I’m 21 and me and my wife haven’t bought property yet.
My parents neighbor just passed away about a month ago and his wife is seriously considering moving in with her daughter 2 hours away due to her age.
The house is in a great neighborhood about 5-7 minutes from town and is still in the best school district in town. The house was built in 1973 and they have never remodeled this house or done work to it. The surrounding houses are valued in the 150-200k range and this house is right around 80k. It’s a 1250 square foot house so I’m guessing I could probably get around 130-140k if I put the work in to try to flip.
I’ve heard about the 70% rule but I’m curious as to when and how to go about giving her an offer on her house since she hasn’t completely decided to move in with her daughter.
And if I can get her to sell how much money should I put into renovations.
Investor · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
6y
@Ryan Kuler when there’s a death involved, things are always a bit more complicated. I’d start just by introducing yourself and having a low-key conversation about what she’s thinking of doing, what your plans in RE are, and see if there might be a match. No need to start throwing around numbers and such at the beginning - it’s probably still a rough time for her.
But if you can help each other, then keep talking. Even if she’s not ready to move now, let her know that you’re not in a rush, if it works for both of you when the time is right, you’ll help her.
Meanwhile, start looking at comps in the area so you know what it’s worth. If she starts taking about selling it for $400K when you know it’s $225 max in its current condition, you may need to step away. Etc.
Investor · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
6y
@Ryan Kuler when there’s a death involved, things are always a bit more complicated. I’d start just by introducing yourself and having a low-key conversation about what she’s thinking of doing, what your plans in RE are, and see if there might be a match. No need to start throwing around numbers and such at the beginning - it’s probably still a rough time for her.
But if you can help each other, then keep talking. Even if she’s not ready to move now, let her know that you’re not in a rush, if it works for both of you when the time is right, you’ll help her.
Meanwhile, start looking at comps in the area so you know what it’s worth. If she starts taking about selling it for $400K when you know it’s $225 max in its current condition, you may need to step away. Etc.
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
6y
@Ryan Kuler You're in a great position! I wouldn't even talk numbers until you understand the sellers situation. THis is exactly how I landed my second deal. Try to solve someone's problem and make both parties happy. When the time is right express interest in buying and see what the owners say. If you're lucky they will give the first number. Selling off market has benefits. Listing with an agent costs 6%.
I like the 70% rule but sometimes it's simply not possible. It's a sellers market so the leverage just isn't there. Good luck and keep us updated.
Will do I appreciate it! I feel confident about it considering it’s right next door to where I grew up and me and her do know each other and have for years and can get a ton of help from my parents talking to her as well and seeing where she’s at in the grieving process. Also I’ve heard that in Texas that if you live in the house for two years you don’t have to pay taxes on the profit. Is that a good way to “flip” a house if you’re okay with living in it for two years or is it best to try to get it done and sell as quickly as possible.
Developer · Chicago, IL · Member since 2013 · 434 posts · 357 votes
6y
The 70% rule is relative. If you're looking at a gut rehab that's going to take 9-12mo from start to finish then yes, it should be at 70% or less. If you're looking at a cosmetic flip that will take 3-6 months, you can certainly adjust that number IMO. Time is just as big of a factor as profit.
As far as how much money to put in, it's impossible for us to tell without pics of the subject property and pics of the comps.
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
6y
@Ryan Kuler That's huge. Yes that's a great tax law. It's called the 2/5 year rule. Unmarried individuals can exclude up to $250,000 in profit from the sale. Half a million if you're married.
Keep the pressure off but don't let them forget about you. I'd reach out every other week. On my second deal it took 3 months. The sellers thought the place was worth a billion dollars but reality finally kicked in. HaHa
Okay thank you! Yeah I don’t have pictures of it yet considering she hasn’t decided to sell so there’s really nothing for me to go off of either to truly base anything off of besides the value of the houses in the neighborhood, the location, school district and my dad has friends at credit unions telling him in its current condition it’s valued at 80k
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
6y
Where are you getting the $80k figure from? If other homes in the area are going for $150k - $200k (which is a big difference so you should narrow that down to a $5-$10k spread, not $50k), why would you only expect $140k max from this one? If you can buy this off market, then you can reduce the offer amount by at least 6% since no agents will be involved. Knowing the seller and being able to work an off market deal could be beneficial for you but it should also be beneficial for the seller too so keep that in mind.
Yes you can avoid capital gains tax if you live in a property for 2 of the previous 5 years but that is not flipping, that is buy and holding. In a flip, there is no capital gains tax, just ordinary income taxed at your marginal tax rate. As to amount of rehab, without photos or scope of work, that is impossible for anyone to answer.
I was getting the 80k from a loan officer at the credit union that my dad is close with and I was estimating that number just to be a little conservative with what I think I could resell for and because it’s also smaller than the surrounding houses. I didn’t think anyone would be able to tell me what to put into it for renovations since there isn’t pictures yet I was just curious as to if there was a average number people try to sit by. I don’t have pictures of it because it isn’t listed so the only was I’d be able to get pictures is to go inside and ask if I could.
But yes that is a big spread so I will do more research and see what I can put together. Ive never been able to do anything like this so I’m just seeking information from people who know way more than me and trying to learn and get advice so thank you so much!
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
6y
You need to know a solid ARV, a solid rehab estimate and go from there. If a flip you also need to know the actual costs to buy, hold and sell. Things like taxes, utilities, insurance, etc all come in to play.
The 70% “rule” is only to cover the profit, holding and closing costs. You need to subtract the renovation costs from that as well.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
6y
There are no “average” rehab costs as every project is different. Ok, so when you can lock in an exit value, a rehab budget and your offer price, we can then see if you have a deal worth doing or not.
Investor · Kansas City, MO · Member since 2017 · 23 posts · 26 votes
6y
Hey Ryan - congrats on jumping in. I bought my first house when I was about your age and definitely don't regret it. Some people are giving great advice on low-key conversations and offering help so it is a win-win situation. Regarding the numbers, everyone has their own take, but I personally like to get all the details possible to make an offer. Put all the features of this house(bedrooms, # of garages, bathrooms, basement-finished, basement - unfinished, Central HVAC, Updated, Not updated, High-end features, Middle-grade features, low-end features, etc). in a spreadsheet with square footage and the price. Get a realtor to send you the most recent comps from the last 6 months. Line up the columns of the comps with your subject property. Then take the most similar comps to your property and divide the purchase price by the square foot to get a price/square foot. Multiply the number you get by the sqft of the house you are buying - this will be a maximum offer price. Now, take the comps that are most similar to your after-remodel product and get the price/square foot. Take that number and times it by the sqft of the house you are buying to determine your eventual sale price. The spread will be your profit and you can apply your 70/30 rule here. Expenses to account for: closing fees, loan origination fees, realtor fees(when you sell), appraisal fees, inspection fees, utility fees during ownership. Try to get your hands on some appraisals of some comps if you can so you can better understand how certain features of homes are valued.
There is some art to this process in addition to the cut and dry numbers, but hopefully, this helps!