All Forum Posts by: William C.

CPA’s, accountants, and loan officers please chime in but obviously don’t provide anyone with tax advice, but does my logic make any sense?

I was told once by a lender that debt service is not considered profit. For example let's say a real estate investor purchased a home for $100k cash. Then resonated the home with $50k cash. Then borrowed 50k in the form of a HELOC and purchased another property. Then sold the first property for $250k, having invested $150k, then paying off the HELOC of $50k leaving $50k in profit. Are taxes paid on the $50k in profit as well as the $50k HELOC?

Has anyone tried to implement RUBS as the leases turn over?   For example I have a triplex I'd like to start billing the tenants for water.  Unit 1 has a lease ending this month and I'd include it in the new lease.  Problem being the other two units has existing leases.  I supposed I could start billing Unit 1 for their portion, and then just change over the other two units as the leases allow.  Curious what others do in this situation?  What would you do with 23 unit building, just come in and start charging the water back to the tenants mid lease?

@Lucas Duce I appreciate the input.  We paid cash for the deal.  

RE: I don't understand why "moving the money through the properties" by selling is any better or faster than refinancing and using the money from that for CAPEX and the down payment on a second property.

@Brant Richardson the difference for me is pretty significant. When I purchase a property, renovate, and then rent it, I look to create a large amount of equity. My most recent example would be a BRRRR we bought for $165k plus $45k renovations. It just appraised for $310k. If we pull all out cash, plus an additional $40k or so, we'll have a Net cash flow of about $1200/month. MY GOAL is to hold forever. But I also have the ability to purchase the next deal without selling. So I can see why investors would be tempted to sell and redeploy in a new asset, if that is their only choice. Personally I would look for ways to pull the equity out to then deploy into a new asset, and build from there. It really depends on what YOUR GOALS are though. It is also deal specific as well. Personally I may look to redeploy with a monthly cash flow in the $200 range, and look for something with a bit more to offer, but $200/m might be the max you can produce in any given market.

Hi all,

We just wrapped up our latest project and boy was it a doozy.  We had an exit strategy planned going into this property, but now that the dust has settled, we see whats selling around us and the appraisal is in hand, the decision isn't as clear as we thought it was.  So I figured Id get the advice 100 strangers and see what they would do in this spot.  Here are some of the details for context.

Specs: 3bd, 1.1ba, 1464 sq. Colonial,  car detached garage, large back yard.  Not a busy street, but also not tucked away in a culdesac or side 

After Repair:6 bd, 2ba, 1900 sq ft. We partitioned the garage and rented each side separately in addition to the house.

Purchase Price:  $160,000

Closing Costs: 3,000

Rehab Costs: 45,000

Holding Costs: 2,000

Total Cost: 210,000  

Appraised Value : $310,000

Loan Amount: $248,000

Gross Rent: $3250/month

Cash Flow:

Pre Refi - $2050/m

Post Refi- $1000/m

To make a long story short we own property on the street and know the market well.  This was a foreclosure that hit the market, went under contract, fell through and now we were in a "bidding" war.  We decided to go for it and went 2k over asking   At the time, the house next door, which is pretty close to being identical had been listed for sale for a few months at $330k, but wasnt selling.  It was clear there were over priced, the question was how much.  My gut said it would sell for around 300k, maybe a little less, putting our house at a minimum of 275k with some potential for a little more.

We won the auction, purchased the home a week later, and had it renovated and tenants moved in 28 days later.

Our renovations included remodeling the kitchen and bath, and adding a shower to a half bath.  We finished the 3rd floor attic to add about 450 sq ft consisting of 2 bedrooms.  We were able to turn another room on the second floor into a bedroom, which now get us to 6 total.  We rent in a college town, so every bedroom added is another $500/m revenue.   We replaced some drywall, plumbing and electrical, and put a fresh coat of paint and new floors throughout.  We had tenants lined up before we even owned it because of the demand,  which is why we had to finish in such quick time, but really limited our holding costs.

The neighbor ended up selling for $322k.  And settled just in time to be comp #1.   

Our lender offered 80% LTV for a loan amount of $248k.

The plan was to cashout refi, hoping to cover all cash layed out, plus maybe an extra 5-10k for a rainy day.  The elevated appraisal would allow us to pull an extra $38k, which is now enough to start putting to work in another project.  Option 1 - Cash out refi, walk with 38k after all expenses paid, $1000/monthly cash flow

Meanwhile, for the 2 months we have been collecting rent and not having to service a mortgage, so our cashflow has been 2x what we projected long term.   Option 2 - Hold with no refi. $2000/monthly cash flow

Lastly, as I mentioned, the neighbors house sold, which gives me confidence in selling for over 300k with that comp along with the 3250/m rent roll. Option 3 - Sell.  90-100k profit pre tax, zero cash flow 

So what would you do?   Selling now and collecting almost  8 years of cash flow at once really seems tempting.  There's almost no chance we do option 2, although the extra cashflow has been nice for the time being.  Although, the original plan is working out better than expected, and I fear trading in long term steady cash flow for a short term windfall at a high tax rate.  

To answer OP, I sure hope so.

But  @Mark Fries I think you may be confused by the law change, and what it would mean for wholesalers if it were changed and more importantly enforced properly.  No one is trying to stop, nor will they ever stop people from buying homes, and THEN marketing them and selling them for more money creating a profit.  Nor is anyone trying to stop people from bringing buyers and sellers together, and earning a commission.  No one is trying to do away with wholesaling.  I think those that follow the law are just asking that every follow the law, at least that's what Id like to see happen.  The problem at hand is the business model of 99% of 'investors" in the market wholesaling who are flat out misinforming homesellers into believing they are purchasing the home, in cash, on the date agreed upon.  Then illegally marketing this home for sale, bringing a buyer and seller together, and earning a fee by telling the seller its a dump, needs more work than it does, is worth less than it is, and just leaving out the fact there are actual investors lining up to purchase the home for way more money.   When in reality not only do they have zero intention of purchasing but in fact would not even be able to purchase it if required.   Only to call on their handful of investors buddys to see if he can talk one of them into overpaying for the thing.The issue isn't the small minority who are providing real value to investors and sellers and bringing them together and earning a reasonable fee to do so, all while being 100% transparent, open and honest with the buyers and sellers throughout the entire process.   The good news is for those few who do it right the new law simply means laying out the $1000 it cost for the course and passing a simple test to become licensed by the state.  In fact your response is what frustrates me the most about this constant debate.  Why must these "hustlers" need to find an angle?  It's not that hard to follow the law, nor is the cost a good enough excuse to avoid it.

 For the masses, the idea of getting licensed seems like hard work and too much money.  It's a barrier to entry, albeit small, yet it's enough to prove you have at least have enough money in the bank to clear the measly deposit check you just wrote for the house you don't intend on buying.  It also requires even the slightest knowledge of how real estate is transacted before you are in the living room with a seller giving them advice and guidance regarding the largest asset they'll ever own.  Lastly, it would hold them accountable to fully disclose information to all parties involved.  You know the important things like who is actually buying it and how much they are paying.  Having to disclose all these pesky  little details might make it harder for these scam artists to prey on distressed sellers. 

It's pretty simple in my opinion.  Either buy the house, and then market it, and sell it.  Or get licensed and wholesale for as long as your little heart desires.  Option 1 eliminates a large percentage by having to come up with the funds, but almost anyone can get a hard money loan if you are able to rip off a seller by enough the lender simply can't lose.  So what Option 1 truly does to protect seller is it creates risk for the wholesaler.  With risk should come a reward.  Its when the risk gets removed, that the power becomes imbalanced. What if I have no clue what I'm doing and can't sell it after I purchased it?  Well by marketing it while only under contract, if you were wrong about what it would sell for IN THE OPEN MARKET, you simply back out and leave the seller hanging.    Option 2 eliminates the wannabes and the fly by the nighters and protects the seller from scam artists.

After rereading your post for about the 4th time Im beginning to think maybe what you are really trying to say is scammers will always find a way to scam?  I'm not really sure.   The economy certainly does not need wholesaling in its current form, that I know for certain.  Just because it's a billion dollar industry does not make it right.  Illegal drugs make up an even larger portion of the economy, so do we NEED illegal drugs too in order to keep the economy afloat?  I'v tried to lay out the reasons I feel the law needs to be changed and enforced.  I know your not a wholesaler but I welcome you or anyone for that matter to give me a few good reasons why these so called hustlers can't by virtue simply buy the home, THEN market and sell, or just get licensed like everyone else?

I am sorry if I missed this, but was there an appraisal done at the time of purchase? I keep seeing advice to get one now. I saw a mention of an “in house” appraiser. That’s an oxymoron. An appraisal is by a unbiased 3rd party who has no hand in the deal. They cost like $300-450. Anyone purchasing real estate, especially out of state, has never seen it in person, and does not get an appraisal, is just asking to be scammed. If the person selling you will not allow it, run as fast as you can. Real estate is SIMPLE people, but not easy. So if there was any opinion of value or appraisal done back at the purchase I would look to see who’s signature is on that.

Sometimes I wonder why I keep renewing mine every other year.   Will be interesting to see how the "practicing without a license" plays out in this case.  Not only were they brokering deals and being paid a commission for it, I have read multiple posts from buyers who were called personally by Clayton and "sold" by him why they needed to continue with the purchase.     Has this side of it even been mentioned yet, or just the frauds and lies and deceit?

They were “earning” $6500 a deal? On properties that ranged from $30k-$60k....a 20% referral fee? I wonder what they called that in the suit, highway robbery?

Financed, or at least at some point when you BRRRR. Cash to purchase and renovate. Then cash out refi to recoup the cash outlayed. I tried to make that clear in OP, maybe I didn't. It matters though big time in my opinion, because what I did point out was that for $5k more, you might actually get it, and your payment only changes $25 a month.