All Forum Posts by: David Betz

I just got into my first flip, so I'll add my 2c...

I have worked doing remodeling for 5 years so I have a good handle on the process, time line, and order of operations. BUT, I still work for someone else so I've been in the house on weekends and some nights to complete work on my own, as well as checking on the subs I hired.

I planned for 3 weeks, and it is looking like 5 will be realistic, but I decided to stop panicking pretty early into this. Honestly, issues with overlapping work inside and getting the hardwood floors refinished has added at least 10 days that I had never expected. As has been mentioned previously, not being there full time can add several days to your budget as well.

In my neighborhood (Gardena, CA), there are rehabbed houses that have been on the market 90 days +, and there are a few that went under contract within 60 or so.

Ultimately I decided to go a little over budget, and get this house upgraded to a point that it would be a no brainer for my potential buyers, when compared to the "competition". I figured a little extra money and time on the front end would save me from chewing off all of my fingernails in February when that house had still not sold. I will post a new thread with a breakdown when the house is sold.

Great story. Thanks for encouraging those of us on the sidelines!

Thanks Jon,

I spoke with Kaaren at Udirect today, and she said, very confidently, that one should limit their flips in an IRA to three. This is to avoid the dreaded UBIT. After three, another IRA is formed, and you start again.

I have read otherwise during my research, but I let her go on, as she is the expert. I imagine that many people have gotten away with this practice. But I'd also guess that there are others out there that would beg to differ with her "magic number".

Anyone else care to comment?

Thanks everyone!

Jake, I'll call you soon. My buddy just sold another place, and will be going at it again in Norwalk over the next few weeks. LOL at "Greg Metcalf" tax. That guy must be immune to the evil eye, because he had about 60 on him every time I was there.

Cheryl, I imagine that scenario would be disallowed if I was the person using the loans to buy the properties.

I had planned to invest with my mother using funds from her IRA within a corporation. The goal is/was to flip houses using cash, and split the profits 50/50. After much research, it appears that I would be disqualified from being a part of this, unless I am consulting here and there, and NOT doing any work on the property or taking any real part in this business. I am not particularly worried about staying out of "Her business", as it were, on paper, and raising any red-flags with the IRS. I could check properties/hire subs/etc.. with her without getting my hands dirty. I would do it simply because she is my dear mom, and I would do anything to help her.

She is over the age where she would pay a penalty to cash out an Ira, but I don't want her to pay all the taxes on the gains she's made thus far. We may have our cpa look at what that might cost, but I imagine that it will be ruled out.

So...........

She will (hypothetically, of course) make 50-60K in her first year doing this (all by herself) , and put it right back into the ira to be re-invested. If she takes a disbursement, and pays taxes on it, are there any rules saying what she can and cannot do with it? Is there anything to stop her from using money from other accounts to assist me in my goals?

If have a few ideas:

-She is allowed to "gift" a relative $13000 per calendar year.

-I am a renter, and would love my first home to be a four-plex. The place would be in both of our names, and she would be providing a down payment from a disbursement of any one of her several iras, or another account.

-New lexus in her name with me as co-insured? :wink: hehe

I started reading J Scott's Blog a few months back, and it was a revelation to read his math on this. I would have always been inclined to do things myself "to save money". WRONG. But I do think there is a balance as Will stated, in that there are certain things I am good at, and enjoy. If I'm there anyway (supervising, etc..), why not get another item or two checked off the list?

UPDATE:

I hate when threads end up going nowhere, so I am finally back to fill you all in on the status of our venture. My friend is on his 4th property. I am out of the action for now (working on an e-commerce site with my wife), but thinking of splitting a deal with him soon.

Anyway....

For months we went to the auctions, watched and researched properties, and generally fumbled around getting nowhere. As mentioned elsewhere in this post, Orange County is worthless. A guy named greg (or craig?) and his DEEP pockets bids nearly every sale up until he is the winner. When we were going late last year, 30-50 people would show up and he would take down 7 out of every 8 properties. Ugh. I researched the comps on several of the properties he bought and he is running very thin margins. But if you buy 30 houses a month, i guess you can afford to do that. I'm surprised no one has pulled a "Tanya Harding" on him yet. j/k!

Eventually after going it alone and getting nowhere, we met someone at the norwalk auctions with a team of people (title checking, running comps, driving properties, etc..) willing to buy on our behalf. He has been there for years. He charges 5% for his troubles. Ouch. 15 Grand on a $300K house! He doesn't guarantee anything, but states that, on average, 1 in 10 homes is a dud, and 1 in 10 is a home run.

On to his Story...

1. First property bought in jan this year (for about $300K) in Carson, CA. It took him way too long to get the tenant out. Start to closing escrow was nearly 4 months, and he sold for $405K. He spent just over $25K on rehab, 5% to our friend at the auction, and ? on closing costs. he ended up making about $40K on his first deal. Not bad if you ask me, even though when you ask him, he just bitches about how much of a pain it was.

2. bought before the house in carson closed, I don't know the specifics of this one, except to say that he was "getting anxious" and got trigger happy enough to grab a property with a thin margin. He made "nothing" on the second house. But didn't lose anything either. Of interest may be the fact that the tenants pack-ed up and left pretty quickly when offered $2500 cash for keys. I believe he will be offering this from now on. time is money right?

3. A redemption to his poor decision making on #2 was found in inglewood. Or so he thought.... He was to make an easy $50K on this one (bought in the low 200's) which needed only minor cleanup, and was vacant. He got the locks changed, and within a day or two of the purchase, the sale was canceled by the bank. I didn't know they could do this, but....they did. He was NOT happy!

4. He bought this recently. It is in compton, bought for just under $200K. Comps are between 260-300 depending on whether or not you count the huge unpermitted addition in the value. House is in decent shape.

I'll wrap this up with a few more things of note. Since B of A halted the forclosures, the daily sales at norwalk have plummeted. There weren't all that many to begin with, and now there are under ten a day according to him. I have found some people on BP that wholesale in socal, but have not made contact yet.

He has a realtor listing these now for 1%!!! He takes the pics, writes the description, and emails it to the agent. Amazing.

Feel free to ask any questions, and I promise not to take over a year to reply next time!

Here is a pic of him in one of the police cars during the eviction process at property #1 in Carson. :mrgreen:

So myself and a friend are looking at buying homes from the trustee sales here in OC and LA county. We have met quite a few people who would be glad to use our money and split the deals 50/50. We don't want to do that.

Here is the good news:
From what I could gather from a gentlemen who buys about 10 properties a month, he is ending up with about $30000 (gross) after he rehabs/sells them. His target is SFR with an ARV 400K give or take. This seems reasonable. Buy for 300K, rehab for $10-25K, and expect 10% to go to commission/closing costs/etc.. These are nice looking homes in decent areas.

I can see the reports on ForeclosureRadar listing what has sold each day at each auction, and we have been standing around watching and writing down the daily history as well. We have driven by many of the sold properties, and done comps on them (no, not on zillow). The deals are there. Period.

Here is the bad news:
Everyone I talk to tells me, "I am going to lose my shirt. I am inexperienced and over my head. Or I am wasting my time trying to find a needle in a haystack (yes, I know almost every one gets cancelled or postponed.) There are no deals or too much competition. There will be some hidden lien that will wipe us out because we are noobs. REO's are a better way to go."

There is a piece or two of the puzzle we've yet to figure out. How do we accurately review title on the MASSIVE # of homes we have to inspect and keep in our database? There are plenty of sites where you can get basic title info, but we are obviously nervous about missing something. There just isn't time to go to the county and look up records on all these places. And there certainly isn't money there to pay title companies for the job. There are just too many properties!

OR

Do we need to get smarter about this and just pony up the dough for title research on a select number of houses, after calling the trustee just before (or on the morning of) the sale date? In the hopes, of course, of having a higher ratio of houses we can bid on? In other words, do all the driving, inspection, and comp work on tons of homes, but only pay for title research on a select few that are more likely to be sold that day.

The fact of the matter is that the same people are at the sales every day, and they aren't there if they are losing money. The answers are out there, we just don't have them all quite yet. Any input is appreciated, even if I file it under the "bad news" column.

Thank you,
David

You can get some of your cash out with private money, but there better be lots of room there to cover points and interest!

I've heard of private money actually paying for the house at the courthouse. They come with the checks in hand. But in addition to all the money they make on you already, they charge a travel fee as well. But!! you get to keep your money for other investments.

I am using Foreclosure Radar. I noticed that lots of other investors used it too. I am a novice at the moment, and still deciding which way to go, but I've registered with FR and I'm happy with it.