Johns Creek Homes and Real Estate

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"Basically you are getting a 1% CoC return and another 4% from amortization." Can you please show me a proforma how you are coming to a 1% CoC conclusion?

Past performance does not guarantee future returns. The best time your would have hit jack pot in the OC/LA market was between the 10 year period 1996 - 2006. Do I think we are going to see a repeat of this in today's prices? I remain extremely doubtful. Riverside to visit OC/LA is not the right analogy. LA is like Atlanta as OC is like northern suburbs of Atlanta like norther Fulton, Milton, Forsyth, and Gwinnett County. LA's path of progress is moving south whereas Atlanta path of process is moving north. A better analogy is living in OC and working in LA, comparing Atlanta to Forsyth County.

Yes, I do believe investing in Forsyth County today is like investing in Irvine in 1980 in terms of its present day demographics. In terms of my personal investments including my primary residence, I am 100% ALL IN this county as that is how much I am confident and believe in the future of this county. The Irvine demographics juice will continue to flow into Forsyth County for the next 35 years making Forsyth County the first Asian majority county in the history of the South. Currently Forsyth County is the wealthiest and fastest growing county in the state of Georgia.

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Liar Loan said:
I'm getting a 1% CoC return once maintenance, repairs, and capital reserves are factored in.  Do the tenants in Georgia mow the lawn?  Do vacancies ever occur?

Basically you are getting a 1% CoC return and another 4% from amortization.  This is not a good cash-flowing investment, but I believe the purpose of Panda's venture is to capture future appreciation via the number of Asians moving into this area over the next 20 years.

That could very well happen, but if you look at the 20 cities that S&P Case/Shiller tracks, the top 3 for appreciation since 1980 have been San Francisco, Los Angeles, and San Diego.  If you are going to make an appreciation play, why not stick with proven winners?  Georgia appreciates at the rate of inflation.  California beats inflation by 1-2% per year.  Irvine has exceeded the average for California by maybe another 0.5-1% per year.  It is similar to San Francisco in that regard.

Irvine didn't just increase in value due to good schools and the number of Asian buyers over the past 35 years, it also happened to be located in a top three area in the nation for home price appreciation.  It is hemmed in by mountains to the East and the ocean to the West.  Does Johns Creek have geographic constraints on future development like LA, SF, and SD?  I don't think it does.

The proximity to jobs and culture for Johns Creek is about a 1 hour drive to downtown Atlanta, making it a similar trek to those that commute from Riverside to visit OC/LA for jobs and culture.  I know because my best friend lives nearby in Gainesville, GA and he has to drive to Atlanta anytime he wants to do something fun (sports, concerts, ethnic food, etc).  I get tired of the drive after just visiting him for a week.
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The one thing that people need to account for is property management fees that can range from 6-10% if you are buying out-of-state which really eats into returns which is what has kept me from buying in areas like Colorado, Atlanta, and Texas.  Orange County is not the best area to invest in if you are looking for cash-on-cash returns but at least no property manager is needed.
 
Purchase Price:  275k
Loan Amount: $206,250

Down Payment + 5k closing costs:  $73,750

Monthly Expenses:

Taxes @ 0.9% - $206
P&I @ 4.75% - $1,076
Insurance ($700 annually)- $58
Maintenance/Capital Reserves @ 0.75% of home price: $172
Lawncare/Landscape: $100
Management @ 10%: $200

Total Expenses: $1,812
Net Rent (Minus 5% vacancy): $1,895

Monthly Cash Flow: $83
Annual Cash Flow: $1,000
Cash Return: 1.4%  (Cash Flow / DP + Closing Costs)

Side Note: The rent ratio (Monthly Rent / Home Price) is 0.7%  which isn't very good for a cash flowing market.  Properties in OC typically have a 0.5% ratio, so John's Creek is only slightly better.  Most cashflow investors want at least a 1.0% rent ratio.
 
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These are real numbers. $0 for Lawncare / Landscape as this the tenant's responsibility. I have a very competitive local lender here where my client secured an investment loan P&I at 4.25%. This is a brand new home therefore the first year is covered by warranty and there are not much Maintenance / Capital Reserves. There is no vacancy costs as I have secured a tenant 30 days before closing. There is risk whether one purchases locally in the OC vs investing out of state. When investing in OC there is no cash flow and once an OC investment home is sold there is a large depreciation recapture tax (25%) that most real estate investment books don't seem to talk about. California is a tenant friendly state.

Several investors I know have also been burned with turn key providers in Chicago and Memphis as there is not much transparency. The negative of investing out of state is working with a broker/dealer whom you cannot trust. 

I try to create a transparent model for my clients even when selecting tenants. I mentor and coach them of how to properly management their tenants. My expertise is in real estate wealth management. This involves experience and knowledge in the areas of real estate taxation, investing, 1031 exchange, self directed IRA, financing, depreciation, and management.

Liar Loan said:
Purchase Price:  275k
Loan Amount: $206,250

Down Payment + 5k closing costs:  $73,750

Monthly Expenses:

Taxes @ 0.9% - $206
P&I @ 4.75% - $1,076
Insurance ($700 annually)- $58
Maintenance/Capital Reserves @ 0.75% of home price: $172
Lawncare/Landscape: $100
Management @ 10%: $200

Total Expenses: $1,812
Net Rent (Minus 5% vacancy): $1,895

Monthly Cash Flow: $83
Annual Cash Flow: $1,000
Cash Return: 1.4%  (Cash Flow / DP + Closing Costs)

Side Note: The rent ratio (Monthly Rent / Home Price) is 0.7%  which isn't very good for a cash flowing market.  Properties in OC typically have a 0.5% ratio, so John's Creek is only slightly better.  Most cashflow investors want at least a 1.0% rent ratio.
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Sorry IHO,

The train has already left Johns Creek 4 years ago like it already has went bye bye in Irvine. So what's the deal? Are you still dreaming of owning a 3 Car Wide Garage in Irvine? When are you going to make this happen? Are you currently owning, renting, did you move back to your rental property in Irvine? What is your current housing situation now?

Actually, you can send over the $5 and I will fill a box up with Johns Creek's dirt and I will USPS priority it you to Irvine.

irvinehomeowner said:
@Panda: I will send you $5, please invest in Johns Creek real estate for me. Thanks.
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Sorry. I made a mistake on the median income and ranking. The ranking below is the most up to date. Forsyth County is the 20th wealthiest county in the nation and the median income is $97,886.

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There are a few things I still disagree with:

- You have nothing listed for closing costs.  I'm estimating $5k for closing costs, but it might be higher.
- Vacancy is a fact of life, so something should be included in your model here.  Hopefully it doesn't happen Year 1, but eventually there will be a turnover.
- Capital reserves need to start accruing at some point to pay for future big ticket items.
- Does your lender charge points for that lower rate?
- Your management fee is rock bottom at 8%.  Do you charge a leasing fee as well?

Also, as a side note your amortization calculation spikes in years 3 & 5.  I'm assuming this is a formula error in Excel.

 
Liar Loan said:
There are a few things I still disagree with:

- You have nothing listed for closing costs.  I'm estimating $5k for closing costs, but it might be higher.
- Vacancy is a fact of life, so something should be included in your model here.  Hopefully it doesn't happen Year 1, but eventually there will be a turnover.
- Capital reserves need to start accruing at some point to pay for future big ticket items.
- Does your lender charge points for that lower rate?
- Your management fee is rock bottom at 8%.  Do you charge a leasing fee as well?

Also, as a side note your amortization calculation spikes in years 3 & 5.  I'm assuming this is a formula error in Excel.
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very astute points made here.  These are also considerations that most people on this blog ignore when talking about cash flow.
 
I would add it is important to see the forest and not just the tree. The toughest part for any new investors is to take the first step. I usually have an inside business relationship directly with either the owner or a close family member with the builder. They are loyal to me and give my clients the first right on the best lots and am able negotiate the best terms. I usually negotiate closing costs with the builder using an outside lender.

About 90% of the time, I am able to secure a tenant for my clients within less than 2 weeks. I also have a proprietary hybrid property management that no other property management company offers in Atlanta which allows me to scale. There is no 8% monthly fee in the first year and I empower my clients over the property management firm. If you are working with a dishonest Broker/PM or the home is vacant for 90 days, you can pretty much throw out the Cash Flow Proforma Analysis out the window.

What I mean by seeing the forest and not the tree is that Forsyth County is a very unique emerging market that one cannot invest in California. Investing in Forsyth County is nothing like investing in Las Vegas or Riverside County.  I operate and run my real estate investment practice like a wealth management firm. My top 20 clients are accredited millionaire investors and have investor clients from Irvine, Newport Beach, Cupertino, and San Jose. My maximum cap on my clients is a 100 and fortunately I am in a position now where I can turn away business which does not fit the investment model of my firm and work with clients I enjoy working with. 




hello said:
Liar Loan said:
There are a few things I still disagree with:

- You have nothing listed for closing costs.  I'm estimating $5k for closing costs, but it might be higher.
- Vacancy is a fact of life, so something should be included in your model here.  Hopefully it doesn't happen Year 1, but eventually there will be a turnover.
- Capital reserves need to start accruing at some point to pay for future big ticket items.
- Does your lender charge points for that lower rate?
- Your management fee is rock bottom at 8%.  Do you charge a leasing fee as well?

Also, as a side note your amortization calculation spikes in years 3 & 5.  I'm assuming this is a formula error in Excel.
Click to expand...

very astute points made here.  These are also considerations that most people on this blog ignore when talking about cash flow.
Click to expand...
 
Atlanta housing prices are finally making new higher from its last peak index in July 2007. Atlanta is one of the cities that Amazon is seriously considering as its 2nd headquarters.

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According to the Case Shiller data, the average appreciation between 1991 - 2006 in Los Angeles is 7.1% whereas in the same time frame the average appreciation in Atlanta is 3.9%. The average decline in LA between 2006 - 2011 is -7.9% a year whereas the average decline in Atlanta between the same time period is -6.9%/year.

Between 2012 - 2017, the average appreciation is 8.4%/year for Atlanta and 8.5%/year for Los Angeles. In 2016, Atlanta's appreciation beat LA's appreciation by 1.1%. It appears that Atlanta is on track again to beat LA's appreciation again 2017. Los Angeles is still 3.8% below its previous peak in Sept 2006 and Atlanta is now 1.8% above its last peak value of July 2007. 

I am a firm believer that real estate and businesses (corporations) are the best asset classes to hold onto forever. Long term inflation will continue to increase the value of real estate at modest levels of 5-6%/year. I am currently extremely bullish of Atlanta's future real estate values and economic development.

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Panda said:
According to the Case Shiller data, the average appreciation between 1991 - 2006 in Los Angeles is 7.1% whereas in the same time frame the average appreciation in Atlanta is 3.9%. The average decline in LA between 2006 - 2011 is -7.9% a year whereas the average decline in Atlanta between the same time period is -6.9%/year.

Between 2012 - 2017, the average appreciation is 8.4%/year for Atlanta and 8.5%/year for Los Angeles. In 2016, Atlanta's appreciation beat LA's appreciation by 1.1%. It appears that Atlanta is on track again to beat LA's appreciation again 2017. Los Angeles is still 3.8% below its previous peak in Sept 2006 and Atlanta is now 1.8% above its last peak value of July 2007. 

I am a firm believer that real estate and businesses (corporations) are the best asset classes to hold onto forever. Long term inflation will continue to increase the value of real estate at modest levels of 5-6%/year. I am currently extremely bullish of Atlanta's future real estate values and economic development.

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Am I the only one that sees the trend from your chart?
 
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