All Forum Posts by: Steve Smith

Originally posted by @Joe Splitrock:

@Account Closed generally speaking CAP rate is not a great measure for single family homes. Demand for single family homes is driven more by owner occupied, rather than investor return. CAP rate uses NOI, which is pretty easy to find for larger multifamily or office space. These properties are run like businesses, so they have operating statements. When you get into single family, people often fail to include many expenses when calculating NOI. For example; insurance, taxes, leasing, management, vacancy, CAPEX and even repairs in some cases. You find real estate agents saying Annual Rent is X and they divide by purchase price, then call it CAP rate. Or they just subtract insurance and taxes and consider that all expense. I have even seen agents say things like "they managed themselves so there is no management expense". That is like saying "the owner was a plumber so the plumbing repairs were free".

No problem calculating it for single family, just make sure the number is all-in and be aware many people calculate CAP rate wrong on single family homes. Qualify the data before using it. If CBRE is doing it, you can be sure they are looking at true NOI, but I doubt they would look at single family.

On your property example the net income per month is $1875. What is the actual rent you are charging per month?

Joe,

You hit the nail on the head, and frankly, who cares? Sure it's a measurement, but there's SO many other factors, especially in SFHs where I think you and I are. While some of the costs you note that are "buried or forgotten" most SFH investors treat there houses like an investment and take all of those things into account. But, the bottom line is ROI. How much do you make with the dollar you put in? And you temper that with safety, stability and ease of operating it.

And, no, your labor is not free, in fact it's quite expensive. Your time has value.

I could argue to never use cap rate as a big factor in getting a good return on your dollar.

Brandon nailed it. No need to sign a contract, but there may be reasons for sharing 50% on some deals. Agreed, overall, it's the house that's hard to find. I gladly pay my birddogs 100% of their deal. Win/win.

Klran,
Also sorry you paid for a very expensive lesson. Need to understand:
Your purchase price       350
Your rehab costs             50
Projected sales price     415

If the above is correct, it's WAY to thin. A lot of the rehabers want $30k min or 20% of the ARV (hopefully the sales price) before going in... including all costs, holding, financing, etc., etc.
As for just getting the wrong contractor, that sucks, and I'm sure you'll qualify the next one a LOT better. Even consider splitting things up... hire one guy for overall, might clean up any construction, new doors, kitchens, baths, etc. Perhaps another guy for the floor, another for the paint.  More work on your part, but more control.
Have a clause that you can fire for any reason. Have a penalty clause for late or poor performance. (but have a bonus for good performance). Get references, look at their license and insurance.
You probably know all of this now.
I love to rehab and flip, but don't do it anymore as I just don't need it. But there's a satisfaction of a good job done and a healthy check in the bank.

Ashish nailed it.

Yes one can use the installment sale to spread out capital gains. Surprisingly, working on one just a few hours ago. But must be investment property. and 1031 is an option if the seller wants to stay in the game.

For owner occupied, the seller gets 500k married, 250k single of GAIN, tax free. (my numbers might not be spot on, but close.

Now, here's crazy thought.... raise the price a bit and pay her a bit bigger payment principal only. Her tax will be zero if the gain is less than $40k per year (2020 tax rate). (Interest on the note is ordinary income). Correct, Ashish? I believe the gotcha in this would be the IRS may impute interest?

BUT, I could say that you don't want to give her tax advise, but tell her "this is how you believe it works, check with your accountant."

I've tried Zillow and I like it. One thing it does, is gets the property out there fast, and on several sites. Yes, we get a lot of unqualified tenants, but easy to see through. Yes, the credit check is poor, but a good enough so far. I use my own app, however which does cause some duplication on the tenants side. Also, I don't mind talking to my prospects and will call them and doesn't take long to get a feel if I wish to proceed.

Jayden,
There's many ways to get experience. Do some research on wholesale flipping, retail flipping, and sandwich leasing. Find a rehabber that will take your services for part interest. You're handy, might find an investor that will give you part of the rents for maintenance... perhaps on one house, where you maintain all of his, get xxx of the rent and learn management from him.
You might just go out and buy a house... can you save up a reasonable down payment? You might find a fixer that someone will sell you with zero down, you do all the work fixing it, keep in and rent it out. THEN go to the investor and sell him part of it, you still do the work and manage, he gets % of rent and % of upside when sold. (Or better yet, sell him the whole house for what you paid for it which should be a good deal, after you've fixed it, and get an option for part of the upside and part of the rents. Now you have minimal in it, don't own it and have some of the benefits.

First, you don't want a partner, you want an investor. Some one that will bring money to the table so you can do the deal with minimal money in, but you'll do the work. Correct? Re read Wills comments... that's a start.
It will help if you have a track record, and if he has a VERY secure position, like a first mortgage of 50% LTV. Most guys with money want security FIRST, and a reasonable return, second. Often that person will be a friend, or someone you are introduced to. Hard to find with just an ad. Also, these might be high worth professionals that might want the ownership to reduce taxes, and don't have the time for management.

Here's the question....does the son want out? If so, there are ways to get the court to release the home or at least tie it up until the probate is finished.

We would probably need more details to comment. However, as a rule, I would just go find another deal. Ain't worth the time to go to court.
However if the document you want wouldn't kill the deal, why couldn't you close anyway? What docs and disclosures do you want?

Stay in Tampa, long distance ownership and landlording just doesn't work well. And there's TONS of opportunities in Tampa. 
However, Port Charlotte is a really nice area.