All Forum Posts by: Donald S.

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $9,000
Cash invested: $31,000
Sale price: $213,000

Contributors:
Naveen C Reddy

So I just finished doing all the calculations for this flip. Man it was a beast. Almost 10 months from close to close and a huge project for a first time flipper.

So here's what I got:

I had a call from a direct mail campaign and the seller offered me his duplex in an up and coming neighborhood of St. Louis known as Benton Park West. He was only asking $9,000 so I thought there's no way I can't make this work.

I went and looked at the place, it had been vacant for nearly 25 years and was in rough shape to say the least. But the foundation was solid, brick work was in good shape, and the floors and floor joists (that I could see in the basement), looked to be in good/salvageable shape.

My business partner decided it was worth it and we bought the place for $9852.00 including closing costs. About a month later after talking with about 6 general contractors, numerous subs, 4 architects, and a host of potential wholesale buyers I lined up contractors and decided to hire a GC to do/oversee most of the work and I would project manage/manage the GC. We put a budget of $132,000 for the contractors to do their part, and I would contribute another $8,000 worth of work mostly in tile and painting.
With that in hand I found a private money lender through a friend of mine, and showed him the comps my Realtor (I wasn't licensed at the time), had pulled and he was already funding a similar project 4 blocks over from mine. He agreed and gave us a loan of $150,000, Interest only, Rate was ~10.5% 3 month variable.

My GC thought he could start August 20th and finish by December 1st, so in our contract I gave him until January 1st to finish before penalties would kick in. Work started with demolition on August 20th as predicted and within 2 weeks the place was a shell. Literally everything except the studs were gone (and those would be gone soon also). Unfortunately work did not progress as fast as my contractor had hoped and it would be February 20th before he managed to finish enough for us to put the place on the Market. Fortunately my GC and I had a good relationship and he kept his word, paid the penalty (200/week), and through in a 1 year warranty transferrable to the new owner as of the close of a sale.

After getting staging set and pictures taken, landscaping completed, we listed the property around March 5th, right at the beginning of the spring selling season. We had 2 really positive open houses on back to back Sunday’s and a good amount of showings throughout the weeks. After the 1st open house we put out advertising saying something to the effect of “If something isn’t quite right, let us know, we’ll do what it takes to make it right for you!” This was a good and bad thing it turned out, but mostly good.

After almost exactly 30 days on market and a price drop we got an offer at $200k and a request we provide $5k in closing cost and a $550 home warranty, we had listed it at $230k-223k. We countered back with $213,000 and kept the other concessions. Closing was set May 7th. We had a deal!

After some trials with the occupancy inspector and home inspector on some relatively minor things, we finally made it to close. I cannot express how nerve racking the waiting period between listing a house and getting an offer is, this was the first house I had sold, and then the escrow period was almost worse. The buyer’s didn’t know, but had they cancelled the contract, we were probably screwed as our loan was due on May 17th.

So how were the final numbers? (all rounded)
Purchase: $9800
Renovation: $162,000 ($22,000 over budget)
Total Interest Paid: $8700
Closing Cost: $18,400 (including commissions and concessions)
Holding Cost (other than Interest): 1100
Sale Price: $213,000
Gross Profit: 13000

Takeaways:
I learned a ton on this rehab.
1) Don’t try to do work yourself, have a pro do it.
2) make sure you keep a good lock on what’s going on and when with your contractors, one of our costs overruns was time.
3) On a gut, just because you think you can salvage something (like the floor), put a contingency budget in for it.
4) My 10% contingency was not enough.

Photos to follow:

By Property management company, do you mean the base housing authority? 

If it's base housing, they can likely depreciate on whatever schedule they feel like, since they're not depreciating it (likely) for tax purposes, rather only for replacement cost on your part. If they are using this way as the tax depreciation, than no they cannot do that under normal circumstances. I don't know of a circumstance where they could do that, but I don't know everything. 

If the management company is a private company and by "base housing" you really mean the private company is depreciating the asset like that not only for your "account" with them in regards to replacement, but also for tax purposes, this would seem to be illegal. But you may want to check with base legal on that. 

On a separate note, for your own reference, carpet can usually be written off as "de minimus" if it's under the cap ($1200 I think last year?) or depreciated fully using bonus depreciation available to 5 year or less assets. 

Anyone interested in investing in the St. Louis area, if you'll be in town that night, should come on out to this event. It's Free, no sales, with drinks and apps on us! Investors of all experience levels show up, from those who've been at it for 20+ years, to those still reading their first books on where to start. You're bound to find someone worth talking to. 

So I have a 3 bed, 1 bath house that is up for rent, had a lady come check it out and apply. During the prescreen she clearly states she has no evictions. 

Background check turned up an eviction. Ok, pretty standard, she claims that it was her ex-husband not her that got evicted. 

So I do a name search on the Missouri CaseNet, comes up with another eviction, this time with just her name on it. I ask her about that one, and she says she lived there, but left without owing any money and never went to court....

"Well ok, but then how is your signature on the judgement?" (In Missouri you can view the original judgement documents online, her signature is plain as day in the "defendant" box.)

Her response: "....."

Wow. Impressive post to say the least. 

Can you say what the numbers come out to be? 

That was a ton of really good information for beginners and experienced. 

Can I ask why you chose lender 4 over 3? Was it the prepayment penalty? 

If you're looking to refinance into a conventional, conforming loan, then you'll have to wait out the 6 month seasoning period. Here's the latest guidelines from Fannie. I know this because my mortgage broker looked into it for me 3 weeks ago.

 If you pay a person a fee that's contingent on the closing of a property, whether anyone is a licensed agent or not, if the person getting the fee is not a licensed real estate agent, it's considered brokering without a license. Whether you'd be caught or prosecuted is another issue, but strictly speaking it is against the law in Missouri. 

There are other ways to get around this pesky law, but that's getting into gray area, and I'm not a lawyer, so take my words here with however much salt you feel necessary. 

Good hunting. 

Cheers!

@Jacob Gammon I have some leads for you when it comes to 4 families in Dutchtown, I'll PM you. 

@Eric Castelli I have a guy that's a flat $89/sewer scope with video, I'll PM you his info if you are paying $200/scope you're being screwed. Also it should cost ~3-5k to replace a sewer lateral, we need to talk about who you're using for plumbing. 

@Scott Anderson and @Nathan Anderson , 

First off, welcome to the St. Louis real estate scene. If you want to meetup to discuss real estate feel free to PM me.  

As for meetups for newbie's, there's a meetup in St Louis that's for investors of all experience levels and free. PM me for details, can't post it here. 

So I see the question of transferring a property to an LLC has been asked about 10k times, but this is not that.

My business partner and I are under contract to buy a SFR under the LLC that we do flips out of, but due to some economic reasons we decided it would make a better long term deal. So we want to see what tax/legal implications would exist if we closed on the house in our flip LLC, did the rehab, 'refinanced' the house into a traditional 30yr in our personal names, and then transferred that into the trust that holds our rentals?

Now I put refinance in quotes, because I'm not sure it would even be considered a refinance since we would be transferring ownership from our entity to our natural persons. Due to timelines and for simplicity sake we don't want to amend the purchase contract to be our natural selves, so what would be the most tax and legal advantageous way to do this triple transfer? As this is a multi-member LLC, are we allowed to quit claim the property to our persons and refi from there? Or would it be better/possible to "flip" the property to our personal selves?

Cheers!