All Forum Posts by: Frank Adams

Pedro,

While I admire your drive, and knowing to keep a file on possibles, I wouldn't put a lot of stock in this one. This guy is an EXPERIENCED INVESTOR. He's holding $2.5MM in RE that you know about and he didn't get to that position without picking up some pointers along the way.

Among the most important of those is DON'T LEAVE MONEY ON THE TABLE. So, unless his situation changes drastically it's doubtful it'll be much of an opportunity.

Keep it on your list though, you never know.

Frank

1. Retired from direct sales, too young to draw SS yet. My only income is from seller financed mortgages.

2. Since 1978, one rental, by '86 had two more, by '88 had another 5.

3. Collecting on 6 mortgages. Looking for some more flips, one offer pending.

4. Experience and library. I wish we'd had BP and doityourself dot com back in the "dark ages".

5. Wanted to jump from 16 rentals to about 30 or so back in the late '80s, early '90s in Houston. Wife is much more conservative than I so we held at that number.

Frank

Go for it. But if you're like Rich and me make sure every tenant's rent is different. That way you're not worrying about whose "$850 got deposited, look for the $853 or $856.

Frank

I'm with Matt. I've always used "ceiling white" for ceilings, always scraped off "popcorn" if it was in place before doing anything else. In my experience a ceiling paint job will outlast the paint on the walls. Assuming there are no smokers and they keep the place reasonably clean.

Navajo white on the walls is always good. I used to just buy the premixed 5 gallon cans and when it got down to about 1-2 gallons buy another one and mix them together.

I've always (until the last two cars) been a used car guy.

I haven't bought any "new" clothes (except my ski jacket) anywhere except Goodwill and ReHab for about 6 years.

Can't tell you how many entryways and bathrooms I've retiled with yard sale and "leftover" ceramic tile. Done a bunch of painting with HDs "whoops" paint.

Knowing I was getting ready to put a 1/2 bath in a LARGE laundry room I purchased the following:

Toilet at community wide yard sale $1.00
Towel racks, robe hooks etc at same $1.50
Discontinued pedastal sink with base (HD) $10.00
Exterior paint (HD whoops) $10.00
A fair amount of CPVC, yard sales $ 5.00

A year and a half ago I bought a wall oven and smooth top cook top for (IIRC) $250

We clip coupons, including for hotels/motels for travelling. I also check gas prices before taking driving trips. Not necessarily to see the cheapest place in town, but to find the (often large) differences between towns 50-100 miles apart.

Frank

Paul's OP posits the following

"$32K asking price
$10K estimated rehab costs "

I think many of us tend to shy away from any property that has an estimated rehab cost of 1/3 of asking price, although I have purchased a couple of them in my time. My question would be what would any of you OFFER and what price would you agree on as a purchase price?

I tend to offer about 50%-60% of asking price, and I tend to do my own fix-up labor.

My selling method tends to get me MORE THAN "market" price.

Depending on what kind of work and the split between labor and materials I would probably buy this, under the following:

I can get it for less than $30K.

I can fix it for $10K (my estimates are generally HIGHER THAN ACTUAL). I tend to buy a lot of my materials on Craigslist

If the "true market" ARV is $55K I can generally sell for $60K or higher.

So, if I end up with $40K or less in it, and sell it for $60K or more, I'll end up very happy.

But, I'm not new.

Frank

I really should have put in more detail. Yes I buy for cash, I've done enough flips that I don't miss any major expense and my sales strategy means very short hold times.

On the above my hold times were;
TWO WEEKS, including doing the roof
SIX WEEKS, roof and siding
ZERO DAYS, two closings on one day

I make another $300 or so on document preparation charges and I'm making about ELEVEN 1/2 PERCENT on my money

Generally $60K ARV is my bottom. But I know I'm going to sell for higher than "true" market rate, I'm buying for cash and converting my cash into a "mortgage backed security".
Looking back at the last 3 flips I did;

Paid $50K, put in $2,K, sold for $70K
Paid $22K, put in $14K, sold for $56K.
Paid $50K, put in ZERO, sold for $65K

J Scott wrote; "if this is really the case, it's quite possible that your CPA has been doing it wrong. Because you *are* subject to FICA taxes on self-employment income (either as a sole proprietor or as a salaried employee of a company you own)."

Well, it's 3 CPAs over the last 30 years, and I'm NOT a sole propietor nor a salaried employee of a company I own. I'm also NOT a dealer.

"Most likely, there's something you're missing."

Or NOT. Unless the IRS auditors are missing it as well.

"But, that said, any self-employment income (including ordinary income from flipping houses) is subject to FICA up to the IRS limits."

That would be true if it were self-employment income, but it's NOT.

Stephen wrote; "If I have a full time job that puts me in the 28% tax bracket that means every additional dollar I make above my salary will be taxed at a 28% fed tax rate. Add to that a 6% state tax rate and 15.3% self employment tax rate and you get to 50%."

True, except the OP didn't ask about a JOB, he asked about flipping.

On 100,000 of income that tax (married filing jointly) is about $17,000. I realize the 28% marginal rate kicks in, (don't recall at what taxable income rate. It's only about the top 2% or so of earners who are paying that higher rate.

Regardless of how much state tax you pay you do NOT PAY FICA on flip income, nor rental income for that matter, so you're not approaching the 50% hit. Unless my CPAs have been doing it WRONG for the last 32 years.