Realtor · Pittsburgh, PA · Member since 2016 · 20 posts · 5 votes
My name is Trevor Scott, from Pittsburgh PA. I have recently retired from the NFL and played 7 years. I am going to take my professional attitude to the real estate world. My 3 biggest things right now are; learning, building a dream team, and flipping homes.
Realtor · Pittsburgh, PA · Member since 2016 · 20 posts · 5 votes
10y
Thank you, Jeremy Pace. I am reading a lot and listening to podcasts. I want to grow and learn as much as I can. I am an investor who is interested in flipping homes.
Investor · Lancaster, PA · Member since 2015 · 64 posts · 13 votes
10y
The biggest thing for me to get started was reading books and finding a mentor, find someone who's where you want to be and buy them lunch and pick their brain. No question is a dumb one! Best of luck.
Valencia, PA · Member since 2016 · 27 posts · 6 votes
10y
@Trevor Scott welcome to BP, as it has also been of great help to me getting starting flipping. In addition to mentors, ACRE and REIA in Pittsburgh are great networking tools.
Investor · Pasadena, CA · Member since 2015 · 50 posts · 29 votes
10y
@Trevor Scott
There are quite a few out of state folks who invest in the Pittsburgh are so keep us up to date on your progress and what you end up doing. You may find some good connections of people who want to buy your homes for investment purposes.
Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and rehabbers (cash buyers). Find them through Google and meetup.com
Real Estate Agent · Pittsburgh, PA · Member since 2014 · 821 posts · 255 votes
10y
Hi @Trevor Scott, Welcome to Bigger Pockets. Sounds like you have laid out some really great plans. If you care to connect, feel free to contact me. Would like to know more about your specific interest in flipping houses.
Home Stager · San Luis Obispo, CA · Member since 2016 · 312 posts · 49 votes
10y
hi trevor, welcome! newbie here too. just wished to introduce myself. formerly from washington, dc, i'm just getting started in the staging arena in california and i'm looking to make some connections as well. sounds like you have a fabulous plan for the next stage of your life! thanks and sincerely, sydney
Hollywood, FL · Member since 2016 · 1 post · 0 votes
10y
Hello Trevor, Welcome, newbie as well. I went to a three webinar in my town Miami, Florida and is excited about real estate investment and I'm interest to know how to start and how to attract the lenders and make connections as well.
Real Estate Investor · Miami, FL · Member since 2010 · 939 posts · 739 votes
10y
Jeremy Pace Since you are interested in fix and flips, I propose the following action plan. The first step would find an Investor Friendly Realtor assuming you do not have access, to the MLS. I would suggest that you interview several Realtors and ask them the following questions, to ascertain if they are truly Investor Friendly, or if they are throwing you a sales pitch.
1. How many investors do you currently work with and how many investors have you worked with, in the past?
2. How many transactions have you closed, with investors?
3. Do you currently own any Investment Properties? If so, what type do you own?
4. Are you a member of any REIAs?
The next step would be to work with the Realtor and determine the hot markets, in your County, with the greatest number of sales over the last 90 to 120 days. Personally, I would prefer 90 days because markets are always changing. This list would contain the zip code and corresponding name of the municipality, and a breakdown of the number of SFRs. This will be your Farming Area. From this data, you can utilize a website bestplaces.net that will give you a breakdown of the percentage of homes that sold, in various price ranges, for a given zip code. This will identify the retail price ranges, in which you can list the rehabbed property and the price ranges, of distressed homes, you should target.
You can use the Realtor to help you find deals and also use Wholesalers. If you acquire a property, from a Wholesaler, once the property is rehabbed and ready for the Retail Market, allow the Realtor that provided you the zip codes, to list the property for sale. This creates a WIN-WIN Situation and gives the Realtor incentive, to work harder on your behalf.
Contractor · Pittsburgh, PA · Member since 2014 · 885 posts · 359 votes
10y
@Thomas Franklin I think you meant to tag @Trevor Scott ... excellent list of tips, although I might not focus as thoroughly on the use of real estate agents.
Real Estate Investor · Miami, FL · Member since 2010 · 939 posts · 739 votes
10y
Trevor Scott Since you are interested in fix and flips, I propose the following action plan. The first step would find an Investor Friendly Realtor assuming you do not have access, to the MLS. I would suggest that you interview several Realtors and ask them the following questions, to ascertain if they are truly Investor Friendly, or if they are throwing you a sales pitch.
1. How many investors do you currently work with and how many investors have you worked with, in the past?
2. How many transactions have you closed, with investors?
3. Do you currently own any Investment Properties? If so, what type do you own?
4. Are you a member of any REIAs?
The next step would be to work with the Realtor and determine the hot markets, in your County, with the greatest number of sales over the last 90 to 120 days. Personally, I would prefer 90 days because markets are always changing. This list would contain the zip code and corresponding name of the municipality, and a breakdown of the number of SFRs. This will be your Farming Area. From this data, you can utilize a website bestplaces.net that will give you a breakdown of the percentage of homes that sold, in various price ranges, for a given zip code. This will identify the retail price ranges, in which you can list the rehabbed property and the price ranges, of distressed homes, you should target.
You can use the Realtor to help you find deals and also use Wholesalers. If you acquire a property, from a Wholesaler, once the property is rehabbed and ready for the Retail Market, allow the Realtor that provided you the zip codes, to list the property for sale. This creates a WIN-WIN Situation and gives the Realtor incentive, to work harder on your behalf.
Real Estate Investor · Miami, FL · Member since 2010 · 939 posts · 739 votes
10y
Trevor Scott Many Investors that flip homes use the 70% Rule that says .7 X ARV - Repairs = Your Maximum Allowable Offer (MAO). What hurts Investors that use this formula is it does not account for Holding Costs, Backend Selling Costs, etc.
I use the following formula to determine my Maximum Allowable Offer (MAO). This formula is the Profit Margin Formula that accounts, for 99.99%, of everything.
ARV – Desired Profit – Closing Costs to Buy – Repairs – 10% of Repairs – Holdings Costs – Concessions – Realtor Fees – Closing Costs to Sell = Your Offer (MAO or Maximum Allowable Offer).
ARV: After repaired value or what you think it will sell for once repaired.
Profit: This should be taken off the top first. Most people run their numbers to determine what their profit should be. That is backwards, you should use your profit to determine what your offer should be.
Closing Costs to Buy: What is it going to cost you to buy the property? If you are using hard money you need to budget for the points and fees as well as traditional third party closing fees.
Repairs: The money it is going to take you to rehab the property plus an extra 10% of estimated repair costs to account for unexpected repairs.
Holdings Costs: Here is where a lot of investors get tripped up. Start by determining an amount of time that you will hold the property, probably 4-6 months. Then add ALL costs related to holding the property (utility costs, insurance premiums, property taxes, loan payments, etc.).
Concessions: Concessions are what you give back to the buyer at closing. It could be for closing costs, unfinished repairs or something else. I typically subtract 3%, of the ARV.
Realtor Fees: What is the commission you are willing to pay your listing agent (unless you are the listing agent) and the buyer's agent. Utilize 7% of ARV.
Closing Costs to Sell: Title fees and other closing costs. You can budget around 4% of the sale price to cover these.
This is a conservative formula. If you come out ahead without Buyer Concessions, on budget, etc., this puts more money in your pocket, when you close at selling.
Real Estate Investor · Miami, FL · Member since 2010 · 939 posts · 739 votes
10y
Trevor Scott I would strongly suggest you establishing a Corporate Entity such as a S Corp or a LLC. This is a relatively inexpensive process. I invite you to Google "Creating a LLC or S Corp in Pennsylvania," "Division of Corporations in Pennsylvania," or another phrase. You can go to http://www.sunbiz.org and see how Florida does things, to give you and idea what to look for, in a website. I invite you to please consider the following, from a Federal Income Tax Filing Perspective. I cannot stress the importance of finding a very good Investor Friendly CPA. Below are some things you may wish to consider, as to which Corporate Enity is best, for your Business Model as well as your REI Goals and objectives.
Flipping Properties
If the primary objective of your real estate business, or one of your real estate businesses, is to buy, potentially fix up an existing property and resell it within one year, the Internal Revenue Service can consider that to be an active trade or business. Unlike passive rental income, the income from an active trade or business is subject to self employment tax (a nasty 15% tax commonly referred to a "social security and medicare" by working folks). If your goal is to reduce that self-employment tax to a minimum, an S Corporation is the best entity to use. Why?
It is the only entity structure whose rules allow the business owner to take a “reasonable salary” (subject to social security and medicare) and then take the remaining profit (often as much as 50% of the remaining income) out as distributions not subject to self-employment taxes. Correspondingly, all business income taken from an LLC under similar circumstances is subject to self-employment taxes. For a business owner with $100,000 taxable annual income, the net tax savings for using an S Corporation instead of an LLC in taxes paid every year can be as high as $7,500.
Holding Properties
When holding properties as a cash flow investor, the LLC (or LP) is generally the better choice because an LLC has more liberal distribution rules. The key here is flexibility. If you purchase a large piece of property and later decide to sub-divide it, you could distribute out a piece from an LLC without incurring a taxable event. LLC distributions come out of the LLC at cost basis. The members of an LLC are issued K-1 Form and have to pay taxes on all profits as though it were income, which could expose the owners to high employment taxes. Also, an LLC can elect to be taxed like an S Corporation.
While there is never only one answer that is correct for all circumstances, there is a general rule that is almost always the correct choice. So remember, for legal and tax planning, a good CPA will recommend that clients hold their properties in an LLC or Limited Partnership and run their businesses as S Corporations to avoid self-employment taxes.