All Forum Posts by: Erik Kubec

Not giving tax advise here but I think that if you (through your IRA)

1) start flipping, the IRS may consider this a business that is outside of the tax protection of a passive IRA--so they may want to tax you for it

2) Use leverage/debt, the IRS considers the income achieved through leveraging to be subject to taxes and not protected by the IRA.

Please chat with a tax person though

I concur with Rolanda. I like to tile the kitchen, living room, halls, baths. Carpet the bedrooms.

Because I am tiling the baths, I also put in new toilets--this will reduce maintenance. Additionally, new faucets (low end builder grade), and all plumbing 'from the copper' (new 1/4 angle shut off valves and steel lined supply lines).

Unless the kitchen cabinets are literally falling apart, I clean / paint them.

Also, new GFCI's (typically, there aren't enough in the right spots for code).

I have had the same experience: people walk in, see the new paint, carpet and toilets, and they want it.

8am--headed to the newly acquired and renovated rental property for some final 'fix it' items: repair window, connect gas stove, mount hand rail for basement stairs, pick up fridge, and meet guy who is building egress covers and ladders.

Oh yeah, forgot to mention that it is our first real snow storm of the winter-8 to 10 inches. So nixed the fridge and the guy with the egress cancelled.

Day got worse before it got better:

Answered the question "What would happen if I accidentally drilled through drywall right into (live) Romex?"

Answer: If you hit the romex dead center, the drill bit shorts the circuit, lights go out, and your drill momentarily becomes and arc-welder.

Once again my father-in-law's words: "Your sawzall will become your favorite tool" rang true.

Finished installing railing, then ventured into the blizzard for a trip to Home Depot. The roads were fine, it was the 2 inches of ice on top of them that was a problem.

My 1982 2 wheel drive toyota drove like a champ--kind of real life version of the old Atari game Indy 500 - Ice Race.

Fixed electrical, and completed other projects and made it home in time to have pizza with my family.

I don't know about Albany, but in my neck of the woods, tenants are paying 2 X over PITI (principal, interest, taxes, and insurance.

Here is why: After the housing boom, there have been several years of massive underdevelopment of housing--so there is less supply. However our population has grown. All of these people that were foreclosed upon did not just move into the street or move in permanently with family. They moved into other housing--rentals. They can't qualify for a new mortgage (and likely wouldn't want one anyway after the pain of foreclosure) so they have only rentals to choose from.

So combine 1) housing shortage with 2) lots of people who needs housing but can't qualify for a mortgage and you get a situation where a tenant will pay 2 X times 'mortgage' (in this case I am saying PITI to be really clear about the 'hard' financial carrying cost of property.

I am not saying that I know that there are 1.5 x properties in Albany. Rather I am saying that the conditions exist where people will pay rent of $1300 / month when the property could be bought for $650 / month.

-e

Okay folks,

Finishing up remodeling a property to keep as a rental. It has a non-working hot tub in the deck surrounded by a 6 foot fence that needs a bit of repair. My plan was to cover up the hot tub permanently. Removing it and redoing the hole in the deck would mean more $$$ than I wanted to put into the property.

Good news is the property manager has found someone to rent it, and they are asking if we could leave the hot tub 'as is', would be willing to sign a release of liability as well as proof of insurance.

The risk adverse, hard working person in me says "no, just seal the thing off even if it takes half a day".

The lazy person in me says "If it is their liability, then I am done."

I may have just answered this question. It is wired by two functional 30amp breakers in the breaker box as well as another cut off switch that has another fuse that appears to be missing. So I have no idea of the state of the wiring, although it is an 80's construction (the house) and the hot tub appears to be wired to code.

I can't imagine that any liability waiver would protect me if the tenant decided he was going to try to get the thing working and there was an accident--like electrocution.

Based on some knowledgable sounding posters here on BP who remove ceiling fans, garbage disposals and dishwashers, I am thinking I am not going to find many folks that would think this is a good idea.

-Erik

Congrats! I was super nervous my first time.

First of all, source and hire your own building inspector--don't have your agent recommend one. And be prepared to walk away from the deal. For your first deal, there is no way to avoid the emotion roller coaster ride you will be on, and your agent and loan officer know it better than you, and will use this to close you--regardless if whether this is a good investment or not.

In Adams County, Colorado, bentonite soils can cause massive foundation issues, and foundation issues are expensive/impossible to fix (especially on bad soil)

After that, I would look closely at electrical. Especially since it is an older home. No grounds, crappy breaker box, no gfci's, aluminum wire, cracked old wire are all possible problems. And likely it will have way too few circuits and outlets for modern usage. If you rehab it up to code, you likely will need new service, new breaker box and 2x to 3x the number of circuits. For example, I bough a house that had one circuit serving the entire kitchen (dishwasher, outlets, garbage disposal, fridge, microwave) when it really needed about 5 circuits.

Things like asbestos, mold and meth damage are 'walk away' items.

After that, items like furnace, water heater and plumbing fixtures.

Oh, hire $99 rooter to come and scope the sewer line as well. That could be a $10k fix if it needs replaced.

Another good exercise to 'practice' walking away from the deal emotionally. Play it out in your mind as you go through your day. If you can't stand the idea of walking away from this house because you are emotionally attached--this is a danger sign. Keep practicing until you can be less emotional about it.

Then, start quantifying your 'walk away' point.

How much are you budgeting for renovations / remodel? Add 33% to whatever number you come up with and that is what your real budget should be. How much over your renovation budget will trigger your walk-away decision?

In fact, you could use this as a trial-run:go through all the motions and then walk away over something in the inspection. Do this for the same reason there are pre-season games in football. Analyze your agent and more importantly, yourself, during this time to learn how you act and react.

I hate replacing window screens.

I can't buy them pre-made, as windows are all shapes and sizes. Custom making them from Home Depot kits is both costly and a time sucking pain-in-the-@ss. After all is said and done, they add zero to the visual appeal of a property.

What re-hab item do you dislike the most when remodeling for a rental or a flip?

I'd say you need a minimum of 3 months of research, a couple of hours a night / day.

You need to look at craigslist, your local MLS enabled real estate sites, zillow, trulia, city-data. Also Realty Trac and more.

Find out how much properties cost and how much they are renting for.

Financing is an entirely different game. Do you have good credit? Do you have a down payment?

This will sound a bit paranoid, but don't trust any singular 'expert' be it a real estate agent or loan officer, or what not. They get paid when you buy, whether or not that purchase makes you wealthy or makes you bankrupt.

Vinyl tub and tile in the kitchen.

Why do you think there will be lots of upkeep with tile compared to vinyl flooring? Tile is super resilient--aside from the grout, what would it need?

My agent has been pretty good, but I have limited data: only been in the business of renting out properties for a little over a year and vacancies are really low around here.

Having said that, the first property they 'marketed' and signed the tenant for 1/2 months rent. I manage the property. For the next two, they sourced the tenant and are also managing the property. We have one more that we are just finishing rehabbing, and likely I will have the source and manage. My time is pretty limited, so I a happy to have them manage. Plus my cash flow margins are pretty good, so I am still cash flowing.