All Forum Posts by: Cody Kauzlarich

If you want to have systems in place with your first property then form an LLC. Also, I think it's probably more important when first starting out to hold properties in an LLC. The purpose of this is to protect your personal assets. If you only have a single property with little equity in it and are sued they will come after you for the remainder.

I would take it in steps. Start with the mirrored wall, my least favorite of the things happening in the room, and then see if it still needs more. I can't tell from the pictures but some good overhead lighting looks like it would also help. If you would still like to lighten it further then paint the cedar or the fireplace. I would also consider adding a wood mantel and then painting the brick either above or below the mantel to match the white paint around it to make it a focal point without washing out the entire fireplace. Most likely above the mantel, seems like it would add height to the fireplace as well with the lighter color drawing your attention upwards.

I think it depends entirely on you. I personally enjoy the construction portion of it and hate most of the other stuff. I don't mind looking for houses and running comps but it's definitely not my cup of tea(my wife would disagree as its what I'm constantly doing). J Scott has told you and recommends in his books to hire out everything but tells you to get your RE License(no disrespect J, I have enjoyed and learned from your books and blog). I can't stand that portion of it. I would rather have my agent pull comps, scout properties/neighborhoods(I'll obviously still look over them to make certain I agree), and have her do showings, open houses, and someone to stage properties. She will also meet the appraiser at the property for me to try and make certain it gets appraised for what I need it to whether I'm purchasing or selling. I am also willing to pay an accountant because I also hate that portion of it. If doing the manual labor is something you enjoy, then do it. 

I always tell people that you have to have something. I strongly believe that it is extremely difficult to pay someone to do every aspect of real estate and leave something left over for you. If you use an agent/wholesaler to buy, a GC to renovate, an agent to sell, an accountant to track expenses, and a lender to fund then all you have done is connect this small group of people and your portion will be comparable. If each person involved in this transaction is going to make on average, let's say $8,000, then the more of those people that you are, the more of those $8,000 shares you get.

In one of your early posts you said that you were concerned about losing the money that you've already invested for inspections, appraisal, etc... aside from your EMD. Don't be. That's part of the business. Don't make 125k mistake to try and save that, comparably, small amount of money. Go look at the property and take notes on the repairs needed that you missed so you can try and spot those on the initial walk through of your next property.

my biggest concern is that to me 20k before, I'm assuming, a split with your partner seems like a very narrow profit margin. 300k is a big risk and spread over 6 months wouldn't be worth it to me to do this deal. 

Scratch and dent all the way. Best of both worlds, new appliances for the price of used. I check two local places regularly since the place is a revolving door of inventory. Look for ones with a broken handle or missing nobs. I find refrigerators and stoves that have been dropped and crumpled the back hidden corners frequently. Only way your tenant would ever know is if they moved them out to clean behind them(haha). 

@Leigh C Wow, thanks. So if she purchases a house for under 39k(as in the example), the contractor carries materials, salaries for his employees, and invests, I'm assuming 3-4 months on the rehab, then she is still the only one taking risks?

I think you also need to schedule an appointment with this and numerous contractors, and if you don't have enough time to interview them then you don't have enough time to take on this project. Even with a GC you'll still want to be involved and make certain that things are progressing as planned.

Also, everybody has to have something. If I were you I would be begging for this kind of deal. You are contributing very little. You are buying from a wholesaler who did the leg work/marketing, found a contractor willing to do the work and oversee the project(who is apparently highly regarded), and if you use an agent to sell then all you've done is send an email to make 50% of the profit. 

I don't think its a terrible idea to partner with another investor but then your both going to end up paying a contractor for the rehab and then still split the profits. Why not just partner with the contractor.

Also, have a conversation with the contractor. This is business, but its much easier if you get along and respect what each party brings. 

I also feel like it's important to come outright with a decision to flip or rent. Holding a property for one year and selling can cause issues. Well, not cause issues, but allow for unforeseen issues to arise. You should pitch this as either a flip, which you will sell as soon as it's renovated, or as a bridge loan from it's current distressed state to a renovated, bank mortgaged, rental. 

Holding for a year could cut down on taxes but there is a ton of discussion about flippers paying SET, not capital gains, and being taxed on income. This is something you should look further into. Also, paying 17% interest for 10 months to hopefully reduce your income taxes by 18% may not produce as much of a difference as you're expecting.

Also, what happens when your tenants move out and further renovation is needed? Or if the market dips? There's a reason why you use comps sold within the last 3- 6 months to produce your ARV.

The "70% Rule" is very common for flips. The majority of seasoned investors will use to gauge whether a property is worth looking into any further. I find this appropriate for flips, or at least close. I recently did a deal that was actually about 74% resulting in a fairly small profit, comparably, but it was only about a 3 week rehab so our hourly rate was well above our average. Just depends on your tolerance for risk, time frame for turn around and financing.

As far as rehab and hold, that gets tricky. Buying a property that needs renovation is a great way to maximize cash flow and reduce maintenance, but it can be difficult to analyze because you still have to consider your downtime. I like to look at all of the same factors as a flip and add up what my total expenses will be to go from closing to placing a tenant, and also add in lost rent money during renovation(3 month reno x $1000/mo in rent= $3000 in additional cost). Take that total and compare it to what kind of property is available rent ready.

As an example, let's say you find a 2 bed 1 bath with a garage that should rent for $1000/mo that's listed for 60k and needs 20k to get rent ready with a 3 month reno and you're paying all cash. 60k purchase+20k reno+6k holding costs(3k in lost rent, insurance, taxes, utilities)+whatever your time is worth= at least 86k. I factor in insurance and taxes since you'll be paying those out of your funds until the unit is rented and then you should be budgeting them out of the rent monthly. 

Take that 86k and look at what you could buy with that. If you're coming out with other properties that are comparable, I would buy one that is rent ready or keep looking. If your finished project is more comparable to a house that would cost closer to say 105k, then it's probably a decent deal. Obviously there are other factors to consider, but its easy to look at a "cheap" house that should rent for what seems like a lot compared to the price but over look the length and cost of the renovations necessary to get it rent ready. 

The other consideration here is how you're going to finance your renovations. I will pay for flip materials with a credit card because I know I'll only pay interest for maybe 2 months and pay it off when I close on the property when I get the "big" check. However, I only pay cash for renovations for a property that I'm going to rent because there is no big pay day. My credit card only carries 9.2% APR but if I'm paying a hundred-ensome dollars in interest a month and hoping for $2-250/mo cash flow from rent, I'm eating into that hard until that credit card is paid off.

I hope that's helpful and makes sense.