All Forum Posts by: Josh Young

One of my friends owns a few rentals so I asked him a million questions because I didn't want to make a mistake, and I saved so I had more reserves than I needed, make sure you have at least 6 months of PITI payments in reserves, as long as you have reserves you have time to pivot if you run into unforeseen challenges. I also listened to every episode of the Bigger Pockets Podcast and really became obsessed lol... You don't have to get it perfect, just make sure the numbers make sense and pull the trigger. Ask every person you know if they own rentals or know somebody who does own rentals and you will find someone.

Quote from @Alex Guerrero:

Quote from @Josh Young:

Alex, this is exactly how you build a portfolio of rentals, keep it and rent it out as a long term rental. Can you rent it out for more than your PITI, ideally you'd want to get at least 1.3X your PITI, so you are covering expenses like, maintenance, repairs, PM, vacancy, Cap Ex, but your tenant will also be paying down your mortgage, so you want to consider the principal portion of the payment as money that's going to you, it's not cash flow, but it's important to figure it into the return. In a few years the loan will be getting paid down, rents will increase, home values will go up, and rates will go down (or even if they don't) you can refinance. Buy another primary residence wherever you move to and you will be on your way to building a portfolio of rentals.

 I appreciate you reaching out, I don’t have anyone close to me that does have rentals. What’s the route you’d recommend taking?

Get an apartment once I have renter’s interested and then get the next home?

What’s advice for managing a property? Of course I don’t want to just post on Facebook and let anyone walk in..

I'm not sure how much reserves you have or funds for a down payment, but you should be able to buy another primary residence (low down payment) as long as you qualify with your DTI, you can put a lease on your 1st house and the lender should be able to count 75% of that rent as income to help your DTI. Or rent as cheep a place as possible for a year to save for down payment and then the lender can use your rental income on your taxes, just don't get crazy with deductions on your taxes if you are trying to show income. I use Zillow Rental Manager to list properties for rent, screen applicants, sign leases and collect rent, it cost me $10 a week to list a rental and everything else is free, the applicant just pays Zillow $30 for background check and credit report and then they can apply to as many properties as they want for 30 days. Just make sure you take good photos and price the property $50-100 under what you think you can get if you want to get a lot of applicants and get it rented quickly, then you can raise the rent next year.

Alex, this is exactly how you build a portfolio of rentals, keep it and rent it out as a long term rental. Can you rent it out for more than your PITI, ideally you'd want to get at least 1.3X your PITI, so you are covering expenses like, maintenance, repairs, PM, vacancy, Cap Ex, but your tenant will also be paying down your mortgage, so you want to consider the principal portion of the payment as money that's going to you, it's not cash flow, but it's important to figure it into the return. In a few years the loan will be getting paid down, rents will increase, home values will go up, and rates will go down (or even if they don't) you can refinance. Buy another primary residence wherever you move to and you will be on your way to building a portfolio of rentals.

I recently passed my RE exam and I I’m looking for a brokerage to hang my license. I currently manage a few residential rentals that I own with my wife, and I’m wanting to manage more rentals than just my own. I’m also wanting to help buyers and sellers. Is there anyone in Arizona (preferably east valley) that does this combo of PM/Sales?

Quote from @Alexa Rooney:

Hey Randy! Thanks for the comment. Makes me feel like I definitely am making the right decision.

Since I’m so new to this I guess my question is what are some things during my renovations that increase the value? 

Once two years pass what are some steps I need to take to analyze rent? Should I refinance before I rent ( I know if rates are lower that may be an obvious answer). What are some of the thing I need to look for to understand how this could be a good ROI?
would I take a home equity loan to buy my next property?

I know a lot of these are variable and really depend on what changes I make and how much time I live in it before I rent out.

Not sure if this give you an idea: my property appraised for 25k more than what it’s listed for and the roof is at its end of its life ( sellers are replacing it) and needs some updates kitchen/ bathroom/ etc. 

Thanks for the help I appreciate you reaching out and commenting. Snow has been unreal this year! I’m lucky to live so close! Try to get up 2-3 times a week! I’m glad you made it to PC- it’s a magical place!

Congrats on getting started, buying a primary residence is the best way to borrow money. Not sure of your floor plan, but if you can add a bedroom that can be an easy way to increase rental value if you just close off a dining room or family room, it also must have a fire egress to the outside to be considered a bedroom.  In a couple years if rates are lower you can do a cash out refi while it’s still your primary residence so you get the best rate, then buy another primary residence and this 1st one becomes your rental. If you need help qualifying for both mortgages you can put a lease on the 1st house and the lender should count 75% of the rent as income for your DTI. As far as what things rent for just look as if you were wanting to rent a place for yourself, after looking for 20 minutes a day for a couple weeks you will have very good idea of what the market is, if you look on Zillow sometimes it tells you how long it’s been listed for rent and how many contacts have been made, this is useful information as well. Great job getting started, that’s the same path I took and now I have 3 rentals.

Quote from @Zac Kucharek:

Quote from @James Hamling:

Quote from @Zac Kucharek:

Quote from @James Hamling:

@Zac Kucharek your missing the forest for the trees. 

What other "investment" can you get using 96.5% someone else's money? And get to keep 100% of the profits? 

What would happen if you go for stocks, and open a margin account and go as max leverage as possible? Yeah, it's going to cost you dearly. 

Your getting "buy a paycheck" mixed up with "buying an investment". An investment turns-into a paycheck, with time, care, strategy and effort. It is not so simple as just pulling up the MLS, buying some place and "shazam" you have a healthy monthly pay-check.

I started REI in the depths of the '08' panic, 1st hand knowledge, NO people were NOT swooping up properties then saying how it would all bounce back up, no they were not. I was a contrarian, everyone and I do mean EVERYONE said I was crazy and was going to loose my shirt. Only after I had done half a dozen flips did people start to say they couldn't understand how "lucky" I was. There was no luck involved.

The herd NEVER grasps the investment opportunity, such is life, the 20/80 rule. You will NOT find profit in the 80%. It's a life in the minority, away from the herd, going the opposite direction, being a "rebel", or as we call it the 20%. And truth is today it's more the 10/90 rule, if not 5/95. 

A Real Estate Investment, done correctly will have components of: Cash-flow, depreciation, equitable gains, market appreciation and forced-appreciation. Rents will not sit static, they will incline with appreciation. 

So Zac, your looking at just 1 factor, 1 alone, of this entire recipe. Try making a cake with only 1 of the ingredients. 

And your looking at FHA O.O. finance for entry, that's house-hacking, it's not buying a paycheck it's about being scrappy to "get-in".

Hey that is a great sound answer and I appreciate your input and experience weighing in. I certainly don't think I need something to cash flow in any healthy way right off the bat. Not my expectation! But I had certainly hoped upon moving out that there would be some form of at least breaking even after expenses? But many responses are sounding that is like finding a unicorn now?

I wouldn't necessarily go that far as to saying it's a "unicorn" of a find, but it's definently not going to be readily, obviously, available. What I mean by "obviously" is for example listed on the MLS, just very straight line "obvious" performer.

There is still opportunity out there in the "non-obvious" manner. For example, a value-add. Or, how about a conversion property, some large, usually older property, needing rehab, that could be converted to a duplex. Now, when I say duplex, please ALWAYS strive for sideXside because up-downs don't perform half as well as sideXsides, but if gotta do a up-down focus to keep it main floor and 2nd level vs main and basement. 

Or, could do something new-built. There is duplex options out there, where each unit is being sold but with the right negotiator, could get something put together as a package deal possibly, someway somehow wrapped back under 1 PID. Not saying it will be easy or "obvious" but point is, for the scrappy, there is options. 

Done right, yes, 100%, it should absolutely be cash-flowing at move out and fully leasing and if on analysis don't see that exit, than it's yet another over-priced BS scam of a "deal" trying to take advantage of the "gold-rush" too house-hacks. Retail agents have learned this, they don't care about a person business after "a" transaction, there with tunnel vision of getting that 1 next sale. 

Keep this in mind, whenever considering what an "agent" is pumping as a "good buy". Are they an Agent or a Broker? That's indicator #1 of there knowledge and experience level. It's not a certainty, but a potential red-flag because in general, agents have the experience and knowledge sub-Broker status, which is actually not all that high a bar to get over. Next, what do they specialize in? Do they specialize in anything? A generalist only has general knowledge, at best. You gotta be able to read if it's a one time deal being sold, or if trying to earn you as a forever client. i know, you'd think most would go for forever, it's actually rare to be honest, because of the work it takes, and the accountability on performance. 

Your getting a lot of feedback, which is great, but rather being blindly swayed by it, any of it mine included, next you gotta do your research to decide who's feedback and opinions matter, and who's is just chatter. 

Finding good deals is hard work, it really is. It sounds easy in books and what-not but once at it, it's hard work right. That's where most stop, don't, don't be the 80%, work HARDER, fail-UP, the hardest one is the first one, it is. Second is also hard as hell BUT it's just a bit easier than the first. And that's where you can experience each will get that bit easier. Again, this is the 1st, expect it to be brutally hard, if doing it right. Don't give in just dig deeper and work harder, smarter, push through it, it's worth it, it really is. 

 Incredible honest input. I appreciate your perspective and your encouragement after being extremely real with expectations. I continually strive to learn more each week and see more and ask more so that when the right deal does come I will know and be confident. I know it may be hard but I also am not one to do something without over anylyzing it to mitogate as much risk as possible. I know many properties are not good deals or everyone would buy a great investment every week, if it were easy everyone would have one. 

I think I was somewhat discouraged but not off put by the thought that house hacking a duplex after moving out and having both rents coming in, the others were saying to basically forget about cash flow that is not realistic anymore... They have more experience than I do as I am just starting, so hard to not listen to that. But I also think hoping to find something where that scenario does work is not anywhere near unreasonable either... I'm not hoping to make 100k in one year, I'm just hoping to find a solid deal where a multi unit creates at least breaking even or some minor cash flow like 50-100$ after expenses. All market dependent but I find it hard to believe that is an insane fable level ask. I know putting less down on the initial purchase to get started creates a harder environment for cash flow, while easier to get in the game per say. But still am hopeful there is something out there that does indeed run at or near this, with over time being better.

I will continue to ask and listen and learn. But was just surprised by initial input with my question. Thank you:

Hi Zac, James Hamling hit the nail on the head, I think you see that.  I really like your plan to buy a duplex as your primary residence, cash flow is so tough starting out with a low down payment, but getting in the game has so many benefits, figure in tax savings on interest payments and factor in the principal payments on your loan as money that’s going to you, it’s not part of the cash flow but it is money that’s going to you.  If you buy in a good place that has population growth than in a few years rents and values will increase, you will refinance at a lower rate and you will have a solid investment, then you can go buy another primary residence. I have done this a few times with single family homes and I really wish I would have started with at least a duplex if not a triplex or quad. Keep analyzing deals, but don’t be afraid to pull the trigger as soon as it makes sense, the deal doesn’t have to be perfect, as long as it makes sense.

What I'm seeing is that at these rates turn key single family homes on the MLS will not cash flow as traditional long term rentals, so on the front end you need to either use creative financing or find distress or value add. The other option would be on the back end you could do short or medium term furnished or rent by the room if you can get at least 4 bedrooms. I have a friend who just turned a 4 bedroom with no HOA into a 5 bedroom by closing off the family room and he is cash flowing nicely at an average rent of $900 per room furnished. He found the deal on the MLS and it's in Mesa, I wish I would have gone in on the deal with him when he asked me.

Quote from @Mark Berge:

Hi all, my model tenant who pays on time and takes care of the house asked if he could possibly move out before the lease is up. He said he may buy a house or move in with his girlfriend. He's been there for a few years with his father who just passed away so he said now the house is too big for him.

The lease started on 8/1/2022 and ends on 7/31/2023. It is a good 3 bd/ 2 bath with new roof and new gas boiler and new electric water heater. He said he might want to move out 6/1/2023 to buy a house or move in with his girlfriend. I said ok, just make sure you don't move out in the winter when it will be hard for me to rent the house out. He said ok. The way the housing market is here in New Jersey, I know that I could probably raise the rent maybe 3-4% and easily get a good tenant in there. Any advice on this? This is my first and only rental property although I do rent out an extra bedroom in my house to room mates.

My advice would be to get the new end date in writing so you can start marketing the property before he moves out, this will reduce your vacancy, especially if major repairs are not needed. In my leases I put in an early termination clause, this makes it clear that the tenant can do this, but it requires a 60 day written notice and a 2 month penalty if they decide to terminate the lease early.  I have one tenant who is on her third year and she anticipated buying a house this year, so at the beginning of the term she asked if she could go month to month, I didn’t want to do that, so I offered to reduce the early termination penalty to a 1 month penalty but still required the 60 day written notice. She saw this as a win for her and if she terminates the lease early I have plenty of time to market the property and I make more than I would have otherwise, this extra income helps protect me against any seasonality risk too.

Investment Info:

Single-family residence buy & hold investment in Gilbert.

Purchase price: $218,000
Cash invested: $12,000

This is the 1st property that I bought, I bought it as my primary residence using a conventional 5% down loan. In 2020 it became my 1st rental property and it had gone up in value so much that the return on equity became too small, so in 2021 I did a cash out refi and pulled $130k out to buy another property.

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

This was the easiest way that I knew of to own real estate. The primary residence conventional 5% down loan requires a relatively small amount of money and is the best available rate.

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

I found it on the MLS they were asking $225k, it was in the market for 30 days so I offered $210k and asked for $5k closing credit they countered and we settled at $222.5k and $5k credit, but then it appraised for $218k, so we renegotiated and closed at $218k and $2.5k closing credit.

How did you finance this deal?

Primary residence conventional 5% down.

How did you add value to the deal?

Added French doors, updated faucet fixtures and a few other plumbing valves and updated some landscaping.

What was the outcome?

I lived in this house for almost 5 years then turned it into a rental that I still own.

Lessons learned? Challenges?

I should have turned it into a rental sooner than I did. I thought I had to afford two houses in order to buy my next, but I could have just put a lease on the house and used 75% of that income to qualify for the next house. I also did a refi in 2019 to get rid of my pmi and reduce the term to 20 year because I thought paying off the house was the goal, but later realized that my return on equity was too small and leverage is a key to RE as long as you have at least a 1.3 DSCR.

Hi Alden,

I live in Gilbert and have a few long term rentals, I like your idea of keeping as a long term rental. Repairs/Maintenance/Property Management/Cap Ex/Vacancy etc...  these vary a lot, so reserves are important, these might be 2-8% each, so you might be right with $200-500 per month. You also have a low interest loan so your principle payments on your amortization schedule are pretty strong, that is an important factor when calculating return on equity, return on equity is one of my favorite measures, obviously you need cash flow to keep the whole thing alive, but building your balance sheet is the ultimate goal in Buy and Hold RE Investing.  Rather than moving into a rental why don't you buy another property as your primary residence using a conventional 5% down loan.  You should be able to put a long term lease on your current property to help you qualify and there are a bunch of properties in Mesa for sale under $300k, so your payment will be about the same $2200, it probably won't be as nice as the property you are in now, but you will own two properties, rent will increase more over time, expenses will too, but not as much as rent, in a few years your cash flow will improve and your balance sheet will be growing.