe that is the national long-term average, i think that tracks with inflation. Still an overall imressive ROI. 

Here are my comments:

1 - i would not rely on any appreciation for the purpose of this investment, which is fine because you still have a 12.9% cash on cash (COC) return - about 10% above the risk free rate. if you do get appreciation that is just gravy. i guess the COC return will be lower once you factor in maintenance/property mgmt, etc.
2 - the equity build up is good but this can potentially evaporate, be responsible with it.
2 - do you think those rents are sustainable over the long-term? you have a decent cushion on a monthly basis to absorb any downward pressure on rents so you are probably ok
3 - if it is that much cheaper to buy (about 500/month), why would people rent instead of buying. Im guessing you have a good handle on the demographics (people lacking down payments, etc) and believe there will always be a good pool of renters.
4 - im guessing you will have enough cash reserves to cover personal expenses for an extended period of time as well as having multiple properties vacant for periods of time.
5 - are you going to tie up alot of your capital in this?  if interest rates rise, the return on tbills will improve and decent returns may be available with no risk, making your real estate investment less appealing. i guess what im saying here is dont put all of your eggs in one basket.

overall its sounds like a pretty decent plan to me assuming you are comfortable with 1-5 above - looks like you are investing in real estate the old school way, by using fundamentals and other peoples money. Or you can just give your money over to USC and he can give you 20% returns trading options. ive thought about doing something similar to you back home where im from, but dont want to deal with the hassles of being a landlord. Good luck man. Keep us posted on your Trump like empire to be.

 

[qwerty]

Sorry bro... just because you think it is... doesn't mean everyone else will think Johns Creek is the East Coast version of Irvine.

Buy in Vegas! /sarcmark

it doesnt need to become irvine. if he can use leverage to acquire assets and then have other people pay off that leverage, that sounds like a good plan to me. over the long haul real estate rises due to inflation. Panda is looking at locking up a 2.5M investment with 500K of his own money.  Take that 2.5M at 3% over the next 20-30 years and that is some serious dough.

 

[usctrojancpa]

Panda, having worked in the commercial real estate finance work I'll share some basic proforma understanding basics with you.  First off, you want to build in a market vacancy expense into your proforma.  In the case of a single family home, you want to budget at least a 1-month vacancy per 12-months.  Then you will need to budget .5% to 1% of the purchase price per year for capital expenditures/repairs & maintenance.  If you don't manage the property yourself then be prepared to budget 6-10% of the gross rent for the property management fee.  Also, proformas do not include an appreciation in the price (or cap rate) but rather they budget some kind of annual increase in rent (1-3% in a stable rental market).  Take your year 1 projected Net Operating Income (NOI) and divide that by your purchase price.  That will be your cap rate....use that same cap rate and divide the future NOI by that amount to determine what your projected future sales price may be (whether it be 5 or 10 years).  NEVER USE BEST CASE SCENARIO!  You might want to also sensitize your proforma by using no rent inflation and higher capital expenditure/repairs & maintenance expenses to determine an adverse enviornment. 

 

[qwerty]

Incredibly risky considering the volatility in the market you're entering and the amount of leverage you're seeking. It could ruin you.

i dont know the area well enough so im not sure how volatile it is, but it seems like the atlanta area didnt really have the CA/FL/AZ/NV meteoric rise and fall/ Going off memory, it always seemed like the ATL area was less volatile than the majority of the country.

 

[usctrojancpa]

Sorry bro... just because you think it is... doesn't mean everyone else will think Johns Creek is the East Coast version of Irvine.

Buy in Vegas! /sarcmark

it doesnt need to become irvine. if he can use leverage to acquire assets and then have other people pay off that leverage, that sounds like a good plan to me. over the long haul real estate rises due to inflation. Panda is looking at locking up a 2.5M investment with 500K of his own money.  Take that 2.5M at 3% over the next 20-30 years and that is some serious dough.

Also, if Panda is considered a real estate professional per the IRS definition he will be able to offset any ordinary income via his other ventures (his business and trading) by the benefit of depreciation.  A lot of people built their wealth via real estate.  The real money is made in commercial properties like apartments (5+ units) and retail. 

 

[usctrojancpa]

Sorry bro... just because you think it is... doesn't mean everyone else will think Johns Creek is the East Coast version of Irvine.

Buy in Vegas! /sarcmark

If you buy properties at the right price and locations in Vegas, you will make a very attractive return even when you adjust for the tenant/turnover risk.

 

[IndieDev]

Incredibly risky considering the volatility in the market you're entering and the amount of leverage you're seeking. It could ruin you.

i dont know the area well enough so im not sure how volatile it is, but it seems like the atlanta area didnt really have the CA/FL/AZ/NV meteoric rise and fall/ Going off memory, it always seemed like the ATL area was less volatile than the majority of the country.

That's generally true. I expect over correction though, and at $2,000,000 in leverage, it's simple economies of scale. A small hit can become a big hit.

I don't know enough about the local Atlanta market though to be sure. I know in OC, that plan would be a death trap.

 

[usctrojancpa]

Incredibly risky considering the volatility in the market you're entering and the amount of leverage you're seeking. It could ruin you.

i dont know the area well enough so im not sure how volatile it is, but it seems like the atlanta area didnt really have the CA/FL/AZ/NV meteoric rise and fall/ Going off memory, it always seemed like the ATL area was less volatile than the majority of the country.

That's generally true. I expect over correction though, and at $2,000,000 in leverage, it's simple economies of scale. A small hit can become a big hit.

I don't know enough about the local Atlanta market though to be sure. I know in OC, that plan would be a death trap.

Hence why Panda should consider buying an apartment complex with a NON-RECOURSE loan.

 

[irvinehomeowner]

NEVER USE BEST CASE SCENARIO! 

That should be a fortune cookie.

And remember... always add this to the end: "... in bed".

 

[IndieDev]

Incredibly risky considering the volatility in the market you're entering and the amount of leverage you're seeking. It could ruin you.

i dont know the area well enough so im not sure how volatile it is, but it seems like the atlanta area didnt really have the CA/FL/AZ/NV meteoric rise and fall/ Going off memory, it always seemed like the ATL area was less volatile than the majority of the country.

That's generally true. I expect over correction though, and at $2,000,000 in leverage, it's simple economies of scale. A small hit can become a big hit.

I don't know enough about the local Atlanta market though to be sure. I know in OC, that plan would be a death trap.

Hence why Panda should consider buying an apartment complex with a NON-RECOURSE loan.

Yup.

Not that I ever want to start a mini rental empire, but multi-unit will always outperform SFR when it comes to pure cash flow. This has been proven time and time again. Higher upfront cost, but I think less exposure in general because vacancy is fractional rather than "is someone living in the house or not?"

 

[irvinehomeshopper]

Everyone was a Panda and got burned in 2006.

 

[usctrojancpa]

Incredibly risky considering the volatility in the market you're entering and the amount of leverage you're seeking. It could ruin you.

i dont know the area well enough so im not sure how volatile it is, but it seems like the atlanta area didnt really have the CA/FL/AZ/NV meteoric rise and fall/ Going off memory, it always seemed like the ATL area was less volatile than the majority of the country.

That's generally true. I expect over correction though, and at $2,000,000 in leverage, it's simple economies of scale. A small hit can become a big hit.

I don't know enough about the local Atlanta market though to be sure. I know in OC, that plan would be a death trap.

Hence why Panda should consider buying an apartment complex with a NON-RECOURSE loan.

Yup.

Not that I ever want to start a mini rental empire, but multi-unit will always outperform SFR when it comes to pure cash flow. This has been proven time and time again. Higher upfront cost, but I think less exposure in general because vacancy is fractional rather than "is someone living in the house or not?"

You nailed it, the more units the more you diversify your vacancy rate to the market rate and vacancies will be more staggered.  There are plenty of banks (especially smaller ones) out there that still do non-recourse apartment loans at 70% LTV with rates around 4.50%-4.75% for a 5-year fixed loans with a 25-year amort.

 

[panda]

Trojan,

With my limited investing experience, I find SFR tenants to be the easiest to manage. I don't plan to have a PM company and trust my instincts to hire the best tenants. The wrong tenant will make or break you business. One sure way to fail in business is hire the wrong employees. I see it no different in a rental business as I see tenants as my employee and I have careful in my selection process. In order to buy multi-family and apartment i need to go into the Santa Anaish black neighborhoods ("The Hood") as there are no multi-family in Johns Creek. The cash flow may be good in section 8, but turnover, overhead, and maintenance is going to be rough. My strategy is to buy the cheapest new contruction SFR in the best school cluster in Georgia. Currently prices start in $200 - $250k for entry SFRs in the area i am concentrating.

If you were 35 back 1996 and had some capital, would buy in multi-family / apartments in Santa Ana or buy the cheapest SFR you could afford in the Uni High school cluster? I much rather take the second option.

Don't get me wrong.. I've meet some investors here going into the Santa Ana area of Atlanta and buying SFRs at $50k and flipping at $115K.
Here in Atlanta... the blacks are like the hispanics in California.

35% of California made of hispanics whereas 35% of Georgia is made up of blacks.

Incredibly risky considering the volatility in the market you're entering and the amount of leverage you're seeking. It could ruin you.

i dont know the area well enough so im not sure how volatile it is, but it seems like the atlanta area didnt really have the CA/FL/AZ/NV meteoric rise and fall/ Going off memory, it always seemed like the ATL area was less volatile than the majority of the country.

That's generally true. I expect over correction though, and at $2,000,000 in leverage, it's simple economies of scale. A small hit can become a big hit.

I don't know enough about the local Atlanta market though to be sure. I know in OC, that plan would be a death trap.

Hence why Panda should consider buying an apartment complex with a NON-RECOURSE loan.

 

[The Motor Court Company]

In case your plan fails, Irvine is building a lot of affordable housing in the  future; just saying .