All Forum Posts by: Jeff Salberg

Hey there, Daniel!

I’m also in Chico, CA! And relatively new to the game, as well. Although we’re maybe a couple of steps ahead of you, we’re asking some of the same questions re: our equity in our current home that we renovated.

House hacking with a duplex or triplex seems like a great way to get started. And in Chico, is a great buy-and-hold strategy with the University being in town.

If you want to chat more, feel free to reach out! 👍🏼

Looking to start renting our current house (House #1) and live with the in-laws while we shop for a bigger house (House #2). A few details...

We're about 9 months short of our 2 years needed to avoid capital gains. Hence, why we're exploring renting. The next house would likely be another 2 year flip. At which point, we'd likely sell House #1 and House #2 and do a 1031 exchange for the House #1 funds into a new house (House #3). 

A few questions...

1) Obviously, theres a few more details that go into this scenario...BUT, at surface level, are there any foreseeable issues that I'm not thinking about? Are there other questions I should be asking?

2) What would be some "best practices" to start getting into place now to prepare for transition our current place to a rental property?

Thanks for any and all input!

Much appreciated, 

J

@Nicholas L.

Ahh, I see! Yes - in our case, we’d hold the title and could refi whenever we want, hence the no prepayment penalty.

As for the equity over cash argument, we certainly would be looking to pull out simply the equity needed for the DP on a new house. We don’t mind keeping some equity in the old house.

Thanks again for all your input - helps to get the gears turning!

@Nicholas L.

Your numbers are mostly correct. We're planning on the PITI (minus the P, of course) being about $1000.

A couple quick clarifications...

You said: "For simplicity's sake, let's assume your interest only payment is $1000 per month. That means you've spent $20K + $60K + $190K = $270K after 5 years."

I'm a little confused on that equation. If we only plan on living in it for less than a year, I see how we'd be into it for the $20K DP, and one year of payments (~$12K). But I'm failing to see how we'd be into it for the $60k (5 years of payments) and the $190K. If we have tenants paying for the other 4 years, how does that factor into the equation? Granted, after the 5 years, and we refinance, then I can see how we'd be into for the $20K, $12K and the $190K. Am I thinking about this wrong? Ha! Also, can you explain the whole ARV - 75%? If we plan on keeping this as a long term rental, does that still apply?

Truthfully, all we want to do (at this point...) is buy this house, live in it long enough and rehab enough to get the ARV to a place where we could cash flow at least $100, and be able to pull out enough money $30k for a DP on a new place. 

Good advice on the HELOC vs conventional mortgage. We'll keep that in mind when the time comes.

I truly do appreciate you walking me through some of this! Some of this feels like drinking from a fire hose at times. Ha! Just wanting to learn and try and understand as much as I can now before we get into the place. 

@Nicholas L. Thanks for your reply! Great feedback and much appreciated. I've done my best to answer some of the questions from your post. 

Yes, this is our first deal. We have no intention of keeping the rent at $1215. Our plan, as of now, is to move in and rehab while we live there. As for the $1500, that's purely what I would hope to be able to get for it. Haven't done comps for the area since we will likely not begin renting it out for another year or so. 

As for running numbers, I haven't "run the numbers" on any scenario(s). We've watched the market in our area for a couple of years now and we know that this is the best deal that we will come across. Worst case scenario, we're able to rent the unit for enough to cash flow $0. As this point, we're not looking to get rich from this one deal, so if ultimately we're able to cash flow $100, that'd be fine with me. We are in a position to cover the monthly payment if something were to fall through. So as not to reinvent the wheel, do you know of any good Excel sheets for running different scenarios on a property? 

Yes - after 5 years, the remaining balance of the loan ($190k - since we're doing interest only payments) will be due. I've tentatively said that we'll go the HELOC route, but we'll certainly need to explore our options when the time comes. The primary reason for the HELOC was to get a larger down payment for the next house to make our monthly mortgage payment as low as possible. Ideally, this next house would be a more long-term home, and not a BRRRR project.

I may have missed something in there, but I hope I addressed most of what you were asking! Thanks again for your input and time! 

Hey there! First time poster here looking to get some initial thoughts, feedback on a great deal that came our way. Details below. 

SFH in northern CA (2/1 ~ 850 sq ft on 1/2 acre lot). Currently rents for $1215. Purchase price of $210k, with $20k down. Seller-financing on remaining loan amount (5% interest-only payments for 5 years, no prepayment penalty but there is a due-on-sale clause). We're counting on our payment being roughly $1000.

Our tentative plan is BRRRR. Tenants will be out from anywhere between March 1 - July 1 (long story). As soon as they're out, we'll leave the place vacant for about a month and begin some needed rehab work (adding a mini-split, interior and exterior paint, kitchen counter tops and potentially a bathroom remodel). Once that's done, we'll move in and begin work on the massive backyard. We want to move in and live in the house for awhile because my wife wants a yard for our 1 year old to play in, hence why we're not just rehabbing and renting immediately. Our goal is (obviously) to do enough work on the property in 6 months - 1 year to increase our equity significantly enough to be able to pull a HELOC and leverage that into another house, and rent this one for ~$1500 (or whatever would cash flow at least $100).

Initial Questions

1. Open to thoughts/feedback on the above scenario. 

2. As a first time home buyer, what are some things to be thinking about now, particularly as we look down the line and see this as a rental, and explore REI viable long-term opportunity? What are some tools/systems I can begin putting in place now to make that process more simple?

3. Suggestions on books/resources to educate myself on the tax advantages and different scenarios of owning a home? Once this place becomes a rental, we'll work with a CPA who specifically works with CA real-estate - I have no interest whatsoever in trying to do it myself, and would way rather factor the cost of a CPA into my profitability equation. 

4. Thoughts on property managers once the house becomes a rental? I enjoy what I do, make good money, and have the impression that my time is better spent either a) working or b) being with my family as opposed to being a landlord. 

As the title implies, open to other thoughts/feedback or questions! 

Much appreciated, 

J