All Forum Posts by: Josh Young

@Aj Oxley you should buy a primary residence with a 5% down payment conventional loan, and keep your current home as a rental, do this again in a few years and you will have a couple rentals with cash flow, equity, experience and options.

@Jennifer Stammberger I agree with @Kevin Sobilo use a percentage, I use 4% vacancy, 4% maintenance/repair, 4% Cap Ex, 8% property management, so 20% total, but up that to 25% if it's an older property or class C property, and then if it's a newer condo where HOA covers more maybe go down to 15%. Residential conventional financing counts 75% of rent to offset PITI, so that's 25% expenses, they also want you to have 6 months of PITI payments in reserves, reserves is the key because these expenses don't come all spread out like the budget, they often happen a couple or even a few at a time. Extra reserves will make budgeting expenses a lot easier.

@Brandon Dietz

Expenses should be based off a percentage of the rent, This is where I usually start: vacancy 4%, maintenance/repairs 4%, Cap Ex 4%, property management 8%. This totals 20%, but if you have an older property or class C property then you might want to jump up to 25%. So if the rent is $2000 per month you'd only count $1500-$1600 towards cash flow. Taxes and insurance can vary a lot depending on where you are, but I lump those in with my debt to make what's called PITI (Principle Interest Taxes and Insurance), so if your PITI payment is less than 75-80% of the rent then the deal should cash flow.

@Steve Manoa thank you for providing details. If you sell now you will get about $370k tax free, so we should calculate the return you will get on that money (Return on Equity).  The return will be made up of cash flow, principle paydown, tax savings, and appreciation. 

Rent at $6400 minus expenses for vacancy 4%, cap Ex 4%, maintenance/repairs 4%, and property management 8%; you said it's new, rents easily with great tenants and has a maintenance payment built in so let cut this back and say 15% of rent instead of 20%. That means cash flow wise it will lose $250/month, so negative $3k per year.  

Based on some assumptions I made about your mortgage, the principle paydown should be about $2k/month, so $24k per year. 

Tax savings you will be able to deduct the entire payment $5700 minus the principle paydown $2000 plus expenses $950, this equals $4650/month, so $56k plus depreciation (assume 90% improvement value on $1.2M basis /27,5 years) $39k, with rental income of $77k this equals a loss of $18k per year against your income, so lets call that $10k value.

So far we are at $31k on $370k is an 8% return. plus appreciation of maybe 2%, so $24k, that brings us to a total of $55k which is a 15% return. I'd keep it as rental, but only do a 12 month lease at a time because you want to re-calculate in 2 years to see if doing the IRS section 121 exclusion is worth it or not, you really don't have much of a gain, but I'd still want to do the math especially since the rate adjusts at that point too and if you do decide to sell in 2 years you will want it to be vacant when you list it. 

Build up your emergency fund, but DO NOT pay extra towards the principle, you can make a better return and keep your money more liquid by investing in pretty much anything other than additional principle payments.

As far as borrowing money for a rehab just compare rates, unless you are tight on cash flow then consider the HELOC as that will likely be a higher rate, but interest only payments during the draw period.

I hope this helps. Good Luck!

@Brandon Seider you can actually buy the property as a primary residence as well, so it can be 5% down and lowest available interest rate. This is possible with a program called a family opportunity loan, your lender should know about the program, if not then send me a massage and I'll give the contact info for a lender that I use.

@Ruby Lee

I would put as little money down as possible, save your cash and buy a home in the best area that you can afford.  You will have no trouble renting out the rooms if it's in a great location, and you will have good cash reserves, so it won't be a big deal if you do have any vacancies.  The cash reserves will also give you time to pivot if you need to change strategies and it will give you a head start to buy your next property in a year or two.

@Austin Bull I discovered the BP podcast after I had my 1st rental, that's when I really started to learn a lot. The podcast was Brandon Turner and David Greene and they would ask every guest what their favorite book was, Rich Dad Poor Dad was the overwhelming favorite, and it is at the top of my list.  The next book I heard a lot of recommendations for was The Millionaire Real Estate Investor, this book is great for developing a specific plan, he talks about Return on Equity, I wasn't hearing a lot of people or books talk about this, but it really made sense to me and it's one of my favorite measurements today.  

 @Austin Bull Loopholes of Real Estate is a great book on tax strategies. 

@Doug McVinua thanks, and you are spot on with regards to our market, low supply and prices are appreciating, people are moving here and there is a lot of growth happening, as rates starts to drop in next couple years prices will continue to increase.

@Austin Bull remember this, time in the market always beats trying to time the market. Getting started is the most important thing. I’ll shoot you a message, so we can connect.

@Austin Bull

See if you can pick up more overtime at your current job, rather than starting a second job, double your focus and effort where you are and try to get a raise/promotion. As far as trying to qualify for a mortgage, pay off any and all debt if possible. The way DTI is calculated monthly debt payments have twice as much effect as income does.