All Forum Posts by: Josh Young

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $320,000
Cash invested: $35,000
Sale price: $400,000

I bought this property from a wholesaler and used a hard/private money loan on the purchase. I partnered with one of my close friends who is a contractor. We did a light rehab which included paint, carpet, fixtures, turf in the backyard, and a new roof.

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

I own a few rentals and it has been hard to find a deal that will work, I help other investor clients do flips, so I thought it was time that I started with the strategy too.

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

I am on a bunch of wholesaler's lists and after analyzing hundreds of deals for myself and my clients I found one that was from a reputable licensed agent/wholesaler and I pulled the trigger. It actually sold to someone else within the first few hours, but the deal fell through and the wholesaler reached back out to me a few days later and I locked it up.

How did you finance this deal?

I financed this deal with a hard/private money loan that was at 90% of purchase and no points, no appraisal, no fees, with a 14% interest rate. The deal was funded in 2 days and I split the down payment and rehab costs with my partner who is one of my close friends and a licensed General Contractor.

How did you add value to the deal?

We cleaned the property up with new paint inside and out, new carpet, new plumbing fixtures, new light fixtures, new turf in the back yard, and a new roof.

What was the outcome?

The outcome was that the rehab cost more than we planned on, we held the property for a little longer than we wanted to, but we made money and are excited for our next deal.

Lessons learned? Challenges?

I learned that I was smart to be super conservative on underwriting the deal, I passed on hundreds of deals before I saw a great opportunity and was able to make a quick decision. We went a little over budget, but since I was so conservative on the underwriting we were still able to make money. I see a lot of deals that make sense if everything goes perfect, but I would not count on everything going perfect.

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

I was my own agent on this deal. I love helping my investor clients; and doing my own deals definitely makes me better at what I do.

@Ashni Modi I really like new construction SFH in Casa Grande, you can find properties that make great rentals from $300-400k, they have a 7% rent to price ratio with zero maintenance repairs or cap ex. Full disclosure: I'm a realtor and property manager and have been helping my clients buy these and then I take them over for management after they close.

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...