All Forum Posts by: Natalie Schanne

Krista Dodson - I think Arlington will continue to appreciate nicely. You hear about people who bought in NYC in 1992 or 2008 and you just can't find those deals - the job security and demand drives prices. You'll wish you held onto the property (with tenants paying your costs). Any chance you'll ever move back? If you have enough W2 income, ask your bank about a 30 year fixed cash out refi at 4.5-5% to tap into the equity. You'll have to weigh that against the HELOC. I have a similar equity situation and I just met a Wells Fargo banker who said he keeps rolling people into new, sub 4% HELOC 1 year teaser rates. (Otherwise it's at 5.5-7% like you said). Or if you lived in the Arlington house for 2 years in the past 5, sell for 250-500k of tax free capital gains. I like to think about my levered returns. I bought a fairfax county foreclosure/ REO in 2009 and returns have been 15-25% annually (cash flow plus appreciation) on the 70k cash I actually put into the house. Sure the equity is now more like 50% than 20%, but that's kind of like my rainy day piggy bank. And the metro is still building out to connect Dulles to D.C. There's fancy new luxury construction everywhere around me in Reston, which will hopefully drive my rents up. Good luck and let us know what you decide on.

Thomas Williamson - interesting marketing idea. I'm glad it's working out well for you. How much of a security deposit do you have? In VA I only have 1 month's rent and need about 30 days to find a new tenant. If the person gives me rent on the first and a thirty days notice, I can fill the property with 0-7 days vacancy. If the rent is not paid, I still have time to evict before the sec deposit $$ runs out (and likely have to eat any apt damages.) I'd be concerned that a tenant would get to the 15th, decide not to pay, and then the eviction process would have started much later. I'd guarantee myself vacancy and lost income. I'd have half a month's rent (in sec dep) and only 15 days notice to evict the person and repair the unit. In Philly PA, the owner usually gets 3 months upfront - 1st, last and security deposit, so there's more flexibility. It's probably also different if you have the tools to take people to court to garnish wages for unpaid rent and damage judgements.

Pete S. - Welcome Doc! I just moved to Princeton from Philly. I highly recommend house hacking for wealth creation - either buying a house that's too big and renting out rooms long-term to professionals or buying a multi family (2-4 units) and renting out the other apartments. House hacking provides you with the best of everything. You learn: - tenant screening and relations - how to fix stuff and what reasonable maintenance costs are - property advertising and leasing - business processes so when you're ready to move out, you can just rent your space and earn even more cash flow. The roommates or tenants pay off 70-100%+ of your mortgage and other monthly expenses. If you sell after 2 years, your primary residence gets up to 500k appreciation capital gains tax free. Happy to send you some interesting properties off the MLS if you're thinking about buying soon. PM me if interested.

Bryan Kunka - I don't think you'll lose the ~3% of value you'll keep by having your own brokerage. It depends on the other economies of scale your partner gets by being affiliated with a name brand firm. (Cheaper Realtor.com property showcases? Software? Training? Conferences sand conventions? Other business? Free/discounted ads?) Buyers looking for pretty homes will probably have a buyers agent from a name brand firm. On the sales side, I don't care about the brand. Everything's listed together. I just want to know there's a combo box so I can show it. Buyers are going to offer what they're going to offer based on the quality of the work and the market. The appraiser can't ethically reduce the value of your appraisal because it's a flip.

Kavi Siegel - if I didn't misunderstand, the original 50/50 deal would have gotten them $610 price (50% 645-575) and a 60/40 deal with a min of $600 would end up at a $618k price. If they chose not to walk, they must think they can't do better in the near term. That gives you power. Try to get $592-610? You'll have to bring the cash above the appraised price. Review the appraisal and see if you could honestly buy a similar asset for $575. (Or less and rehab it yourself?) Purchasing at a 4% cap is a bit lousy - if you had a 100% loan at 4.5% you'd lose money. Especially given the guy just made $200k on the property (minus any rehab). However, hot is hot. I've heard of rents continuing to rise in the Hyde Park area. You can use the $250k capital gains waiver to shield your equity from taxes as it appreciates depending on how long you hold it. What are your investment alternatives? I made 15% on my passive stock portfolio last year and was happy to be renting temporarily from someone who is just breaking even on the condo apartment. (I considered buying it.)

Andrew Kelleher - Mark Poulton is right. YouTube is excellent. You can find great painters, flooring installers, plumbers, and more showing you step by step how to do something. I saved at least $300 youtubing how to repair my HE washing machine when it had a specific code error. The video showed me how to take it apart and put it back together. 30 minutes later it was good as new. (I discovered I needed to remove some very small items like baby socks caught inside the drain). You can also offer yourself as a helper to a handyman (see craigslist) or neighbor (do you have any projects I could help you with?) and learn from that person. Get good tools and practice with your hands. I'm a lady and I'm better than my husband with a drill.

Jeff Ihnen - Ask your agent to ask the listing agent for a counter offer. A flat rejection and insult doesn't give you any information. The offer seems reasonable given the condition. I've also heard of people resubmitting the same offer in 2-3 months if the property is still available. The seller might have a change of heart.

Will McGuire - Zillow offers some good ARV tools. When you zoom into the property, turn off everything but recent sales and look in the past 12-18 months. ARV is easiest with similar homes like condos, town homes and builder model SFR. Find the same model home and look at what the others sold for recently. An identical floor plan & SF, 2 BR condo can vary $50k where I live depending on the upgrades (original or upgraded kitchen, baths, floors?) For custom / unique homes in your community, check sales in the neighborhood and make an excel spreadsheet indicating SF, year built, # br # bath garage/fireplace/pool, sale price. (Bonus points for days on market and original list price). Then triangulate. You'll see the patterns. You'll notice that a 2 br 2 ba 1200 sf might sell for 250k and a 3 br 2 ba 1500 sf might sell for 300k. Plus or minus money for modern upgrades or poor condition. (Check out J Scott's book for rehab costs). I always assume my ARV is between the lowest recent sale and the median after I've put $20-50k into a property for a flip. Anything better is gravy.

Paul Razook - The 1031 exchange is a good idea. Be careful with your investments or your windfall could vanish. If you can show sufficient w2 income (you can put up to 4 people on a mortgage), you can do a cash out refi and get ~75% of the equity today ($600k+) and maintain ownership of the property. Will your property still be cash flow positive if you have a 5% interest loan? You can use losses from depreciation to counteract other other real estate gains across your portfolio. Would your house make 20%+ more money if you rented it room by room on 6-12 month leases? Airbnb? Check going rates under craigslist shared room and temporary categories. I have a 5 br house that would would rent as a unit for $2k per month but I get 3k+ per month because I rent out each bedroom on a long term lease and furnish the common area.

@Joy Jones - It seems possible but I think the fees and taxes will outweigh the benefits.

FHA has specific rules about "Identity of Interest" non-arms length transactions. In these cases, it looks like you pay all the normal FHA costs but can only qualify for 85% of the appraised value. (Source: https://www.fha.com/fha_article?id=451 <- not a government site)

You will have to pay roughly 15% Self Employment tax on your flipping if you're using a pass-through LLC taxation method, in addition to State and Federal income tax, on the profit. (Buy at 100k, put in 50k, appraise at 200k, sell to yourself at 200k, get an 85% loan of ~$170k, pay double settlement/closing fees.). You'll pay 'LLC' taxes on 50k, likely least $10k.

Depending on the home's value, closing multiple times (are you buying title insurance again?) might be too expensive. Additionally, if you sell to yourself at a higher price, you're not going to be taking advantage of your 250k 'free' capital gains until it appreciates even more.

That is, if you buy it with your cash as yourself for $100k, fix it up for 50k, wait 6 months, get it appraised for 200k and then get an 80% loan of that amount, you get $160k back in your pocket (minus any fees). Then, if you sell 2+ years later, at $250k, you get the $250k-150k = $100k capital gain tax free.

You can also use a FHA 203K modernization loan to borrow $$ above the purchase price with contractor plans. https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/203k/203k--df