All Forum Posts by: Josef Hardi

What a great question. Following this because I am also interested in knowing what the professionals thought on this scenario.

Here are my thoughts:

1. Any reason why you would want to purchase the new property with cash? Listening to the latest BP podcast, it seems it would be more advantageous to acquire good debts over multiple properties instead of tying it all cash on one property.

2. I think you can get a primary residence loan on the second home, and then live there at least for 2 years for the next 5 years. When you are ready to sell it, you can sell this property and not get taxed for it since it was a primary residence. Then, you can move back to your original primary residence, live there for at least 2 years in the past 5 years of sell-date and if you want to sell that property as well, I believe you also will not get a tax implication.

I got all of the info above from: https://www.irs.gov/publicatio...

Hope that helps!

Hi Eli, 

I am also a fairly new investor, much older than you though. Just wanted to drop a line encouraging you on your path. Kudos to you for starting early, and time will be on your side for sure. Couple of questions for you:

1. I am assuming that you are staying with your parents. But if not, are you renting a place? If so- it might be good to consider purchasing a place so you can build an equity as soon as possible.I feel like there needs to be a balance of trying to find a good deal vs the time delay in starting. David Greene mentions that when you are young, you can be a bit more aggressive and take on a riskier approach. 

2. Are you quite familiar with the market in your area? Here's the Iowa housing market condition according to Redfin: https://www.redfin.com/state/I... Can you identify the areas you would be willing to invest in? After you take into consideration the amount of loan you can get, you will be able to zone into where you can invest. 

3. Have you looked into what kind of loan you can get? Assuming that you qualify for an FHA loan, you can shop around for properties in the 180-200k. Remember that you need to budget for closing costs and repair. You would have to occupy the property for a period of time though. Assuming you qualify for a NACA loan, then you don't have to provide down payment: https://www.naca.com/

If I were to analyze a city in Iowa (for example: Ames).  I see that YoY appreciation is about 3-4%. So then, personally I would try to look for a cash flow instead of an appreciation play. Perhaps look for a duplex or triplex where you can stay in one and have the other units cover your mortgage expenses. 

All the best, you are on the right path!

Hi Alisha, 

As a new investor myself, I feel like every time I listen to the latest BP episode, I discovered a new way/strategy in real estate investment. It's good to have as much tools in your toolbox. What works will be different based on the investors limitation. I think David Greene mentioned some limitations (motivation, cash, time, etc). 

Don't forget to listen to all of the latest BP episodes, I'm sure you'll find one that fits you.

Thanks for sharing, I would not have even thought of requesting an FOIA for a potential investment property. I see that Evanston is only about an hour away from you, but having this report would ensure you are crossing your Ts and dotting your Is!

Hi Taylor, 

I am by no means an expert investor. But I have done quite a few analysis using the BP tools. Here are my feedback:

1. Closing cost is typically 2% of the purchase price. Yours should be around $4,800.

2. I'm not sure if this property is for primary residence or investment, because the rate for 30 years conventional is now closer to 6%.

3. Just a note on rent income, it's good to cross check the number on rent-o-meter, but also try to call local property managers and see what is their assessment of that area. Including realistic vacancy rate. Also- depending on the area, you can check if there is rent control and what is a reasonable annual rent increase. Remember that your expenses is for the most part flat, but property tax, home insurance and utilities does increase in cost. 

4. In regards to vacancy rate, check with the local property management if 3% that you have put is a safe bet or not. Some areas are closer to 5%.

5. In regards to CapEx, I normally put 5% unless I know that the roof is fairly new (under 10 years), as well as newer HVAC systems.

6. In regard to Property Tax, don't forget that the historical property tax will not apply to newly purchased property. There is a cap to property tax increase for the same owner. However, once they sold it, the cap will be removed and the new assessment will be based on the purchased price.

Hope that helps!

Hey David, 

Thanks for sharing this info. I spent some time just now looking into this senate bill. I think it's a great concept! Since you mentioned Santa Clara, I went to Santa Barbara county website and it explained it quite well.

https://www.santabarbaraca.gov...

In terms of the zoning after the split, I read here: https://leginfo.legislature.ca... 

"..The subdivision of a parcel zoned for residential use, into two approximately equal parcels (lot split), as specified..."

Which makes me think at the end of the split, you will have two separate SFH parcels. But I could be wrong.

In terms of lenders, if you could get them into two separate SFH parcels, I would think that's more favorable since the interest rate for SFH is lower than duplex. Please keep us updated when you get a chance on any new findings. Thanks!

Hi Andrey, 

When looking for rental comps, here is what I found working for me:

1. Check out rent.com to see if there's a lot of rental listings around the area. Seems like there's quite a few for Hesperia. 

2. Utilize BiggerPocket rental analysis. I checked it just now, they run about: $1,860 (3bd / 2ba) SFH. With medium confidence. Typically suburb areas have medium confidence I noticed.

3. Check Rent-o-meter.

4. Lastly, but I think it's most important, call a couple of property management companies that serves Hesperia. Talk to them to get a sense what is the market like, what is a common vacancy rate. If they are willing, show them the property you are looking at (or similar ones) and ask them what they think this will rent out for.

In general, when looking at the rental numbers, I was told by my realtor that these numbers are on the lower side. Since most landlords have not been raising rent due to COVID. 

Hope that helps.

Great conversation here. Not sure if you ended up choosing one over the other. With the steep rise of interest rate in the past couple of week, your numbers would have looked very different. 

I had a similar thought end of last year, so what I ended up doing was:

1. Refinance my primary home. But only because I got a lower rate, and it lowers my monthly payment. Got 75% LTV, and used that money as down payment for a duplex that I will live in as my new primary home. At that time, I did not know what exactly I was going to use that money for. I was open to purchasing a SFH, duplex, as investment or primary. Either way, I knew that I wanted to rent this out. So I don't mind resetting my loan. This way the numbers look really good once I have it rented out.

2. A few months later, I decided to do a HELOC on the rest of it (80% LTV). In other words just additional 5% of the equity. I had plan to use this in case I find a property to force appreciate. I would only use this HELOC if I have an exit strategy (refi knowing that the property has appreciated).

I guess in short, it all depends on what strategy you have in mind. I opted for the strategy above because I didn't know how things will play out. And I didn't know what deal I could find. Maybe because I am a new investor, I don't feel comfortable taking out a HELOC unless I have an exit strategy.

I think consulting with a mortgage broker might also be a good idea, so you are not limited to just those two options (cash-out vs. HELOC). Maybe explore rates for FHA, or ARM?

Great job!