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All Forum Posts by: Mariah Jeffery

Mariah Jeffery has started 42 posts and replied 185 times.

Post: Considering first flip

Mariah Jeffery
Posted
  • Real Estate Agent
  • Cheyenne, WY
  • Posts 200
  • Votes 48
Originally posted by J Scott:
Just some thoughts based on my personal experience (your experience may be different):

- I've never encountered a rehab that wouldn't easily cost $10K. Even paint and carpet will generally run $5K, and it's just inevitable that more things will come up at some point, whether it be a roof leak, a plumbing problem, or whatever. I'm just skeptical anytime someone tells me they plan to spend less than $10K on a rehab.

- You only subtracted 6% for seller costs. This doesn't include seller-paid closing costs, which in my experience is generally about 3-4% (most buyers will ask sellers to pay at least part of closing costs). This also doesn't include home warranty, termite letter, and any repairs requested by the buyer (or the buyer's lender). Don't ignore these costs.

- You only plan to hold for 2 months, but keep in mind that most lenders these days are going to give your buyer a hard time if they try to buy from you in less than 90 days from when you bought. Make sure you have a lender that you can refer your buyers to who can get an FHA loan done in less than 90 days (most can't).

- Now the the tax credit has expired, expect fewer buyers in the low-end price range. Expect higher DOM. Expect higher holding costs.

Again, just my $.02...


Your point about the costs is a good one. However, the key here is that my FIL works for dirt cheap. He charges us the family discount of roughly $10/hour, and he's good at what he does. He quoted a flat fee of $500 for paining the entire 900 sq ft house, and $500 for killing the mice, cleaning the place up, and hauling everything to the dump. He did a rehab for us in February. His cost estimates were $4K-$5K. I tallied everything up to the penny, and actual cost was $5,400. He did underestimate slightly, which is why I doubled his estimate for this one. He also claims this one would be "way easier" than the last one. I'm sure there will still be unexpected costs, buy I doubt they would exceed the $7,400 figure.

I've been thinking of changing the exit strategy on this one to sell after a year due to the 1031 exchange issue. That would allow me to get a renter in ASAP, skip the more expensive vacant property insurance issue, and get this on the market 5-6 months before the year is up. If I do get an FHA buyer, that should allow plenty of time for the closing, with the renter paying rent in the mean time. I'll just keep the rent a little low and be very diligent about screening that particular tenant.

In this particular RE market, sellers probably do pay some concessions, but it's not an extreme buyer's market like a lot of areas. There was never much of a bubble in South Dakota so the landing is very soft. Still, I've asked my agent to tell me how common this is so I can guestimate whether I'll have to pay any of these costs, since I think this is a very good point.

Post: Considering first flip

Mariah Jeffery
Posted
  • Real Estate Agent
  • Cheyenne, WY
  • Posts 200
  • Votes 48
Originally posted by Jeffrey Koenig:
I dont think this is a "slam dunk." How much will this rent for when you cant sell it? Are you FSBO or going to list it? People will not be able to finance it if you turn it around in a month and only put 3k into it. Are there many cash buyers? Do you know it is worth what your realtor says or are you just taking him at his word? Don't want to burst your bubble, but flips are risky.


We would definitely list it with an agent, and the goal would be to get it to qualify for FHA financing. I do trust this realtor and his assessments, as he has been very conservative in the past. He's showed us several dozen properties, and most of the time his advice is to not buy them or not pay too much.

I do have several other data points to support the value, and I am waiting for the realtor to send me comps. I do feel at this point that the $80K is conservative, but if the market analysis shows otherwise, I will pull my offer when the bank calls for highest and best.

I put in a cash offer for $45K last night, btw.

Post: Considering first flip

Mariah Jeffery
Posted
  • Real Estate Agent
  • Cheyenne, WY
  • Posts 200
  • Votes 48
Originally posted by Randall Rose:
When you say rodents,do you mean rats. Rats can cause damage to the electric wires, they will eat the casing off of the wires.I do not know if this house has a attic,if it does,the insulation is probably trashed with their discharge.The reason I bring this up,who ever buys that house,and brings in a half way decent home inspector, they will know the past situation.
Just something to think about!


They are mice. Do mice potentially cause the same problems? Thanks for bringing this up.

Post: Considering first flip

Mariah Jeffery
Posted
  • Real Estate Agent
  • Cheyenne, WY
  • Posts 200
  • Votes 48
Originally posted by Bryan Alenky:
i dont' think you can 1031 a flip, unless you held onto it for more than a year--maybe 2. where are the flipping/tax experts?


Thanks for bringing that to my attention! I found this:

"Your personal residence, with the exception of the home-office situation referenced above, does not qualify for a 1031 exchange. Nor does "property held for resale." What is property held for resale?

Prime examples are "fix and flips" -- those ugly properties you buy, fix up, and put back on the market a few months later. These properties are bought with the intention of immediately reselling them, so they do not qualify.

Does that mean that you can’t buy ugly properties, fix them up, and do an exchange? It does not. You can do a 1031 exchange on "fix and flips," but you have to hold them long enough to qualify them as investment property. Typically this means that you have to hold them for at least a year and a day. The principal reason for this is that the IRS does not want you to turn short-term capital gains (which typically are taxed at higher tax rates) into long-term capital gains (which typically are taxed at much lower rates) by doing a 1031 exchange."

Post: Considering first flip

Mariah Jeffery
Posted
  • Real Estate Agent
  • Cheyenne, WY
  • Posts 200
  • Votes 48

I estimate it will bring $700/month in rent. At $58K total invested, it's not profitable enough to keep long-term as a rental, but certainly wouldn't lose money either. Another possible strategy would be to rent it immediately on month-to-month terms and try to sell it with a tenant in place, so I could hold out for a higher price.

Post: Considering first flip

Mariah Jeffery
Posted
  • Real Estate Agent
  • Cheyenne, WY
  • Posts 200
  • Votes 48
Originally posted by Steve Babiak:
Is your insurance figure based on this being a vacant building while you are holding it? Vacant policies are a lot higher than normal occupied rental property policies. And some will only underwrite for minimum durations fully pre-paid (say 3 months policy, you sell in two, they keep that extra month).


No, I was not aware of that. Thanks for bringing that up. I'll ask my insurance company to quote me the premium and minimum time frame.

Post: Considering first flip

Mariah Jeffery
Posted
  • Real Estate Agent
  • Cheyenne, WY
  • Posts 200
  • Votes 48

It was listed on Friday and already has multiple offers. It is full of rodents and feces.

Post: Considering first flip

Mariah Jeffery
Posted
  • Real Estate Agent
  • Cheyenne, WY
  • Posts 200
  • Votes 48

I have several properties that I bought to hold, possibly until death. Several of those were fixers, but I've never attempted a flip before. (When I say "I", I mean my team, which consists of my retired father and law and his friends. I don't actually do anything but do the analysis, pay the bills, and collect the check).

I recently learned over an opportunity that does not pencil out well for cash flow, but it looks like it could be a good flip opportunity. It's listed for $48K by the realtor I have been working with as a buyer's agent and trust immensely. He claims it's worth $85K-$90K, and would conservatively bring $80K in a quick sale (under a month, according to him). My team took a tour and estimated rehab costs at $3,700 and a 10 day timeframe to complete. There's not much wrong with it other than it being full of rodents - dead and alive - and their feces. Disgusting, but easy enough to clean up. New linoleum and storm doors, minor yard work and a new toilet are about all that's left.

Here is my analysis of the profitability of the deal.

Costs: $58,400
Purchase price: $48K (cash, no financing)
Rehab: $7,400 (double my team's estimate to be conservative)
Buying costs: $1,000 (title and inspection)
Selling costs: $1,500 (owner's title, escrow, closing)
Holding costs: $500 (utilities, property taxes, insurance for 2 months)

Proceeds: $80K price - 6% commission
$75,200

Profit: $16,800
28.6% return on the $58,400 investment in 2 months
Not bad considering I just write the checks. Ideally I will 1031 exchange and not pay taxes immediately on this profit.

What am I missing? Please tear this analysis apart.

Post: How to find out quickly if seller is motivated?

Mariah Jeffery
Posted
  • Real Estate Agent
  • Cheyenne, WY
  • Posts 200
  • Votes 48

Tax assessed value in my county is supposed to be 80% of market value. However, I have seen it to 60% of market value to above market value in some cases. I have 19 units, and have paid less than or equal to the tax-assessed value for all 19. I don't think it's being unrealistic when I've done it many times in the past.

Post: How to find out quickly if seller is motivated?

Mariah Jeffery
Posted
  • Real Estate Agent
  • Cheyenne, WY
  • Posts 200
  • Votes 48

A few times a month, I get tips that are usually something like "So and so is really sick of being a landlord, and wants to sell his properties ASAP." I got one such tip last night. Potential sellers own a duplex and a triplex, purchased in 2005 for more about what they're worth now and certainly a whole lot more than what I would pay for them.

Typically in situations like this, I call and say something like "I heard you may be interested in selling your property. I'll be very straight with you, so I don't waste anyone's time. As an investor, I am a bargain hunter and never pay more than the tax assessed value [in my area, this is designed to be 20% below market value]. However, depending on several factors including the condition and rents, I often offer significantly below the tax assessed value. On the plus side, I can close quickly and take care of any deferred maintenance for you, so you don't have to worry about prepping your property to go on the market."

Is there a more effective way to approach these potential sellers, without wasting a lot of time before they tell me they want full retail price?