All Forum Posts by: Spencer Bowen

Dear Washington state wholesalers ,  

I was just reading through the RCW on excise tax and found this little nugget below (RCW 458-61A-104 para (1)(b)).  Can anyone help me understand paragraph 1(b)?  It seems like if I sign a contract with a seller for a price, say $100,000, and then assign the contract for $10,000 to another buyer, excise tax would be due for $110,000.  Is that what this is saying?  If so, what other ways to execute an assignment could avoid this tax?

Thanks!

Spencer

458-61A-104
Assignments.

(1) Purchasers.

(a) The real estate excise tax does not apply to an assignment of a purchaser's interest in an earnest money agreement if neither the earnest money agreement nor its assignment results in a change of title to or ownership of the real property.

(b) The real estate excise tax does apply to transfers when the purchaser of real property under a real estate contract assigns the purchaser's interest in the contract for consideration. The tax is based on all consideration paid or contracted to be paid to the grantor for the assignment, including any unpaid principal balance due on the assigned real estate contract.

Thanks again @Ryland Taniguchi and thanks @Brian Truman.  I've been busy getting the deal in front of builders.  It doesn't look like this deal will work, but maybe the next one will.  This one has too many risks to be appealing.

Brian, I am focused on selling contracts right now, but open to partnerships for the experience.  What area do you operate in?

Thanks again Julian Buick ! I appreciate your help. I know about that property you mentioned, this is a different one. There isn't a height restriction on this one, but it has enough other issues to perhaps not be worth it. Ryland was super helpful too. Thanks for pointing me to him. He mentioned some builders use ratio of 30% acquisition cost (or less) to final property value. Do you use that as well? Also, how are you calculating your annualized return on investment? With the deal you mentioned, investing $1.7 and selling at $2.5, I'm getting a 40% annualized ROI. Thanks again for all your help!! Spencer

Wow Ryland Taniguchi ! I just saw your BP interview! Thanks for responding and your insight. I really appreciate it. I honestly haven't been thinking about a downturn. But it's clear that if you're in the business long enough it's going to happen and I need to be ready. Would you mind sharing other strategies that are well-suited to weathering a correction? I'd like to use them to help shape my marketing and deal structuring/analysis. Thanks again, Spencer

Thanks for responding Julian Buick I appreciate your questions and feedback. I have been marketing to short sales for about 6 months and haven't closed a deal yet. But on the plus side I've learned a lot with each contract I've had to let go. :) There have been about 6 contracts so far, and I've been open to different exit strategies with each one, either wholesale or find a partner to run it with me. Most of them have been too close to the sale date to get the bank to stop the foreclosure. This is the first deal that isn't a flip, and isn't actually a short sale either. I thought I might be able to flip the house, but after digging into the details it is necessary to replace the entire structure and foundation. I do have a capable GC interested, as well as part of the private money, however I think I'm too new to take on an effort of this magnitude, so I'd like to sell the contract to someone with enough experience to mitigate the risks of it going sideways. You say 10% is slim. What is a good margin for this type of thing? Thanks!

Howdy! I'm just getting started, and this is the first builder/development contract I've hit upon through my marketing. Is this a good deal? Here are the details: Contract is $280k for a view property (lake and territorial), with Lake Washington beach access on the title. It's on Goat Hill in Kirkland. The job requires replacing the entire existing structure. Building a 4/4 3200 sf house at $125/sf (plus permits, plans, holding and laying foundation) and selling at $345/sf would yield $134k profit with a hard money loan at 4 points and 12% (assuming holding 8 months for permits and 8 months construction). Known issues: 1. The existing structure sits near the property line and cannot utilize the existing foundation with current side/back distances. 2. The lot is on a hill, with about a 50 ft grade from one end to the other. This is what gets the property it's view. 3. There is a stream on the adjacent property, about 25 ft from the property line, that could potentially require obtaining a reasonable use exception with the city of Kirkland (it depends on the type of stream, which is determined through testing). Kirkland permit office estimates 8 months to receive a reasonable use exception, if it's needed. They would need a stream biology report, soil report, foundation and rainwater plans, and full design drawings. To address this, I have factored in 8 months to obtain permits and $100k for plans, permits, holding costs and laying foundation. Even with these costs, assuming $345/sf, a hard money loan would yield around $134k with 66% cash-on-cash in the worse-case scenario of carrying the acquisition loan for 8 months before starting construction. What do you think? Is the juice worth the squeeze? It's a lot of leverage and a decent amount of risk for $134k, but profits could be a lot more as well if the exception isn't needed (saving $20k in holding costs). I think the market is strong, with some houses topping $400/sf, and over the course of 8 months the value is going up. Thanks for your thoughts and feedback, I really appreciate it! Spencer

Hi BP community. First post for me... I'm pretty much just getting into the business. I have a few connections with rehabber and flippers, and I'm starting to understand what constitutes a good deal with them, but I have really no experience with builders/developers. (Is there a difference between a builder and developer?) If you are a builder/developer operating in the greater Seattle area, I'd love to learn about what you're looking for and the criteria you use to determine whether a deal is good or not. Are there any basic rules of thumb you follow? Any types of land/properties you avoid? Thanks for your help! Spencer