All Forum Posts by: Josh Young

Quote from @Duke Butterfield:

Josh - thank you! I missed your response before I sent my follow up to the last user. But yes you've given me much of the insight on the sell vs rent numbers I  interested in. And you clearly have some relavent market knowledge. Much appreciated!

Do you have any additional insight on continued self manage from OOS vs PM? How have you made that decision for your prior primary residence to rental properties?

I self manage because I'm local and because I'm an agent & property manager, so I help other investors like yourself. With that being said, I wasn't an agent or property manager when I first started, but I did start out self managing because I'm local and because real estate investing became my passion and my career (I used to be a golf pro). If I moved out of state I would hire a property manager, but I would hire a smaller independent property manager who is also an investor like myself. Managing from out of state could be tricky, especially if you have a turn, making sure the property is ready to be marketed, doing showings, screening applicants, and then handling any maintenance/repairs. 

@Duke Butterfield

 You are in a great position with this property, I would hold it for a long time. At some point in the next few years you might consider a cash out refinance to pull some of the equity out, but obviously wait until rates are a little lower. Scottsdale has such good fundamentals you want to hold for as long as you can, we have job growth, population growth, investment in infrastructure and low property taxes; these are all the things you want. 
This is how I would look at your returns. $360k equity (based on your estimated loan balance and estimated transaction costs if you sold, this is not calculating capital gains taxes but that would reduce your equity down to about $310k if you sold without doing a 1031 exchange). $8k cash flow (this will increase over time because you are in an appreciation market). $6k principal pay down (based on your current loan). $20k appreciation (based on 3% which is conservative, 4-5% is the historical average). Total this is a $34k return which is around 10%, that's not bad, but your numbers will get a lot better after you do a cash out refi. When rates get to near 5% you should be able to pull out $250k (based on 75% LTV) and then your cash flow should be around break even (but you just pulled out 30 years worth of cash flow at $8k per year), the principal pay down will increase to about $8k and appreciation will stay the same at about $20k, so now your returns will be $28k on $140k of equity (based on the same sales cost assumptions above) and that is a 20% return and you have the $250k cash to go reinvest somewhere else.

Don’t let anyone tell you that you made a mistake by not selling; holding is how you make money in real estate. I use this exact strategy of keeping my previous homes as rentals and trust me it’s a winning strategy.

@Jeffrey Hayes

If you post a link to the listing (usually Zillow) and/or the address then we will be able to help you. As you know, marketing and price are both very important, and vacancy will significantly impact your income, so you are almost always better off charging a lower price and getting it filled with a good tenant.  

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Quote from @Vijendar Na:

@Josh Young - Are there opportunities to buy new builds for investors? Whats your opinion on Mesa? Do you generally buy new build or old homes for rental purposes

 Not all new build communities sell to investors, but some/most do. Things to consider when buying a new build are appliances, fans, blinds, and back yard landscaping; sometimes we can get appliances included, it just depends on the situation. Back yard landscaping is usually the biggest expense at $5-6k for artificial turf and rock, but doing this sets you apart from the others. The best thing about a new build is the capital expenses and maintenance and repairs will be minimal for many years.  

Mesa is a big area and can vary a lot depending on the neighborhood. I personally wouldn't buy an old home as a rental, I only buy 1980 or newer for myself, all of my properties are in the north part of Gilbert built between 1985-2003. I buy homes as a primary residence with 5% down and move into them keeping my previous as a rental and the area that I live doesn't have new builds that would work for us, otherwise I would buy a new build. 

If I had $100k to buy an investment property and wanted at least break even on cash flow I would buy a new build in Casa Grande. If I didn't mind being a little negative on cash flow then I would buy in Gilbert. The cash flow that you need to achieve should be based off the rest of your portfolio and your financial situation as a whole. I personally focus more on appreciation, but if I wanted more cash flow I would definitely go to a fringe area and buy a new build rather than going to an older area and buying a cheaper property.

@Nithin Kumar with a $100k to invest you can break even or be a little positive on a new build in Casa Grande. There are other fringe areas (San Tan Valley, Maricopa, Buckeye, and Surprise) where you can almost break even too, but prices will be a little higher and rent to price ratios will not be as good. If you are looking for more appreciation and can afford to cover a few hundred dollars a month of negative cash flow then I'd recommend looking at Gilbert. I live in Gilbert and own 5 rentals here, but I also help other investors find, analyze, buy and manage properties all over the valley, and Casa Grande is a top pick from some of my other investors.

Investment Info:

Condo buy & hold investment.

Purchase price: $280,000
Cash invested: $7,000

Light rehab, rent, and 30 month balloon to refinance. After 30 months I will have paid the loan down a little, forced appreciation, might have a little market appreciation and hopefully interest rates are lower in 30 months then they are now. If everything goes right I will be able to refinance and will have created 25% equity, or I may end up having to bring $10-20k to the refinance to get the 75% LTV depending on the appraisal, but even if that's the case it's still a great deal.

What made you interested in investing in this type of deal?

I own 5 other properties in Gilbert within 2 miles of this property and I'm very confident in this area long term.

How did you find this deal and how did you negotiate it?

The seller was my mentor when I first started buying rentals. He is on the other end of his career now and I've been helping him sell properties as his agent. He wanted me to sell the property for him, I knew it was paid off and I knew he didn't need the cash since I just sold a property for him a few months ago, so I presented the idea to him. I gave him 3 different seller finance options along with other options of selling the property for him and after some discussions we found a win win.

How did you finance this deal?

I paid both sides of closing costs. 100% seller finance, 5% interest, amortized over 23 years, with a balloon payment of the principle balance due after 30 months. I plan to refinance and pay him off when the balloon payment is due.

How did you add value to the deal?

Light rehab, paint, blinds, fixtures, and paint cabinets. There are already new floors, countertops, and appliances.

What was the outcome?

Just closed today.

Lessons learned? Challenges?

Giving the seller different options during the negotiations was really helpful because it let me find out what was really important to him and allowed me to make changes to my offer, so we could come to terms that worked for both of us.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I am an agent.

@H. Jack Miller

I have not had any tenants not pay rent, but I have seen rents soften for multi family and condo rentals (roughly 5-10% decrease in rental rates). This is because so much new multi family supply has come online. I own and manage mostly class B and B+ single family homes and condos, but I have heard that evictions have ticked up in class C, that’s one of the problems with chasing cash flow is getting into class C and dealing with a tenants that are not as well qualified and higher risk of default to begin with. I think the long term fundamentals here are solid with job growth and population growth, it’s just a matter of the new supply getting absorbed which will take 2-3 years. There is much less new supply of single family homes, so the rental rates are flat to up a little; this does depend on the neighborhood though, in some of the fringe areas where there is a lot of new single family home construction the rents are a little softer. From what I see and hear the less qualified tenants are being affected the most by the economy because they were in a weaker position to begin with.

@Sean MacDonald

I think you summed it up in your observation of your clients, it's very typical here in the valley that the number of transactions will decline right before an election and then those buyers just like your clients will get back in and the number of transactions will pick back up in the months following the election. Our supply of homes for sale on the MLS has been steadily increasing for several months, so I don't anticipate that price will start to increase until later in the winter.

Right now is a great time to buy, with less competition it's a lot easier to get seller concessions to cover closing costs and interest rate buy downs.

@Ashley Anderson 

5% down payment is only available on owner occupied loans, these also have a lower interest rate. If you buy something as an investment property you might be able to get 10-15% down, but the rate isn't going to be as good, I'd recommend 20 or even 25% down if you can, but even then the interest rate is still going to be higher than it would be on an owner occupied loan at 5% down.