All Forum Posts by: Jim K.

I have been running what I consider the handyman real estate investor's best side hustle for quite some time now. I am one of Home Depot's Top 25 reviewers and a member of the Home Depot Seeds Program. If you've ever heard of the Amazon Vine program, Home Depot has a similar program. You have to be invited into it -- my invitation came two and a half years ago.

Every month, HD sends me a list of about 500 items, and I can choose 5 of them, including one "premium" item. They send you the stuff, you write a review on it, and you get to keep the stuff.

When I joined the program, I was pretty sure it was going to be nothing but drill bits and hacksaw blades, with the odd extension cord thrown in. I was wrong.

A condition of the program is that I cannot sell any of the items that I request, and so I don't do that. I write up a Schedule C on these items and declare them to the IRS. As the reviewing gig demands that I open these up and actually test them, I list their value as open-box, slightly used products.

Here is the best part: my CPA lists the value of these items as hobby income. If you have hobby income, you can deduct your hobby expenses from it. So my hobby income from reviewing is offset by my expenses doing the other part of my hobby, renovating the homes I buy to convert to rentals. And I of course use many of the items I get through the Seeds programs in these renovations. This allows us, for a fraction of the cost of these items, to use them in low-budget rentals. Ever seen a $550 European shower system in a budget rental? How about a vessel sink in hand-blown glass? Well, we can do that for our tenants, thanks to the Seeds programs, for no additional direct costs to us.  It gives us a great leg up over our competition in our rental market.

@Mike Castellow

I wasn't harassing Kyle about his hair. I was pointing out he's probably going to deal with crap that has nothing to do with his competence because of it. The specific term I used was "unreasonable prejudice."

I swear, when I cash out, it's going to be a three-foot Santa beard, shampooed ever day. Maybe a man bun.

So it looks like we agree

@Kyle Waters Once again, no offense meant. There is nothing wrong with your hair. But you will most likely be judged on it unfairly by contractors, just as surely as you would be judged unfairly for a number of other reasons. The hair is, at least, something you can control.

@Kyle Waters

I am a Pennsylvania home improvement contractor. This is what I'd do if I were you.

Go through contractors until you find the most reliable guys out there who get the job done no matter what. Then pay them what they're worth, which is going to be a significant premium over the lowest possible price you're quoted by other contractors.

Good contractors know other good contractors. Get recommendations from them. Hire those people. Respect their know-how. Respect their work. Respect their time. This is only really possible if you have a genuine interest in what they do. Cultivate that genuine interest -- if you're going to be a successful real estate investor, you're going to need it.

Here's something you can do that will help the struggle. Many home improvement contractors in many different fields will not like your hair. They will have an unreasonable prejudice against people with hair like yours. At least it will look unreasonable to you. Spend a few hours covered in caustic dust, mold spores, asbestos, spatters of any sort of rubberized coating or modified mortar, or worst of all, globs of septic waste. Sweat through two or three hats. Then go wash that hair, and you'll understand that prejudice much better.

Personally, I really dislike facial hair. It happens after a few years in a half-face respirator. I really hate guys with stylish hair and carefully trimmed facial hair who obviously don't spend time in a respirator confidently telling me their total BS opinions about home improvement.

Really, no offense, Kyle. I don't like the world the way it is. The only hope of it really changing is people your age doing things differently. More power to you in everything you do. But a contractor's many hair prejudices are based in the kind of physical work we do, and a lot of people don't understand that. I've shaved my eyebrows because I couldn't get globs of crap out of them.

Have your father do it. I believe home inspection is a great idea for retail customers. The agents push for it because there's no downside for them, no opportunity for hard feelings later. But if you have a family member who's in the real estate business and is confident enough to guarantee your earnest money, you should go with that.

@Nicholas Aiola

You just made my day and helped me see a way to a retirement on a Greek island from Section 8 housing in western Pennsylvania. THANK YOU!

@Alecia Bunch First of all, accept that you are going to fail at some point. We all do. We fail hard. Next, pick a deal that will not destroy you financially if it does fail. Ask yourself quite reasonably -- what happens if I lose this money?

If you have already imagined the absolute worst that could happen, worked through the scenario in your head, then you'll find that what you were scared of all along because more manageable. 

@Mike Sands

OK, this sounds like a disaster waiting to happen. This is why I think so.

Do you have proven, reliable contractors you're going to be using on this flip? Are you planning on driving the price of working with them down because they should expect "investor pricing" with you on your very first flip? Are you working with a general contractor for your first flip or do you expect subcontractors who don't know you to hop to when you give the word? Have you prepared a quality scope of work for the different jobs you want them to do? What are you going to do the first time one of them does inferior work? Do you have reserves lined up? Can you correct many issues yourself and serve as your own handyman of last resort?

You frankly sound like someone who hasn't given the actual job of flipping the place enough thought, like many first-time flippers. You don't sound like you have the personal contacts and relationships built up over time to make this happen successfully your first time out. I would not do a full-on flip as my first real estate deal. There are a lot of moving parts and things very often go sideways in a hurry.

But hey, if you're willing to risk bankruptcy on this, then go for it. If you succeed, good. If you fail, at least you'll have some hard experience under your belt. I am NO stranger to failure myself.

@Carey Branam

Well, if you're preparing the house to sell, I'd redo the floors anyway. You mention it's an eyesore...I hope you've taken pictures. Withhold the security deposit for the full amount. If the tenant kicks, take them to court and show the the pictures to the judge. Most judges have never touched a hardwood floor and are under the impression that for some reason, Americans historically laid flooring in native species of hardwood in their homes that was practically impossible to repair well.

You have multiple options to fix the floor. But rest assured you WILL get to keep the full amount of the security deposit and you CAN fix the floor. If I were you, I would learn how to refinish hardwood floors yourself. You're tossing away equity if your potential buyers aren't walking into that property on "painstakingly refinished original period hardwood floors". The retail real estate market is filled with buyers who see deep, high-gloss finishes on older hardwood floors and reach for their wallets.

On the other hand, if you just want to get things over with and hire a guy, put in a vinyl plank floor. It's cheap enough and it looks fine. At the most, on a hardwood floor, you'll have to pull the existing quarter-round and nail it in again with a brad gun hooked to a compressor.

Good luck!

@Nicholas Aiola

Nicholas, I've got a tax question I really haven't been able to get a good answer to.

Let's say I own six single-family rental properties in very sketchy areas free and clear, each worth $25,000. I sell them all to an investor for $150,000. I do a 1031 exchange and put all the cash into buying a single, rather rundown home in a very nice neighborhood free and clear. I rent out that property for a year. One year later, I do not renew the lease, the tenant moves out, my own family moves in and the property goes from being an SFR to my primary residence.

I proceed to do a 2-year live-in all-the-bells-and-whistles flip in this place, put the place on the market as a the nicest single-family home on the block, and get $280,000 for it.

According to the IRS (26 U.S. Code § 121 - Exclusion of gain from sale of principal residence), what is my tax burden on the sale of this property? Please assume I am married going into this deal and married coming out. Do I really come out of this with no tax burden from the $150,000 I put into the house buying it as an upscale rental from the rental properties and the $130,000 from the flip?

If we expand the numbers a bit, if I own 24 $25,000 SFRs in sketchy areas free and clear, can I run this kind of 1031 exchange, 1-year tenant, change to permanent residency, and 2-year live-in flip four times in a row during eight years to completely cash out ($600,000) of cheap rental properties in questionable areas tax free in eight years? The four live-in flips might make $520,000 together over those eight years or might not, that doesn't really matter. It's that the 24 SFRs are sold and I pay no tax on the sales. If I pick the right houses for the live-in flips I wouldn't even need to do this four times, or even three, as long as I did not exceed the $500,000 gain cap for a married couple for each live-in flip.

Is this a viable cashout strategy for an SFRs-in-sketchy-areas investor?

Thank you.

OK, Nick, you just told me how you got interested in real estate. Someone showed you how a young guy could make money with a rooming house. The how of it is good information to know, but that's not what I asked. WHY? Why do you want this?

The closest you got was "I've always hated being behind others."

So personal ego is a big part of it. Do you have a better reason to risk everything in real estate to make a lot of money other than keeping up with the Joneses? And if you dislike "being behind others," how do you feel about failure? What about repeated failure, failing OVER and OVER and OVER again and having your family pity you for a hopeless dreamer, and your friends quietly desert you because you're a perennial charity case, and people on the street sneer at you because the stink of personal failure is on you as surely as it is on an addict sleeping in a cardboard box in an alley?

Because sooner or later, it's going to happen to you, Nick. Ivanka Trump tells a story about her father, in the middle of one of his periodic crashes and in deep debt, pointing to a homeless guy on the streets of NY and telling her that the homeless guy was richer than he was. A lot of people miss the point about this story. Sure, it's a mean shot at a homeless guy with no education, no resources, no way out of his situation. Sure, it sounds like cheap self pity. But it's not like Donald Trump said this to an acquaintance on the street. He was talking to his daughter, the one he had accurately assessed to have the most brains in his family. This is what he, in his moment of failure and misery, chose to teach his child as memorably as he could, asked his child to remember about financial success and failure.

So I'm asking you again, Nick, and if you tell me again that you want to do this because you want to feel just a bit better than the people around you, I'm going to laugh at my computer screen. Everybody feels that way.

There's a woman I see on my way to work many mornings driving a late-model Ford Mustang convertible out of the makeshift gravel parking lot of a decrepit 1-family house in a poor part of town. She ALWAYS wear sunglasses, even at dawn in the rain with the top up. That swiftly depreciating car is how she feels she manages to feel a bit better than the people around her. 

I know a guy who brought back a woman from the old country who's thirteen years younger than he is to marry her here. They're on their third child together, and are close to penniless. He tells me he did it because he needed to make sure that when he told his wife to do something, she would so it. That's how he feels better about himself.

The children of very affluent parents are usually, by definition, in a much better financial position than most kids. If money equaled happiness in an uncomplicated balanced equation, then why do they so often take just a whole pharmacy worth of very expensive drugs just to feel better about themselves and escape their reality?

So, come on, Nick. Give us a WHY. Articulate it to yourself, look at it, and decide if it's important enough to you.