All Forum Posts by: Josh Dotzler

Hi James,

While we don't use the 529 savings plan, my wife and I have generated the following savings plan for our kids.

• Buy one single family rental property for each kid within 2 years of birth- approximately $150,000 purchase price.
• Make sure the rental will at least break even on a 15 year note.
• In approximately 15 years do a cash out refinance and use those funds for car/college/wedding.
• Using the purchase price of the property and a 75% cash out refinance, we would be able to pull out about $112,500 for car/college/wedding/etc. This number should appreciate with inflation through the next 15-16 years.
• When we are ready to retire, the unit will be paid off again (or close to it). We will evaluate the property at that time and decide what to do with it.

We like this option the most because it requires a chunk of money up front, but after that (ideally) the savings and increase in value are all accounted for with rent payments from the tenant. While college costs are currently appreciating faster than inflation, this plan does account for typical inflation through the increase in value of the property.

**I operate a property management business and I'm a licensed Realtor so it makes cash flowing on a $150,000 home/15 year note a little easier**

Hope somebody finds this plan helpful! We've put a lot of thought into it.

Josh

@Jordan B., it's hard to say exactly. 

From a pure investment (not living in it) standpoint you should be looking for higher returns ie. the 2% rule. So a great deal for rental purposes would be if you got this duplex for about $90,000. An average deal would be if you got it for between $90,000 and $125,000. I would say don't go above $126,000 on the property from a pure investment standpoint ($126,000 is 70% of $180,000 ARV). This is assuming it needs no repairs.

However, if you are going to live in the property you need to find a home that you and your significant other would be happy to live in. The criteria for a home you want to live in are much different than a home for investment purposes only. If you and your significant other are happy with the location and condition of the property and are happy with someone paying $1,000 of the expenses, I would go for it if you could get the home for less than $150,000.

*I do not have access to the MLS up in PA. Recommend you talk with one and see what the actual value of the duplex is.

@Jordan B., @Phillip Coleman mentioned a number of great points to consider. Here would be my analysis of your property (monthly cash flow analysis):

Purchase Price: $150,000 

Gross Potential Rent: $1800/month

Property Taxes: $324/month

Insurance Estimate: $60/month

Trash/Sewage from your estimate: $105/month

Maintenance Reserves: 15% or $270/month

Vacancy Loss: 8% or $150/month

Cash Flow Before Mortgage Expenses: $891/month

You mentioned you wanted to use a cosigner on an FHA loan. Keep in mind that FHA loan guidelines requires that you occupy the property as your primary residence in order to qualify. Most investors say that buying a duplex and living in one side is a great way to get started in real estate. Good luck to you!

@Tim Gross, you can go to Trec's website and download the list of applicants. It is updated weekly.

http://www.trec.state.tx.us/newsandpublic/download...

It downloads as a .txt file... which is a pain to try to read. You can open the file in Excel and it is a little easier. One of the "ReadMe" .txt files explains the information in each column.

Hope that helps.

@Tom La Rosa, I don't think "teaming up" with you getting a conventional loan is what you need. Just cosign with him. Here is a link that helps explain co-signing VA loans.

http://www.valoans.com/valoan-tip15

Like everyone else said, you are limiting your pool of potential buyers by doing this. If you put 0% as buyers agent commission, it is unlikely you will get buyers from the MLS. The language in most buyer's rep agreements says that the buyers agent will get the agreed upon commission first from the seller, and if they don't pay, then the buyer. The buyers agent would explain to the buyer that he/she would be responsible for the commission if they chose to look at that property. In most cases, the buyer would decline to see the property.

J Scott, thanks for clarifying the problem. It isn't that PMs are being dishonest or trying not to fulfill fiduciary duties. The problem is that compensation for most Property Managers is not in line with what is best for the Investor (just like J Scott's example with a buyers agent).

I think a one year tenant guarantee is nice, but doesn't solve the problem by itself (regular turnover that benefits the PM while hurting the Investor).

How about this structure: 

Instead of 1 month placement fee: 50% placement fee

Monthly Management Fee is on the high side: 8%-11%

12 month Tenant Guarantee (no new placement fee if Tenant stays for less than 1 year). 

To alleviate some loss of income from putting Rental in the MLS (typically agents like to see 50% of one month's rent), ask the Investor if they want the Property in the MLS and charge an additional fee to put in the MLS at their request. MLS is not totally necessary for rentals.

@Chris Clothier thanks for the insight, I know you operate a very respected company.

From what I am hearing from everybody, not many people would request a lower placement fee as long as the tenant stays put for at least one year (the usual lease length). Thanks!

@Brett McCurdy, that's exactly what I was thinking. Too many PMs make money when the investor loses money. Yea, 12% seems a little tough to stomach but 10% is pretty standard here in the DFW area. As I mentioned to Kevin, even with the 2% increase, the investor would make more money until the tenant was in place for 4 years (using rental rate of $1000/month). If the tenant was in place for less than 4 years, it would make more sense to have 12% and $0 placement fee than 10% and 1 month's rent as placement fee.

@Kevin Page thanks for the input, I appreciate it.