All Forum Posts by: Josh Young

The problem is that home prices usually appreciate faster than people can save for the added down payment, so you are almost always better off buying with the lower down payment and re-financing later. If you can qualify for a conventional 5% down loan that is usually the best deal you can get (unless you qualify for VA then that is obviously a no-brainer). If you have bad credit an FHA 3.5% down loan can be a good option. I would almost never recommend putting 20% or more down on a primary residence unless it was required. PMI is not very expensive and you can re-finance out of it.

@Blair Bennett 

You need to calculate your Return On Equity ((Cash Flow + Principle Paydown + Projected Appreciation)/Equity). Make sure you use net cash flow, so you are accounting for maintenance, repairs, cap ex, vacancy, and property management; your cash flow might be $500 per month net if the gross is $1k. Principle paydown is something that a lot of people gloss over, but your interest rate and loan balance play a big part in this. The projected appreciation is tough to assign a value to, but 3% is a good conservative number, then it just depends on how much the property is worth. So if you have $200k in equity and your return total return of all 3 of these things is $30k per year that's a 15% Return On Equity. So, you have to ask yourself, if you sold it, could you get a better return than that by investing in something else? The interest rates on your students loans are probably much lower than that. There are also tax considerations, such as depreciation and IRS Section 121 Exclusion like you mentioned. 

I would probably keep it as a rental for two years and then consider IRS Section 121 Exclusion, but I would probably still keep it as a rental at that point, and if interest rates get below 6% I would consider a cash out refi to buy another investment property.

@Christopher Walrod if your personal situation allows you to house hack it can be a huge shortcut to becoming a real estate investor. I'm assuming you are talking about renting out the rooms in a SFH vs buying and living in a small multi-family. The key to house hacking in a SFH is buying the biggest house that you can afford in the best neighborhood that you can afford. Shoot me a message if you want to meet up for coffee, I'd be happy to help you.

3301 W Maricopa St, Phoenix, AZ 85009

$229,000

@Sarah Hall if you want to add properties, more leverage is probably the answer, but I would go for quality over quantity. Can you do a cash out refinance on an existing property? Can you do a HELOC on your current primary residence? Can you buy a new primary residence using a conventional loan with a 5% down payment?

@Kevin S.

Maybe, it's hard to say, it depends on your market, but it might only be 4% for the TH if SFH is 5%. Square footage and number of interior and exterior levels is also very important for rentals, you have to look at the comps.

@Kevin S. there are always exceptions, but typically yes townhomes and condos appreciate less than SFH. There are a number of reasons for this, but a higher HOA fee is one of the biggest reasons. Since townhomes and condos can be less expensive they sometimes can cashflow a little better than SFH in year one, but over time the SFH appreciation in value and appreciation in rent growth can turn into better cash flow and more equity in the long run.

Something to consider is that if you can't afford the SFH you might be better off buying a townhouse or condo rather than waiting until you can afford the SFH. Getting started is usually the best thing someone can do because prices can sometimes appreciate faster than people can save.

@Polen NA if you have limited capital to invest I would recommend you buy one at a time and use owner occupied loan to buy properties. Here is a post I did that might help you https://www.biggerpockets.com/forums/12/topics/1108744-how-t...

@Natasha Sykes having an ADU to rent out is a great way to make the numbers work. I would be a little cautious with your rehab as older houses can have a lot more hidden expenses, so just be conservative with your estimates, it sounds like it could have foundation problems if a floor is dipping. How is the electrical, plumbing, roof, HVAC? These expenses can add up quickly. It might be a great deal, idk, and you are right a great location can appreciate more, but just make sure you know what you are getting into with an older house.

@Dana N Johns without knowing your situation it's hard to give you too much advice, but I will tell you that real estate investing can be great for long term wealth creation, it can help you get to financial freedom, so you can quit your job, but it will take some time. And quitting your job will probably not happen right away, the income from your job will help you to get loans to buy real estate. If you have access to a VA loan that is going to be a huge advantage that I would recommend you try to use if you can. Step one is to buy a primary residence to live in, step two is to buy another primary residence to live in and turn the 1st one into a rental.