All Forum Posts by: Josh Young

@Gary Love

I like the way you are thinking, I did this same thing. A few things to consider are: you can use 75% of market rent on your current house to help you qualify for the next. Conventional 5% down payment loans are great. I used to think the same way as you on the not tapping equity, but you should calculate your return on equity to help make this decision, I would consider taking out a home equity loan or HELOC while it's still your primary residence, you probably don't want to do a cash out refi if your current rate is super low, but do the math. Have your lender price out prepaying instead of monthly on the PMI on the new purchase (I did this once because it was half the price, I didn't another time because it was basically the same price), or you might just plan on doing a refi on the new purchase in a couple years to remove pmi and possibly a lower rate or consider doing an ARM. When buying a primary residence, buy in the best neighborhood that you want to live in, this will help with appreciation, but also run the numbers as a rental so it will at least be close to cash flowing. Good Luck!

Pay off the HELOC and then do a cash out refi on the condo, this will give you $150k cash to use on your flips.

Great idea, and great way to teach your kid about REI. I know someone who did this and they make their kid manage the property, find roommates, collect rent and pay utilities, so they end up learning how to manage a property. They also put their kid's name on title, ask your CPA and lender, there could be loan and tax advantages as a primary residence.

Talk to a lender and make a plan, you are close to having enough to buy a primary residence 5% down conventional loan. Buy in the best area you can afford, nice job saving, keep up the good work!

Quote from @John Martinez:

Quote from @Josh Young:

@John Martinez

I would definitely keep it as a rental, that's actually pretty good cash flow relatively speaking, anytime you can cover your PITI with under 75% of rent you should be good to hold long term, and your loan at 2.5% interest is a valuable asset, your principal portion of payments on your amortization schedule are much stronger than they would be on a new loan which might be over 7% interest on an investment property. Buy a new primary residence using a conventional 5% down loan and put a lease on the current house counting 75% of the rent to help qualify if you need. Maybe take out at HELOC on the property before you buy the next, once it's a rental it will be much harder to add leverage.

Thank you for the advice. Can I still apply for a new home while having a HELOC on the property?

 Yes, but talk to your lender 1st, proper planning is the key and a good lender will advise once they know the specifics of your situation.

Quote from @Linda Weygant:

Quote from @Josh Young:

Ask your CPA, but $50k is correct on the form if that was the sales price, and then your CPA will put $39k as your basis, so your short term capital gain will be $11k. You should also provide your CPA with the settlement statements and account for any other expenses that you incurred.

 Wholesaling is not capital gains.  It's ordinary income and also subject to Self Employment tax.  Other than that, your advice is correct.

Thank you for educating me, I was under the impression a double close was capital gain and assignment was self employment, but now I know. This is why I always suggest people ask their CPA. I know that short term capital gains are taxed at the same rate as ordinary income, but just out of curiosity how many days would you need to “hold” the property before before it became a capital gain? Just 1 day or longer?

Ask your CPA, but $50k is correct on the form if that was the sales price, and then your CPA will put $39k as your basis, so your short term capital gain will be $11k. You should also provide your CPA with the settlement statements and account for any other expenses that you incurred.

Great job on the purchase and rehab, perfect BRRR, Infinite returns on CoC and IRR, the return on equity is what you need to calculate to help you make the decision on hold vs sell.

(Annual principle pay down + annual cash flow + appreciation) / Equity left in the property

Then you need to ask yourself if you sold what would you do with the money and what kind of return would you get. Also consider future rent increases and refinancing..

Quote from @Robert Fowler:

My realtor turned me on to a property with seller financing.

The seller wants $465,000 and a 20% down payment. It sound like the terms are wildly flexible and I could potentially structure a deal where I cashflow $1200.00 a month after expenses. This would be amortized over 40 years at 5% interest and interested only payments with a 20 year balloon. I would be sacrificing the long term paydown of the loan for cashflow upfront. 

The returns seem good and this deal would leave me with just enough money to buy another home conventionally in the following 6-12 months if I can find the right houseback on the market. 

This is the first time I considered or been approached with this kind of deal, any input would be greatly appreciated!

  

 These terms sound great, 5% is a better rate than you get anywhere else right now and yes you aren’t getting the principal pay down, but you are getting extra cash flow instead, I’d much rather have cash than equity, equity is usually expensive to turn into cash. Is there a pre-payment penalty? That could limit your ability to pivot if circumstances change, but otherwise 5% interest only sounds like terms I’d take on literally every deal I could buy, if it’s interest only then there is no amortization. Obviously don’t over pay to get those terms.

@Will Greenlee

You could do a rent by the room strategy on your unit and just rent out all the bedrooms and the basement is your bedroom, so you still have access to the kitchen/bathroom/living room. When you are qualifying to buy your next place you won’t be able to use the actual rent that you are collecting for your unit, but you will be able to use 75% of market rent.