All Forum Posts by: Charlie John

I am currently house hacking. I bought a distressed home in a great area in fall of 2018. I paid 250,000 for it and have put in 150,000 into renovating the property. It was a 1988 built home, very solid but dated. Simple to renovate as most of it was upgrading new kitchen bathrooms, paint , floor and fixtures.

The value after renovations is around 575k. We will be putting it on the market end of summer. As long as I sell the property 24 months (or later) after I purchased it, I will not pay any tax on that gain.  My wife is a licensed realtor so we will save on commissions too. 

That should net out around 150k, tax free. And we got to enjoy the property for the last two years. My plan is to roll that equity into the next house and repeat the process. After a lot of hard work and a few more houses, we could potentially buy a home outright. There’s no way I could see myself saving to paying off a 30 year mortgage in the same time period.   

This is a different kind of house hack but it allows us to live somewhere nice, raise our 3 kids and still create opportunity. No way would my wife live in a multi unit situation. :-) 

Hey BP,

I am curious about the specifics on a 1031 exchange. If I have 4 single family houses with 50k equity each, can I exchange all of them and PAY CASH for a 200k 4 unit? 

I know there is certain language about having the purchase or loan amount bigger than previous sales. Curious how his breaks down. Do I need to have a loan on the new, larger property? Does it even need to be a larger property? Could I exchange all 4 properties for 2 new single family homes and pay cash for them with exchanged money? 

My strategy is to brrrr single families and after a couple years, exchange them into single property without a mortgage. I have flipped 14 properties in the last 5 years. After purchase and renovation, I was all in at less than 70% ltv for almost every single flip. I am doing my own marketing for deals and have honed my craft there. The next step seems to be using that craft to create assets. Not reselling them right away saves a lot on taxes and I need to start building wealth.

Appreciate any information on this. Thank you! 

I’m not as smart as these other passive guys yet but I’m currently flipping 2-3 houses a year on the side, making 2-3 times my current job income. If I had a partner that brought in “unlimited funds”, I would use some of it to invest in marketing and buy direct from seller in order to secure strong margins on every deal. I would take on bigger projects as I feel my experience in construction is growing. Basically pump out the marketing and convert into highly profitable projects. If I am doing 2-3 now and working full time, I think I could do as many as 8-10 a year without the full time job and be completely happy. 

Technically there is no such thing as 0% interest. Look up imputed interest and the irs reasonable rate of return. The irs can look at your deal as a gift since there is no interest being charged and that is a no no. Plus man you should be finding seller financed deals that are still under market!! The idea of paying more for a seller financed deal is more like this. House is worth 200k and your offer is 150 cash or 165 seller financed. NOT house is worth 200 and you pay 240. That **** may work out over your lifetime but definitely not worth the risk to me. You mention having children right now. Trust me, a lot of things change in life when kids come into the picture. 

If contractors have work for months out, many of them don’t even pick up or call back and it can be very frustrating if you want to get stuff done. It sucks actually so I hear your frustration!

Another issue is that you don’t own the house yet. I would only go to look at a houses someone didn’t own yet if it was a close friend or family member. I like the idea of offering a contractor a few hundred dollars just to come meet you on site and give you an honest assessment. That may help you get someone out there. 

A 210 offer on a 365 retail listed house?? Good luck. And the sellers know without out a doubt how much work it probably needs, but they are going to stay patient with the realtor shooting for 350-365. 

I have three young children so we are not likely to buy a multi unit property in order to house hack. However we are in fact house hacking and it is an incredible way to  invest in real estate. We will be selling our current house next summer as that will mark two years of ownership. I bought it direct from seller and was able to buy it far below market value since the house needed work. I fixed up the entire house (built in 1988 so mainly cosmetic improvements) before we moved in so we have enjoyed essentially a brand new house. Now the house was appraised at 575 and im only into it for about 350. 

Since this has been my primary residence, I will avoid paying any taxes on that equity when I sell. That’s potentially 200 grand , tax free. This will be the ultimate house hack since I didn’t have to live next to tenants and Ive got to enjoy the renovated property. It would be like me making 400 grand of earned income. I am still new to real estate investing so this experience has been pretty powerful. We are already marketing to find the next primary residence opportunity to move to. Maybe after doing this a few times we can have a very nice family home paid in full. 

Hey BP,

Hoping to get some insight into financing... 

I have two mortgages on my primary residence. One is for $320k at 6.0% for 2.5 more years (private money) and the payment is $1950. The second is for $85k at 3.0% (substituted collateral from a flip I did earlier this year and placed the debt to my primary residence) and the payment is $917. At the time, my prior two years tax returns were not good enough to get a traditional loan, so I bought it using creative financing. However, after 2018 and 2019 tax returns, I feel very confident I will be able to qualify for a loan for 400k. I own the house and am on title, my lenders are in first and second lien positions.

Primary residence is worth around $575k. The first mortgage is coming due in the next few years. The second is amortized over 10 years and will be paid in full in 9 years if I keep it in place. 

My question is -- Will lenders allow me to just refinance out the first mortgage of $320k? Or do I need to roll both mortgages into one lump refi?

 I do like the idea of keeping the second mortgage in place (even though it is a high payment) because every payment of $917, my balance is reduced by about $700.

Also-- what kind of fees go along with refinancing this mortgage? Obviously an appraisal and credit check, but what else?

Thanks so much BP! I enjoy getting the opinion of you guys first before approaching a local lender who may be narrow minded.

Introduce yourself to the neighbors. I mean the ones 1-2 houses on both sides and across the street from you. Let them know what you are doing with the property. Don’t brag that you are an investor. You will see these people for the next 1-3 months or however long your estimated rehab is. If they like you, they will be your biggest cheerleaders and talk to their friends about what you do or they might sell you their house. I’ve bought multiple houses from the neighbor of a house I was flipping.

Set up a direct mail campaign to go out to just the surrounding neighborhood of the house you are flipping. The neighbor down the street may never drive past your house, but if you give him reason to (by your letter), then maybe he might want to sell to you. Never know!! Good luck on the project man. 

Also, double whatever you have for a dumpster budget.  

Very cool @Daniel Hansen! 

I find the deals (direct mail, networking), negotiate the purchase price/terms and then take it from ugly to pretty on the construction design side. My partner funds the purchase and rehab and then lists the house (licensed broker).  

I do pay myself a fair/below market wage for my time working ON the property. Things like painting, demo, landscaping, etc I get paid for. Because if I wasn’t doing it, we would have to pay someone else to do it anyway. I enjoy doing these things and am a quality worker. 

My partner includes his commission on the sale side into our profit split. 

We split 55/45. I get 55. 

Honestly I feel like finding a profit venture and then being able to execute it is has more value. 

I should have been more descriptive. Rochester MN