All Forum Posts by: Greg Troester

To your follow-up questions

1. Just in regards to the HOA, in general: you've checked your CCRs and they allow a non-owner-occupied rental, correct? Aside from that, the other soft cost you haven't listed is vacancy (5% is what I use)
2. I think you probably have a good handle on the risks of renting, so I'll speak to exit strategy risks. Those are, in my mind, fairly low. We bought a house, back-rented our old house, and always felt comfortable that we had enough equity that unless the market really, really took a dive (like '08-style), we would be able to repair any damage and sell it without losing anything. In UT, you can sell a property without incurring income tax for capital gains as long as you've lived in it for at least 2 of the last 5 years. So in your case, you would probably want to sit tight for another ~15 months. This gives you a 3-year window to decide if you do or do not like landlording while still retaining the upside of selling your home under homeowner tax law if you decide to sell your current home (rental).

If I were you, I'd sharpen my axe for just a bit longer - your margins are too tight (IMHO) to justify the effort at this point. HOAs are nice for many things, but they turn soft costs into hard costs right away - that alone makes margins tight for new guys like us, unless we deploy a large cash down-payment to drop the mortgage

@Seth Moffett, making sure I follow: you want to rent this current house and buy a second, house-hacking the second. Correct me if I'm wrong

Provided I'm interpreting this correctly, IMO - your numbers on House #1 are too tight if you want the cashflow to do you any good. Appreciation only does you good when you sell - until then, it is an unrealized gain! 

Were I in your shoes, here are some other options worth considering.
First: what is your goal? Cashflow or appreciation? It sounds like it's cashflow, so...

• Can you house-hack your current residence? Bank the savings to build a down-payment for a rental down payment
• Can you take a line of credit out on your current residence? This is an excellent catalyst to buying rental #2 (but make sure you factor paying the HELOC down in your projections!)
• Can you sell your current house and get into something more house-hackable? Yes, this is a slower way to get to two houses, but, as stated above - if the numbers don't work now, they won't ever work unless you dump more cash in and refinance
• Don't worry about 1% rule in UT - hard to make this happen. Similar on 50% rule. But: don't run your cashflow so tight

@Timothy Roberts I don't know of any loopholes, sorry. Didn't want to be a downer, but I know that the ADU/MultiFamily thing was something we were looking at while we shopped for our first expansion property and it's tricky. It's an easy one to talk yourself into ("oh, we could get it re-zoned") and not a bad thing to try to make happen down the road, but I wouldn't recommend it to a newer investor (like me, for the record!) on top of everything else we juggle.

You’re correct that the 1% Rule is a tough one to hit in UT. That said, some considerations to your strategy:
Sounds like there are two assumptions that should be validated (if you haven’t already, of course):

1. Zoning - will you be allowed to rent top and bottom after moving out? This would technically become a multi-family if there isn’t access between the two units, etc. This is a complex one that is less of an issue while you’re living in the upper half, but needs to be sorted and understood before you move out. 
2. Zoning #2 - the detached structure would become an Accessory Dwelling Unit. Is that allowed on the parcel?

@Wendy Ledyard you may want to share bed/bath count and some other info about the type of rentals you’re considering. 

+1 to what @Gary Parilis said on the HELOC. That's what we did prior to moving out of our primary and turning it into our first rental. It's awesome to pay interest-only to accelerate our live-in rehab and it preserves cashflow in the rental.

@William Hochstedler makes a good point about the deal: if it still makes sense without the MIL or ADU (whichever it ends up actually being), then rock on and plan for contingencies. Maybe this house becomes your first fix-and-flip or you fix it, HELOC it, and then rent it out and buy another place. You have options.

Super late reply on this, particularly since you’re already under contract on a home, but...

1 - immediately. We had a legitimate change in plans. The house we bought after our refi was the one we walked months before. 
2 - surprisingly enough, it was on the MLS - we walked it and put in an offer same-day, but the selling agent ghosted us. It came back on the market months later.

What’s the actual zoning of the property? Curious. By your quote, it sounds like Centerville is passively against it and will only punish those who are bad landlords. 

Be a good landlord: due diligence and clear rules that are enforced to ensure your tenants are pleasant for you and your neighbors. Limit parking, limit guests, limit noise, limit occupancy. Look at the laws and educate yourself.  There are unique restrictions you can put into place because you occupy the house as well (assuming you’re actually going to live there, I hope...). 

Based on the info you have first-hand from Centerville, you can advertise as normal, but if your neighbors are against it, you’re hosed. Sounds like you should make friends with your neighbors. 

My neighbors rent out their basement and it’s fine - the street is wide enough, they don’t park on my side of the property line, they’re quiet, they don’t smoke, etc. I’m planning on renting ours out in the future as well and will have very strict criteria for my future tenant. 

That's not true. I've done it. It was legitimately a situation where we had pumped the brakes on buying a new home, so we refinanced our current. Your plans can change. If your mortgage company won't advocate for you on this, then try Carter Campbell at ALV Mortgage - tell him I sent you. Run the numbers and see if your mortgage payment can be lowered by refinancing but rolling closing costs into the loan. 

Edit: 
Don't get too worked up over needing to buy right now - if you look backwards in history, you'll always find a situation where "if I had bought then, I would be making XX more now". Yes, home prices are likely to raise, but so will rents, making your current home a better-margin rental and you've already purchased it - so think of your first rental as already being bought and paid for, if it helps... You're going to have to go for the properties other people won't. You're going to have to avoid anything that says 'perfect rental property' or 'MIL possibilities' - because the price will be jacked up and bigger money will just pay for it in cash because they're migrating from even more expensive markets. We aren't them, so don't play their game.
My wife and I bought a disaster of a house that was bank-owned and hard to purchase... we did so because we had inspected it when it was in pre-foreclosure and were able to throw an offer at it the day it went on-market. We had a plan because we had thought on it for months before it was available to purchase. Our unfair advantage was information and willingness to DIY and live in a rehab for 2 years.
What is your unfair advantage going to be?