Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
13y
The whole "you make money when you buy" vs. "you don't literally make any money until you sell" discussion reminds me of a guy I studied martial arts with for about 10 years.
For 10 years, our sensei would talk about "muscle memory" (the idea that if you perform the same physical action thousands or tens of thousands of time, it become engrained in you to the point where you do it perfectly as a reflex without thinking about it). Clearly, everyone with a bit of understanding of biology understands that "muscle memory" is formed by synapses organizing/firing in a certain way in your brain (since your brain controls your muscles along with everything else in your body), but this guy was convinced that everyone else thought that muscles really had a memory. Every time someone would use the term "muscle memory," he'd complain that "MUSCLES DON'T HAVE MEMORY!!!"
This conversation feels the same way. While some may talk about "making money when you buy," most of us understand that LITERALLY, you don't make money when you buy. It's a phrase to highlight a key point in investing -- that if you want to consistently make money, you need to make the right choices at the purchase more than anywhere else in the process.
That said, I will concede that you don't literally make money when you buy (unless you finance for more than 100%)...and also that muscles don't really have a memory... :)
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
13y
Originally posted by Alex R.:
Would you mind telling us what type of project it was? What did you do in that 10+5 hours?
How did you find / sell the property.
All the details (including the financials) are on my blog...
But the short story is, I received a call last summer from an agent who basically said, "My son's house is going to foreclosure next week, is listed as a short sale and we need an offer to stop the foreclosure auction. Can you help us?" I was in Milwaukee, but sent my project manager over to take a look and based on his feedback, we put in a low offer. After much back and forth with the lender, we came to an agreement on price and bought the house about 4 months ago.
We did a full cosmetic rehab on the project, including finishing part of the basement and fixing a bunch of termite damage on the exterior. We staged and put the house back on the market after Thanksgiving, got an offer before Christmas and closed this past Thursday.
In terms of the work we did:
- I looked at the property once before buying it.
- I went to the purchase closing.
- I walked the project with my GC and discussed what we should do..
- I spent some time on the phone with my GC and project manager during the project.
- I visited the project once during renovation.
- My wife staged the property.
- We took phone calls from agents who wanted to show the property.
- We negotiated the offer.
- My wife unstaged the property.
- I went to closing.
In total, I saw the property three times and my wife was probably there four times.
The best part is,the first time she was there, she befriended our neighbor who was in the process of relocating. The neighbor called us a few days ago and asked us if we wanted to buy her property. We agreed to a price over the phone, are signing the contract tomorrow and are closing this week.
So, we got another deal out of this rehab as well. Just needed to brag about that, since it's never happened that perfectly before and I'm pretty excited about it... :-)
Btw, not all projects are that easy, but the more we do, the easier they get. If you look at the hourly rate on my first project, I'm fairly certain that I didn't make minimum wage...so there is certainly a learning curve.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
13y
Originally posted by Alex R.:
on your website in Final Statistics it says: Rehab Time: 53 Days !
Not sure if that means you think 53 days is short or long, but my GC is participating in this thread (Aaron), so you can either give him the credit or the blame... :-)
Bakersfield, CA · Member since 2013 · 128 posts · 7 votes
13y
Originally posted by J Scott:
Originally posted by Alex R.:
on your website in Final Statistics it says: Rehab Time: 53 Days !
Not sure if that means you think 53 days is short or long, but my GC is participating in this thread (Aaron), so you can either give him the credit or the blame... :-)
I wasn’t judging whether it took too long or short for the rehab,
I was just comparing that with 15 hours mentioned in your earlier comment, but now that you told us the story, it makes perfect sense and job well done.
Also the best part that you got another deal out of this rehab as well, shows the importance of networking and talking to people. You never know what they will bring in to you :)
Investor · Canton-Akron, OH · Member since 2012 · 917 posts · 477 votes
13y
Originally posted by Alex R.:
Well, I hear that flip itself doesn’t create profit
So when you flip a property and make profit, where is the money really coming from?
Maybe this will help answer ..... the money really comes from the title company, who typically gets most of it from the bank and a little bit from the buyer. :=)
Profit definition: The difference between the amount earned and the amount spent to produce something.
So according to webster and his allies, I have only made a profit after I have sold something.
I tend to agree with Webster and Aaron McGinnis on this, however I am also keenly aware that the amount of profit you will realize when you sell is determined in large part when you buy.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
13y
Originally posted by J Scott:
Originally posted by Aaron McGinnis:
Wow, there is a lot of literalism and semantics in this thread...normally those are only the threads I participate in... :)
BWAA!!! That tidbit made my morning J. How true!
You guys are certainly arguing semantics. Who the f cares when the money is made? All that matters is that money IS made through the process. I think the OP cares more about a vigorous debate about this instead of systemic risk. I'm pretty sure everyone understands there is risk in investing.
Having said that the comment from Aaron about the "market speaking" is not always true either. If the "market" is YOU because you're the only one with access to information to give you an informational advantage then you DO make VALUE (money too? I'll leave that to you hair-splitters) when you buy. That is because the value in the transaction is derived from having said informational advantage.
The far more interesting question to me is how much the money is working versus the "flipper" working. JScott is certainly more of an exception, but many folks that are cranking out $10k in "profit" in projects are really earning $10k for their time. This time consists of finding/sourcing the deal, transactions on both ends, planning, managing the project, sometimes doing the work themselves, etc. MANY of these folks could only sell their labor for low rates in the labor market and thus it makes sense to do things this way. Others, however, set their minimum profits at a higher point and bid low enough to lose almost all of these deals.
I'm not really sure what is meant by the *real* in "real profit," but if it means the money making money then the person sourcing the deals needs to account for their time in some capacity when calculating profits. For those with primitive systems or that do much of the works on the projects themselves the true "profit" is much lower than advertised.
Another thing you'll see frequently is AROI or other figures annualizing yield in some fashion. This generally fails to account for the amount of time that capital is idle between projects or allocated to a new project while waiting for it to close. Even if the capital is not tied up in the project if you need it to execute the next deal it is allocated for this purpose and thus that time should be factored into your yield calculations.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
13y
The whole "you make money when you buy" vs. "you don't literally make any money until you sell" discussion reminds me of a guy I studied martial arts with for about 10 years.
For 10 years, our sensei would talk about "muscle memory" (the idea that if you perform the same physical action thousands or tens of thousands of time, it become engrained in you to the point where you do it perfectly as a reflex without thinking about it). Clearly, everyone with a bit of understanding of biology understands that "muscle memory" is formed by synapses organizing/firing in a certain way in your brain (since your brain controls your muscles along with everything else in your body), but this guy was convinced that everyone else thought that muscles really had a memory. Every time someone would use the term "muscle memory," he'd complain that "MUSCLES DON'T HAVE MEMORY!!!"
This conversation feels the same way. While some may talk about "making money when you buy," most of us understand that LITERALLY, you don't make money when you buy. It's a phrase to highlight a key point in investing -- that if you want to consistently make money, you need to make the right choices at the purchase more than anywhere else in the process.
That said, I will concede that you don't literally make money when you buy (unless you finance for more than 100%)...and also that muscles don't really have a memory... :)
Property Manager · DeLand FL · Member since 2012 · 860 posts · 243 votes
13y
Originally posted by J Scott:
While some may talk about "making money when you buy," most of us understand that LITERALLY, you don't make money when you buy. It's a phrase to highlight a key point in investing -- that if you want to consistently make money, you need to make the right choices at the purchase more than anywhere else in the process.
BOOM! and there it is, summed up very simply no matter which way you argue it.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
Oh Boy,
I did some rehab 30 years ago, before there were any "flipping/wholesaling" gurus.
I realized then, and now....you create, or give away, your profit when you buy. It is the ONLY number you can control. And, you can't change it once you do.
--You can't change the end sale price (assuming a set amount of rehab)-the market does
--You can't change the required rehab costs, or control unforseen problems found.
--You can't change the holding costs, with the same level of protection
The market price, rehab and holding costs, no matter how you manipulate them, are all going to be the same whether you paid $100k, or $120k.
So, for me--Yes, you make your profit when you buy