All Forum Posts by: Todd Aaron

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $295,000
Cash invested: $30,000

Remodeled 3/2 home by the Kiwanis Park. Kitchen - Quartz Countertops, self-close white cabinet doors, extended breakfast bar, all new stainless appliances. Wood plank porcelain tile in all living areas. New carpet in bedrooms. Master bathroom with a spacious tile surround shower. Full hall bathroom with tile surround shower-tub. New interior and exterior doors with hardware, a sliding door leads to covered brick paver patio in grassy backyard with block privacy fencing. Two car carport.

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

Oddly enough, our daughter moved to Tempe to attend ASU and they were paying $1750/mo for an apartment and we weren't super impressed with it. We looked around and found this house in a great neighborhood, and purchased it, then moved them into it and they found a good friend at school as a roommate. We had them pay enough to cover the house payment, so we ended up drastically reducing their expenses while providing them a great 3/2 house with a fenced back yard and carport in a great location.

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

Found it on Zillow and did a drive by. Called the listing realtor to assure we would have a good chance at it as the listing realtor would be getting the full 6% without having to share with another realtor.

How did you finance this deal?

The realtor suggested Kevin Brumit (NMLS#202081) Licensed Mortgage Professional - Homeowners Financial Group. We did a conventional loan with a little over 10% down.

How did you add value to the deal?

So, depending on the situation, value can come in many forms that don't necessarily add up directly to dollars. In this case, we were able to purchase a house for our daughter, her husband and one other ASU student into, saving them a ton of monthly cost & moving them to a much nicer neighborhood. At the apartments at night, my daughter was having to walk the dog across the complex alone to potty. All this adds value, but additionally, the value has increased about $175k since the purchase.

What was the outcome?

Steady rent though not a huge cashflow, for three years while the value of the property has increased in value by $175k. Rents have climbed significantly due to the lack of supply and popularity and increased costs for other owners. Everyone is graduated and leaving the area, so we are about to place the property for rent at the price we see similar properties in the same neighborhood going for, and if that pays off, this will turn into a great cash flow property, and if not, we can sell fast.

Lessons learned? Challenges?

It is a challenge to self manage a property when you live over 1000 miles away. Repairs are complicated by the distance and travel. This will be a larger challenge moving forward as family no longer lives there. Another thing to keep in mind is that we may not be in the best position to finance another property if we have to sell suddenly, so if we have to sell, we might not be able to complete a 1031 exchange, so we may have to absorb the capital gains taxes. chances are, things will be ok.

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

Kevin Brumit (NMLS#202081) Licensed Mortgage Professional - Homeowners Financial Group. He did a great job with financing and has everything down to where things go very smooth.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $295,000
Cash invested: $30,000

Beautifully remodeled home by the Kiwanis Park. The spacious kitchen boasts self-close crisp white cabinets with hardware, quartz countertops include an extended breakfast bar, all new stainless appliances and farmhouse sink. Wood plank porcelain tile in all living areas. Bedrooms have new carpeting and fans with light fixtures. The master suite offers a walk-in closet, bathroom with a spacious tile surround shower. Full hall bathroom with tile surround shower-tub; comfort height water closets, new plumbing and fixtures. New interior and exterior doors with hardware, a sliding door leads to covered brick paver patio in grassy backyard with block privacy fencing. Two car carport. Fresh desert landscaping in front yard with mature palm trees; all landscaping on an auto-timed sprinkler system. New Trane A/C unit.

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

Oddly enough, our daughter moved to Tempe to attend ASU and they were paying $1750/mo for an apartment and we weren't super impressed with it. We looked around and found this house in a great neighborhood, and purchased it, then moved them into it and they found a good friend at school as a roommate. We had them pay enough to cover the house payment, so we ended up drastically reducing their expenses while providing them a great 3/2 house with a fenced back yard and carport in a great location.

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

Found it on Zillow and did a drive by. Called the listing realtor to assure we would have a good chance at it as the listing realtor would be getting the full 6% without having to share with another realtor.

How did you finance this deal?

The realtor suggested Kevin Brumit (NMLS#202081) Licensed Mortgage Professional - Homeowners Financial Group. We did a conventional loan with a little over 10% down.

How did you add value to the deal?

So, depending on the situation, value can come in many forms that don't necessarily add up directly to dollars. In this case, we were able to purchase a house for our daughter, her husband and one other ASU student into, saving them a ton of monthly cost & moving them to a much nicer neighborhood. At the apartments at night, my daughter was having to walk the dog across the complex alone to potty. All this adds value, but additionally, the value has increased about $175k since the purchase.

What was the outcome?

Steady rent though not a huge cashflow, for three years while the value of the property has increased in value by $175k. Rents have climbed significantly due to the lack of supply and popularity and increased costs for other owners. Everyone is graduated and leaving the area, so we are about to place the property for rent at the price we see similar properties in the same neighborhood going for, and if that pays off, this will turn into a great cash flow property, and if not, we can sell fast.

Lessons learned? Challenges?

It is a challenge to self manage a property when you live over 1000 miles away. Repairs are complicated by the distance and travel. This will be a larger challenge moving forward as family no longer lives there. Another thing to keep in mind is that we may not be in the best position to finance another property if we have to sell suddenly, so if we have to sell, we might not be able to complete a 1031 exchange, so we may have to absorb the capital gains taxes. chances are, things will be ok.

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

Kevin Brumit (NMLS#202081) Licensed Mortgage Professional - Homeowners Financial Group. He did a great job with financing and has everything down to where things go very smooth.

Quote from @Dave Foster:

  If you want to avoid all tax you must purchase at least as much as your net sale ($400K ish). 

Are you saying that to avoid tax implications, the 1031 purchase has to be the same or more than the total sale price of the selling property? 

Example: We have a house that we purchased for $300,000 that has been a rental for 3 years now. We put $30k down because it was initially a second home (it is in another state - Arizona). The value of that house is now around $475,000. If we sold it for $475,000 and realized around $175,000 of profit (keeping things simple - not including depreciation, closing related costs, etc. offsetting), You are saying above that we would have to purchase the next house (or houses) for at least the $475,000 price to avoid tax implications??  I thought it was only concerned with the profit and long term gains on that amount. 

Why would the amount financed be a factor?
Thanks,
Todd

You should talk to Holly in Tyler. She is a mortgage loan originator and also an active investor herself so she is one of the few lenders that understands our needs from personal experience. 
she can do loans anywhere in Texas but she is in Tyler. 
She also works with people to get their credit as high as possible as quickly as possible so they can get the beat rates. All of my investment properties and all of her’s are on 30 year notes. If you are looking to maximize income on your properties there’s no reason to not go 30 years in my opinion. 
We aren’t supposed to post contact info on here so send me a message if you or anyone else would like her contact info. 

I am not handling any of it personally.  The current broker is doing that at the moment.  In the last two years my rate increases have caused an additional $70 a month increase on my escrow payment for one property alone. About half that each year. 
The other property is increasing similarly. 
To me, that seems a little excessive. 
I also have him doing my cars because there was supposedly additional discounts available that way. 

Moving forward I guess I will have to add additional cushion so that I can at least account for the increases.  I was guessing that it would not increase at this rate when I got into this.  

So, when I was doing my research before making purchases I allowed for all the costs involved, however each year my insurance rates climb a little higher even though I have made no claims.  If you push this out for decades, the cash flow eventually dwindles... I don't recall seeing this issue discussed in the books about this when I was getting started.  What does everyone do to combat this?  
Do you have to just shop insurance annually?
The increases are happening at a rate that is too high for me to equalize through rent increases. 
Thanks, Todd. 

@Darren Nardo is the quad empty now or are any of the units leased? If leased, will the rents cover the payments and leave at least one unit open? If so, I’d jump on it!

I agree with Kris above... The high prices that homes are selling for at this point coupled with the slower increasing rental rates are making it difficult to create a break even scenario, much less see a positive cash flow.  I have a friend who saw an increase in value from $275k to $415K in 3-4 years on a little 1940's 2 bed/1 bath. 
I personally am not convinced that this level of growth in value can continue for several decades but it doesn't appear to be slowing down currently, so I am prepared to be wrong.   
My goals are to create an income through buy and hold, but if I could fund it, I would definitely look at doing some flips in Austin. Several houses on the same block were purchased, updated/renovated and then sold fairly quickly and at price increases that I was seriously doubtful would yield a showing.    
If you get really creative, there may be ways to get a positive cash flow. We were considering building the detached garage into a 2 story ADU and renting that out also, which would have been the positive cash flow in that deal since the $1995/Month rent was just breaking even. The cost of construction and the fact that we live 4 hours away and would be very limited in being able to manage subs and also do some of the work ourselves left us deciding to put that idea on the back burner.

Originally posted by @Brett Wagner:

@Todd Aaron Thanks for the feedback, Todd. I’m contacting your friend now re: refinancing.

What was the book you have regarding home inspectIons? Thats rIght down my alley. A good home inspector can definitely be an asset to buying a home but there are some things to look for if you do your own walk-thru on a property. Feel free to call with any questions. I'd be more than happy to help. Curious if you found your deals on MLS or other ways.

 I will have to look when I get home to find the Home Inspection book that I have.  I can't find it from google searching.  I believe it was mentioned in another book I had read but again, I am not having luck finding it from here. 
I did like the information in "The Book on Estimating Rehab Costs" which was a bonus book that came with "The Book on Flipping Houses", written by active real estate fix-and-flipper J Scott, available here on biggerpockets.com (http://get.biggerpockets.com/flippingbook/) . 

I did find one of my deals on zillow which was an MLS listing, and the other one I found also advertised on zillow but it was a FSBO and that was actually being sold by someone who was flipping it, so it had been completely redone and was ready to rent aside from a few touches I wanted to add myself. 

Originally posted by @Brett Wagner:

Hi all. I would like some help on what you would do if you were in my situation. So here goes:

looking to find very first SF or MF deal.

primary home has a 2.65% rate and approximately 7-8 years left to pay on it. Worth approximately $110k.

The monthly payment is maxing us out but working a 2nd job to save up $$ for the rental property, but that's going to take approximately 1-2 years before i can save up enough for down payment + rehab costs.

Family of 6, so house hacking in a duplex, etc., is not really an option.

Thinking about refinancing to get a lower payment, or cash out refi or Home equity loan which would free up more cash to speed up the process and use that money for a down payment. To make it a little more complicated, in the next 3-4 years, we'd like to move to Central America for mission work. The plan is to only go for about 1 year.

My thought is that I would like to have about 3 houses rented when we move to Central America, but some say refinancing out of such a low interest mortgage is not a good option... but that's why I'm posting to get your thoughts.

Great to see so many East Texans here!

 I think that you would be in a good position to do a refinance to get your payment down to the point where you could rent your house out and the rent would give you a positive cash flow. 

You would get a higher interest rate, but think about this - your renters will be making your house payment as well as paying you the positive cash flow, so the higher rate won’t really be a worry at that point. 

Additionally depending on your equity, you could cash out on the refi some of your equity and possibly get enough to cover the down payment and closing and possibly repairs for the next one.... especially if you are planning to move in and house hack because you will be renting your current place. 

Just wanted to throw that out there Incase you have not looked at it like that yet. 

I’m here with my friend that does the  mortgages and she agrees that , depending on your equity, this might be a good way to get you some cash to get going.