All Forum Posts by: Josh Young

@David Cole there is risk in everything you do, I like what David Greene says on the podcast, "there is risk of getting hurt if you go to the gym and exercise, but there is also risk of being unhealthy and not living as long if you don't go to the gym and exercise. " 

He also says the same idea applies to real estate investing.

All of the things you mentioned are risks that could happen if you invest, but they pail in comparison to the risk of working a job the rest of your life and never achieving your financial goals if you don't invest.

I have found that the easiest way to mitigate risk as an investor is to have extra reserves, use a lot of leverage and offset it with reserves (6-12 months of PITI payments).

It's smart that you want to learn as much as you can before you invest, but I would focus more on the big picture and how to get started, don't worry about every detail now, you will learn the details with experience.

Quote from @Joseph Hernandez:

Thanks Josh for your input. I'm a newbie wholesaler, although I've flipped 7 houses and i'm a real estate and mortgage broker. I'm looking to do my first wholesale deal. Let me see if I got this correct: let's assume fmv is 400k. ARV is 560k. repairs 100k. So, 560k x .70 = 392k. 392k - 100k = 292k. This is how much you would pay as a flipper? 102k below fmv? If so, you will be making 102k, instant equity. I've been reading a lot of posts here in BP and some fix n flippers are whining if the wholesaler makes more than 10k on a deal. IMO, this isn't fair. The wholesaler is the one that spent $1,000's and a lot of time finding a deal, not the flipper, yet the flipper thinks it's fair to make 10x as much. what's wrong with this scenario? the flipper can turn around and sell it to another flipper and make 50k-100k. I've seen newbie and novice flippers buy fixers in the MLS at fmv all the time. perhaps I should take out a HML, sell it "as is" in the MLS for fmv. I will make roughly 90k after expenses and I won't have to hide my assignment fee from flippers and whatever else red tape there is. what are your thoughts? BTW, I really appreciate your help.

Yes, because $292k purchase is actually $315k with closing costs and financing, and $100k rehab is actually $150k with overage and holding costs, and sale of $560k is actually $520k with commission and closing costs, so profit is only $55k. 
I think most wholesalers should just get a real estate license, so instead of trying to get it under contract when they don’t actually intend on closing on it, they can list the property for sale and make a commission. 

Quote from @Peter Cheung:

Wow, looks like it is "over-built". Thank you for the links. 

You are only looking at one piece of the puzzle, to make any conclusions you need to look at population growth and household size. I would argue that single family is going to be “under-built” especially with limitations on new construction.

@Peter Cheung here is a link that will give you new permits.

https://www.census.gov/constru...

I will also say the Phoenix has a lot of permits listed, but our state officials just said they are going to stop approving new building projects, here is an article: https://dnyuz.com/2023/06/01/a...

@Ali Khan that could be a great opportunity for you, if the units are currently rented for that much it's likely worth more than $800k, maybe as much as $900k depending on location and condition/deferred maintenance. If you could get her to not renew one of the leases, so you could owner occupy and get a FHA loan you could house hack with only 3.5% down, that's where I would start. Or if she owns it free and clear you could buy it from her with seller finance terms, or if she does have a mortgage on it you could still do seller finance terms and "wrap" the existing loan. In either of these examples you could then refinance after a year or two. You just don't have enough capital to take it down with traditional financing as an investment property, at least I don't know of any lenders that do anything close to 8% down which is what you are wanting to do.

I see a lot of people analyzing deals and they do a nice job of assigning a certain percentage of monthly rent for different expenses, maybe 5% repairs/maintenance, 5% Cap Ex, 4% Vacancy, and 8-10% Property Management. I think this is a great way to underwrite a deal, but in reality these expenses don't happen all nice and spread out like the budget; they can and do happen thousands of dollars at a time, sometimes tens of thousands. In the past 3 months I replaced the HVAC in two of my rental SFH, one was $9k and the other was a little bigger, so it was $10k, this wasn't a big deal because I had the reserves. My point is, for anyone starting out wanting to live on the cash flow from rental properties, do yourself a favor and add a little extra to your reserves, it will help you make better decisions. Lenders usually require 6 months of PITI payments as reserves, but I like to have a little more, I like to have 6 months plus $10k per property for SFH. How much do you like to keep in reserves?

Quote from @Adrian Gallant:

Hello Johnny,

I would estimate I’ve analyzed anywhere between 100-125 properties. It’s hard to find properties that cash flow 100-150 per door. My “why” is to simply diversify my income streams and obtain an asset or two. My plan was to straight sell whenever I saw fit. 

I would also like to know if the hassle of being a landlord is worth it when I plan to only own 1-2 investment properties.

On the rare occasion I do find a good deal, it’s sold within a day or two! 

That's a good sign that you know what a good deal looks like if it sells quickly, next time you see a good deal you need to buy it as soon as you see it, don't wait a day or two for someone else to buy it.  When I was first getting started an experienced investor told me: do your due diligence, and when the numbers make sense pull the trigger.

@Amir B. here is one close by that’s the same square footage and condition:

https://www.zillow.com/homedet...
it looks like they have had tons of contacts, but also had to lower the price a couple times.
You also might consider allowing a small pet, you will get more applications and can usually up charge a little for it too.
For every month of vacancy you lose 8% of revenue, so at this point you would have been better off starting your price 16% lower than where it actually ends up. Because of this I like to fill vacancies quickly and with better applicants rather than trying to see how much I can get.

@Armando Carrera what you are talking about is mortgage fraud and it’s a felony that could send you to prison. 

Quote from @Joseph Hernandez:

If you purchased a 1,300 sq. foot SFR that needed cosmetic repairs, how much $$$ below FMV would you pay? Also, if you really needed to flip a property, would you ever pay FMV? Thanks!

ARV x70% -repairs =purchase price

this formula is good because it helps you cover for things you might not think about like: transaction costs such as commissions, closing costs and holding costs.  It's also helpful because repairs usually cost more and take longer than you think, and you want to make sure you make money.  

I think that overpaying because you "need to flip a property" is how people lose money.