All Forum Posts by: Bill Patterson

Jaden,
Check with your accountant to get the best information! He can look at your total tax picture and recommend a plan to reduce your taxes. There is also another way to get a tax deduction on a rehab flip....screw up on your ARV and sell for a loss!

Really though, making a taxable profit is not all bad. I would rather not hold it for a tax savings of maybe 25% (or more). Carrying costs can eat up that amount pretty fast. I would probably invest in another rehab and turn my profit into a bigger profit. You would have the total amount to work with until April 15th, so work with Uncle Sam's money for a change instead of him working with every other tax payer’s money! Then pay the tax and trust your accountant to help with another strategy to shelter income.
Bill

I agree....Good Karma! I hope it takes a bit of wind out of their sail.

Tim,
Go back and read what J Scott said. You should maybe reevaluate your plans to be a rehabber. It does give a bad name to ligatimate rehabbers, with an attitude that it is soon to not be your problem. I have been a Contractor for over 30 years and it is often hard to explain to consumers that the unlicensed and uninsured are not the good deal that they seem. It is very true...that along with faulty electrical, HVAC is the biggest cause of fires. Carbon monoxide kills.....without warning and your attitude towards that does not sit well with a lot of people. I’ll chalk it up to the fact that you must just not understand.

Dump the guy, lick your wounds and hire a licensed and insured HVAC Contractor. In Michigan, it is common to require a down payment of up to 50% for a job of this scope if you are not known to the Contractor. As far as the permit...don't worry about it. The inspector will be glad that a reputable contractor is doing the work.

Bill

Ben and Richard are pretty close to right on.

1. Joint & several liability for all
2. Parents cosign the lease to be liable for their son/daughter's obligations
3. Check with their last landlord.

Parents have more to lose than their kids, so the backgrounds on them are something that I did not do. I have always said....If the parents don't trust them enough to co-sign, I don't trust them either! As far as deposits go, In Michigan, it is 1 1/2 mo rent by Landlord / Tenant law. You probably have the same type of regulations.
Bill

Originally posted by Rich Weese:

I don't think I have replied to this thread, so here goes.

RE: the Viper

I know. It's stupid to have 5 cars for 2 drivers. I've heard that from wifey for long time. Shipping 3 and driving 2 for the upcoming 2700 mile move. Yuk. Rich

That Viper is Jackie's "Dream Car"! She has wanted one for several years, but every time I get after our BMW M-Roadster on a curvy road or next to a Vette or Mustang, she has a lot to say to me! I don't think she realizes that the Viper is as fast as it is. 0 - 60 in about 3 sec. I would guess!
Bill

There is a difference between buying shoes “wholesale†and providing a storefront and knowledgeable sales people then selling retail and buying a rundown, dated house and rehabbing it then selling at a profit. It may be closer to your manufacturing example or home building, though. Every investment has to have something happening that causes the investment to appreciate. Company stocks appreciate along with the profits of the company. They lose value as the company profits decline or they have loses. Rental property value goes up mostly with the associated income. How does this happen? With improvements to the property, good management, a strong rental market, etc. Other than the strength of the rental market, the rest is labor and materials. This is similar to the labor and materials that go into the rehabbed house. You still have to buy the property at a low price and invest in the improvements that will best increase the value. There are still market conditions that affect the eventual price that you may be able to sell for and receive a profit. You could hire a contractor, the same as you can hire a property manager to lessen the amount of involvement in your investment. From my point of view, someone has to be “turning the crank†somewhere to generate income. Even with a CD, someone is lending your money out, making a profit and paying you a rate of return. In a sense, you are paying for them to provide the labor of doing so. You could be making private loans and achieving a higher rate of return for your labor and possibly a different risk level. Suppose you purchased an apartment building with a 25% vacancy rate, even at below market rents. You hire a contractor to rehab the property, put new management in place, evict non paying and otherwise bad tenants, increase rents and change your vacancy to 5%. You then sell it a year later. Is that a business or an investment? What if you hold it for 3 years? Is it the amount of effort you put in or is it the length of the hold time that determines if it is an investment or a business?

Investments are made in every aspect of your life. You invest in your education, business, relationships, hobbies, health, etc. When you are investing in real estate, be it rental property, raw land, REITs or buying, rehabbing and selling property, in my opinion that would be real estate investment.

Bill

Originally posted by Jon Holdman:

I think that's a good strategy, if you can pull it off. Fix and flipping is a real estate business, rather than an investment, IMHO. You may have money you invest in the business. By business, I mean something that produces income as long as you turn the crank.

Rentals, OTOH, are an investment. You put in your money and you get back a return on that money. You use money you've earned from other sources or existing rentals to expand your portfolio.

I guess it is all semantics....I have been in rentals for over 30 years and I call that a "business" as well as an investment. Unless you hire a property management company to make decisions and do the day to day as well as long term management ("turning the crank"), it is a business to you.

Fix and flip is also an investment as well as a business, albeit a short term investment (if all goes well!). Although, at least in Michigan, legally you can only do 3 deals before you are classified as doing real estate as a primary vocation or business and need to be licensed.

Any way you look at it....to be successful in real estate you will need to do your homework and put in the effort.

Bill

Welcome to Bigger Pockets, Paul!

You are asking some good questions and I'll throw in my 2 cents worth.

First...I would trust my "gut feeling" If you are uneasy going in, it is probably for a good reason. You want to invest in real estate that you are comfortable with. Sure, people make $$ every day on these "less than desirable" properties. This is not what I want to do, though!

Appreciation is something that I look at as "frosting on the cake". The deal needs to cash flow on it's own. Lots of properties are on the market because investors paid too much or spent too much on repairs to achieve cash flow with market rents. They looked for appreciation, which did not happen when the RE market went south. So in my estimation, appreciation is not "huge".

These things being said....investing in a distressed area can offer many opportunities! If you can buy REO's and short sales that are the result of other investors mistakes, you can get some good deals. These deals can be found in better areas of your market. The keys are these:
1. Make sure you understand the rental market, prices and what amenities are needed for the rental rate.
2. Don't underestimate your expenses! Your example of 5K operating expenses sounds very low to me. There are lots of discussions on this site that detail estimating the expenses.
3. Make sure you have a good lease and it would be a good idea to join an investor club or partner with an experienced investor. It's better to learn from the mistakes of others!

Enjoy Bigger Pockets and I am sure you will learn a lot!

Bill

The homeowner needs to sign the short sale approval and if they or their financial and legal advisers don't think that the terms of the approval (deficiencies, notes, cash to the table, etc) are acceptable, they can decline to accept it. It would be hard to "obligate" them 100% to sell to you.

Mark,
I know the "policy" you are speaking of and I have heard of this being in an approval letter, but I don't think it is ever actually a deed restriction. We have had issues with this in financing the end buyer, but with a land contract, you are the bank and you would approve it! If it were a deed restriction, CoreLogic would not need to promote it's services to track sales and report to lenders any resales within 90 days. Look at the deed and check with your title company, but I would think you are clear!
Bill