All Forum Posts by: Mariah Jeffery

Update: my offer of $45K was rejected in favor of a higher offer. I did learn a lot from this analysis and will be better prepared the next time an opportunity like this comes around. Thanks everyone for your valuable advice!

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.

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.

"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."

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.

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

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.

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.