All Forum Posts by: Josh Young

@Stanley Blackman I really like the idea of partnering with a contractor. I recently partnered with my contractor on a flip, he is also one of my close friends and we trust each other, but it has been good because our interests are aligned. 

One thing I would be cautious of in your situation is if you are only bringing $120k in land value and nothing else and he is bringing $800k to build the house and managing the build.  It seems like he is bringing more capital and more work, so why is he giving you half the profit instead of just buying your land and keeping all the profit for himself?  

Is he making a percentage of build cost like most general contractors do, so when he says $800k does that really mean $600k and he is getting paid $200k as the general contractor? I do really like the idea of partnering with a contractor but not as much if they are making money on the project outside of the profit share, that could be a conflict of interest.

What would happen if he went over budget and the house ends up costing what it's worth, do you sell and basically get nothing for your land? 

What would happen if he ran out of money half way through the build? 

I would have the conversation about these things beforehand so you are on the same page and then I'd write it all down so you are both in agreement.

@John Kim 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; based on the numbers you provided your net cash flow is probably less than $1k per year.  The 3% interest rate is an important part of this calculation because the principle paydown portion of your payment is significant, I'm going to guess you owe about $300k on your loan which would make it about $7k per year. The projected appreciation is tough to assign a value to, but if it's low maybe use 2%, so maybe $10k per year. So if you have $200k in equity and your return is $18k per year that's a 9% Return On Equity, or if you have $300k in equity that would be a 6% 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? There are also tax considerations, such as depreciation and IRS Section 121 Exclusion.

@Ben Coplin I sent you a message to connect. I live in Gilbert, I'm an investor, and I also help other investors as an agent and property manager. I'd be happy to provide some insight/guidance.

@Jared Haxton why don't you do a cash out refinance and keep it as a rental; then you'd have the cash to buy your next home too.

@Charles Horn without knowing anything about your situation it's hard to say, but your most likely path will be to talk to a lender and create a plan. That plan might look like this: buy a primary residence (1-4 units) using a VA loan, and live in it for a year. Next year buy another primary residence (1-4 units) using a VA loan, move into it and rent out the first one. Keep doing this every year or two. At some point they will not allow you to take out any more VA loans, but you might be able to refinance the first VA loan into a conventional or even a DSCR loan and that might make you eligible for another VA loan again. There are many ways to acquire properties, but using a primary residence VA loan is most likely going to be the lowest down payment and the lowest interest rate available. The biggest thing is talking to a lender, they will help you create a plan.

@Hilton Bothwellmaru can you put a fence around the property and charge for boat and RV storage?

@Jonathan Firouzi some cities have additional requirements, so check with your local laws too, but here is a link to the state law requirements for pools: https://www.azleg.gov/ars/36/01681.htm

@Elton John that does look like a good first deal. Don't beat yourself up over the $15k that you think you could have negotiated down, you will look back in 5 years and that $15k will be insignificant. Over time rents will increase and you will be able to refinance also. When looking at a deal there will always be something you wish was better and there will always be a reason not to do the deal, but if you do your due diligence and the numbers make sense, pull the trigger.

@Alfred Dublin that looks right. Over time rents will increase and you will be able to refinance when rates decrease.  If you wanted more cash flow now you could put more money down or buy the rate down, or both. I like to include debt pay down and 3% appreciation as part of my returns, they are not cash flow, but they are part of the deal and should be considered.