All Forum Posts by: Aaron H.

There's quite a bit of nuance to how capital gains work for OZ investments. Short version, these kind of exchanges really just mean you're deferring your taxes, not avoiding them entirely.

Straight from the IRS:

"...investors can defer tax on any prior gains invested in a Qualified Opportunity Fund (QOF) until the earlier of the date on which the investment in a QOF is sold or exchanged, or December 31, 2026. If the QOF investment is held for longer than 5 years, there is a 10% exclusion of the deferred gain. If held for more than 7 years, the 10% becomes 15%. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor is eligible for an increase in basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged."

In theory you can keep 1031 exchanging things to keep deferring taxes until you die (continuing to increase your basis in the next thing you buy), but in practice that can be tough to pull off...

Note also that there are other rules surrounding what property qualifies, what counts as a "qualified opportunity fund," and whether you have to make additional investments into improvements in the property to qualify.

203K is great if you qualify, and like others have said helps limit risk on the renovation side. FHA is great if you can still cash flow with the higher monthly payment from having less down. Best thing to do is sit down with your lender and look at all the options based on your personal financial situation, then run all the numbers on the property assuming the different loan types and different rates/payments to make a final decision.

For a wholesaling business, I'd say focus your primary attention on lead measures like how many pieces of mail you send out or how many calls you make. Then track at least a few lag measures like # of inbound responses, and number of deals closed.

There's a great recent BP podcast with the guy from "Four Disciplines of Execution", worth a listen when planning out major KPI's.

I'm a long ways from New York so I can't help with your area, but in general I'd say your best bet is a referral. Find another successful investor in the area and see who they use and how their experience has been. Beyond that, not a requirement but it's ideal to find a lawyer who also owns investment property - that can make a big difference in them understanding the kinds of things you want to do.

I'd recommend finding a local agent to work with that has experience dealing with government foreclosures/auctions, that can help guide you through the process. Things like max bids, waiting periods, inspection opportunities, etc. vary widely.

Don't worry about what other people are bidding or what HUD will respond with. Figure out how much you have to pay for it to make sense as a flip, then bid up to your max amount (and no higher). If they say yes, great. If they don't, on to the next one.

As a very general rule of thumb, HUD auctions in my area typically sell for a minimum of 88% of list price.

Opinions on BP on yellow letter vs postcard are about evenly split. Bottom line, doesn't really matter as long as you keep sending *something*.

If you have a reliable phone number and time to spend, I'd call before sending anything. Why even spend money on postage if you can just call them up and see if they're interested in selling?

I wouldn't consider it dead until a minimum of 7 mailings. Maybe a lot more, depending on the list, lack of response, other options, etc.

Personally, I'd sell and buy something in a better cash flowing market. 2700/m for a value around 425K is going to have a hard time cash flowing at any reasonable leverage percentage. You're at a 0.6 price to rent ratio, which is way short of the "1% rule/guideline." That's a nice chunk of change that could get you a LOT better return in another market.

"Limited books and records" makes my warning lights go off. How much of that 52,800 is actually getting collected every month?

The kind you do consistently for a long time :)

Lots of people will say direct mail is still the gold standard.

The way you phrase your question, I'm not sure you're using the word "equity" right. Your equity is the total value of the property, minus the balance of any outstanding mortgage/loans on the property. Whether the house is "new" or not doesn't make any difference.

If you bought the house for 235K, you probably bought it with a mortgage and a down payment, yes? Presumably, you paid what the house was worth. So:

235K - Value of house

60K - Down payment

175K - Mortgage amount

So, 235 - 175 = 60K. You started off with 60K in equity in the house.

After 5 months, you've made 5 mortgage payments. A small portion of those payments is going to pay down the balance of your mortgage, so if you paid let's say $200/m in principal, you'd have an extra $1,000 in equity built up.

Alternately, if the market was really hot and the value of your house has appreciated in the last 5 months (let's say someone would now pay you 245K for it), then you made 10K in equity, because the house is worth more, but the mortgage value is (more or less) the same. Alternately, if the market tanked and the house is now only worth 200K, you lost a bunch of equity.

Either way, after 5m the equation is unlikely to have changed very much. Your current equity is probably the same as whatever your downpayment was, plus a few hundred bucks in principal paydown.