Quick rundown of the scenario: I bought a house outright 1 year ago to fix/flip. At that time I had excellent credit. I paid cash for the house and used credit to pay for the fixing. 1 year later the house is done, but it isnt getting much buzz on the market. Ive had it listed since March 1.
As far as the value is concerned I can see the comps and it would more than cover my expenses. I have considered financing it and just renting it out, but now my cards are maxed so even though I havent missed any payments, my credit is trashed. If I just rent it and dont refi, then Ill be spending the next year clearing off those cards and the R.E. portfolio will essentially be put on hold. Any creative thoughts for how to unstuck myself at a bit faster pace?
sorry bout that
drop the price it will sell
why's ur credit trashed if u havent' missed payments... yet? sounds like its maxed out, but not trashed yet.
has the house been sitting empty for a year? i ask only cuz ur halfway home to the capital gains exemption if used to some extent as primary residence if sells at the 24month mark or after (or prorata if primary residence between 1-23mos theoretically).
since u've been showing for sale since march i'd be showing for rent as well and see what offers come in - if no decent offers on either end, then something is wrong with the marketing/representation, #s, and/or expectations!
i'd not worry about 'building portfolio' expectations but rather squaring the current flip away, first.
Well, my credit score has dropped to around 570 now with my cards maxed. It was around 800 when i started. That makes me unlikely to get any loans to clear up the cards, thats all I know.
I thought the capital gains exemption was at 1 year. If its 2, thats a bit depressing. But yeah, I think youre right Account Closed Ill have to put a renter in it quickly if its not gonna sell. Im just hoping someone knows a financing technique to get the money off the CCs and on the house so I can clean up the credit and prep myself for my next move.
You may qualify for long-term capital gains taxation at one year, which will save you depending on your tax bracket. The two year point that the other posted mentioned is the complete exemption for gains on your primary residence up to the dollar limit.
How do you have it listed? Are you getting showings? What are buyers agents telling you?
oh didnt realize u expected to pay off the home improvement costs charged to credit/cards with other loan(s).. than with income from either flipping or renting!
Well, obviously a flip is the ideal. Thats what my intention was when i started. Im just checking all my options for Plan B, which is renting it.
Have you considered selling it using a lease/option?
Im open to any ideas, but I dont think that would resolve my credit issue. Id just be taking payments. If Im just taking payments Id probably rather just rent because its a nice house now that Ive fixed it up. Once I clear up my credit issues it will be a solid asset...unless Im not seeing something you do.
The bigger question is why isn't it selling. Flips usually sell faster than regular listings. Do is it price? Or the house? Any feedback from the realtor?
Sorry my phone edits my posts and makes me look stupid. I can't find any way to change a post from the smartphone app. The text looks right then suddenly it says something strange.
Sorry for your trouble.
Immediately thought about the lease option, like Jeff Morelock mentioned, when you mention credit. Can you move in it; sell your current house and or rent it out? You said its a nice house?
I'm literally going through the same thing btw and yes, i've had to wait and REI has been on hold, but the light at the end of the tunnel is coming, DEC 2015.
If the house doesn't sell quickly something is wrong, not always the seller/rehabbers fault, quirky floor plan, off putting neighborhood, but, most often, its price.
A partner of mine went in on a flip just as the market adjusted 2 years ago and the house just sold earlier this year. Yep a 2 year flip with no tenants. He floated the mortgage every month, hard money lenders involved and everything, it turned into a mess.
He made the big doughnut on the deal, but he proudly touts that "everyone got paid". He prided himself of holding true to his word and maintaining his relationships over $$. Since then he has sold 15 homes this year and the clock is still....
I don't know your financial situation but, the lease option will provide you with a nice $15-$20k down payment that you can apply to the more pressing expenses and try to re-coop any losses on the property by selling it with solid tenants in place.
Some of us investors would pay the premium for a turn-key property.
Now, at worse you break even, learn something, have a cash flowing property in the portfolio, claim it on your taxes, take the larger deduction because your going to sell it come 2016 and it will off-set the income for the year, Refi and get out or keep it.
Look for an equity partner. Like Brando and Josh say, 50% of some deal is better than 100% of no deal. Seeing how you already have 100% of the deal you control the terms.
But sounds like if you truly wanted it off the books, you'll have to drop the price.
Keep us posted.
Generally if a house isn't selling it's for a 2 reasons:
It's priced too high
Not a great location.
Since your house is paid for you might just want to rent it out for a year or two and recoup some of your costs. That should help pay down some of your debt.
I agree with John P, what was the activity like during the listing? I have flipped some properties in the DFW area here in Texas, and generally received good traffic which resulted in offers in less than 30 days. It appears your listing was in a very hot time of the year, were you aggressive with the listing price? I recommend you find a target price and sell, move on to the next one, Good Luck..
Let's see the listing.
As for your credit call up your companies and ask to increase the lines of credit, and/or open more credit cards. This depends on your level of comfort and control of not spending more than you need. Reason I suggest these two things is you will no longer be maxed out on your credit, as long as you don't buy more, and hence your credit will go up. And, if this is a strategy you do want to employ, you might as well apply for the 0% interest cards. They usually last between 12 and 18 months with the intro rate and you can transfer your maxed cards to these new intro 0% cards for a 3% fee. Just make sure you make your payments and check whether you can use those cards after a transfer has been made to them. I'm in the middle of doing this currently and found that if you transfer 10k to credit card A you cannot make any further transactions on Credit Card A or they will drop your 0% rate. Make sure you read your details carefully!
My best advice is to find an experienced agent in that area. Talk to different agents who specialize in rentals and investments etc and ask for their options.
lesson learned from this one is dont use all of your money for the flip. Leverage is a good thing it helps you react faster it also increases the cost basis for the flip and reduces your taxable cap gain. A full year to fix is too much this is one reason your house may not be getting attention .I can build a house ground up in 90 days after permitting so a flip shouldnt take longer than that. Ok so lets deal with the problem at hand you are getting no traction from your MLS Listing . Drop the listing since your days on market is just going to increase from here and that will limit the buyers. Introduce yourself to every realtor in your area and give them a flyer , host a wine and cheese for them to view the prioerty and point blank ask them what they would do to sell the property. Offer a $5000 bonus in addition to full commission to the agent who can sell it as a pocket listing in the next 30 days. List the house on craigslist , backpage and the other 36 sites that show home listings. List it as both for sale and lease Purchase. If you sell it on a lease purchase you can sell the purchase note at a discount to a note buyer ( contact me first ). You need to take massive action to obtain a result.
When it comes to your credit being trashed well it is just your utilization ratio is tooo high , next time call and ask for increases in your limits as you use the cards and then apply for new cards as you increase your credit , however the best option is a hard money lender and a quick flip!!
On the refi, have you actually talked to any lenders or brokers? I think on the application, they normally do ask you for your current debt details, and which ones you plan to pay off. If you can get a cash-out refi to pay off the cards, that would be ideal. A conventional loan may be difficult due to the FICO score, but you may want to talk to a portfolio lender that would be more flexible and willing to look at your whole situation in total.
And one more vote for - let's see the listing. If it's not moving, something is off - price, neighborhood, property itself or the rehab quality, or simply the way it's being advertised. Has there been any traffic on the listing, and any feedback from potential buyers?
How good of a job is the realtor doing marketing the property? I'd expect it to at least be on Craigslist as well, besides the MLS. It might be worth a shot posting it up in the BP marketplace too, just saying ;)
I kind of ran into the same situation. I invested in a home with my business partner it has taken quite some time to get the home done, so my credit has also taken a pretty big hit. We are going to take a HELOC on the house while it is in its final stages of getting sold. There is enough equity in the house already to do that. We will use that money to pay off all of the existing debts. The interest rate that we got was 1% simple (simple interest).
I don't know is something like this would help you in your situation or not. Just any idea.
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The listing would be helpful for detailed feedback.
Or for specific, but more general feedback it would be helpful to know the numbers: amount paid for property
amount paid for repairs
original listing price
Are you using an agent or trying FSBO?
I think the key is to list slightly below market. At this point that might mean a loss, but it cleans up your credit issue and hopeful returns some of your original cash.
hi robert. i have a few ideas for you. they may seem a bit off the wall but listen through them. first, with a 570 credit score, you are not gonna get a loan on the house anyway. some banks will look at the never missed a payment issue and evaluate your score very differently, but with most banks these days, thats rare. here is what you can do. first, lower the price on the house. figure out a bare minimum you can take for it and adjust that price accordingly. people are not only looking for a nice house right now, but a good deal as well. second, call all of those credit card companies and ask for a credit limit increase. yes, i said and increase. here is the reason. maxed credit cards kill your credit score. creditors like to see you using your avalible credit but not 100% of it. they like to see between 30 and 50%. so, increasing your credit line limit on each card will lower your used credit vs your avalible credit and thus, increase your credit score. i.e. 100% of $10,000 is 100% of $10,000. but, $10,000 is only 50% of $20,000. you still will owe the same amount, but you will be using a lesser amount of your avalible credit. sounds stupid, yes, but credit usage is a major factor in determining your credit score. then, when you have your score back up to a decent level, go get a loan on that house if it has not sold yet. here is the reason. PROCEEDS FROM REFINANCING ARE NOT TAXABLE. if you sell the house without a debt against it, all of the profit is taxable. if you owe money on it when you sell it, the difference between what you owe and what you got for it is the taxable amount. the rich people do this all the time. the money you would get from the loan on the house will allow you to move on sooner than if you wait around for the sale. make sure you let the bank know that this will be a short term loan. hope this helps you, and good luck
Originally posted by @Mark Elliott :
PROCEEDS FROM REFINANCING ARE NOT TAXABLE. if you sell the house without a debt against it, all of the profit is taxable. if you owe money on it when you sell it, the difference between what you owe and what you got for it is the taxable amount. the rich people do this all the time. the money you would get from the loan on the house will allow you to move on sooner than if you wait around for the sale. make sure you let the bank know that this will be a short term loan. hope this helps you, and good luck
That is incorrect. The taxes are on the gain, whether or not there is a loan or not.
Let's say he paid 100K for the house and 50K for the repairs. Let's say it is worth 200K. Let's use 20K for the transaction costs. He will have a gain of 30K whether he gets a loan on the property or not. Depending on the loan type, the interest may not be deductible. For hopefully such a short term, the loan fees would be wasted money.
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