All Forum Posts by: Alvin Uy

Lol!  So so true. Oddly, I feel a little relieved by your comment.... since “high end” takes longer to sell.   

Even $2M is borderline high end in some areas.   I was just looking at a $1.35M “fixer” in La Canada the other day. But  I guess you know that given you are an appraiser by trade.  Lol. 

Yep... I completely agree with your statement.   High End will definitely take longer to sell than starters.   This is a very hot area with low inventory....  Even more so for new builds with 2 houses (with separate utility meters) on a lot in a prime area with very good schools.  Its also walking distance from Occidental College (where President Obama went to school).   Possible student housing on back guest house.   Easily get rents at $4200-$4500/mo.   We manage our own rental properties in the area so we know the rates will hold.     My wife is a Realtor and she is listing this conservatively at $525/sqft... other high end properties on the market now are around $650-$750/sqft.  Crossing fingers... I get this listed by Sept/Oct.    Im already going to start marketing it while its still being built too.  

Are you a rehabber/flipper of high end homes in Los Angeles too?  Which area/location?

Hi Tom,  I truly appreciate your concerns.   I will be quitclaimed in and added to title at the close of escrow.    I'm planning on using my S-Corp not my personal name on Title. 

I appreciate your concerns. Im not too worried about my partner in this venture. I've known her for over 20yrs and close family friend. She has the funds, It was just an issue with tight "seasoning" guideline with her new lender. To be honest, I've been chasing to do a deal with her (and mentorship) for a while now. I just never had the financial bandwidth to JV on any of her larger projects. Most of her JV partners are foreign investors (Chinese uncles with a min $10M to play with her). Im the poor step child in this scenario who got lucky to finally get some attention. LOL

Yes, I will be quitclaimed on title at close of escrow.    Just not sure how about the best way to hold title to lessen the blow of taxation.

Yes, I have experience in construction in this area... thats the least of my worries. Actually, new additions can take longer than new builds believe it or not. Ground-up goes much faster. I've done a few of those for my buy and hold investments. I've just never flipped a "high-end" house before... nor have I ever JV before. So I just didn't know the best way to hold title and reduce the blow of taxation on this kind of project scope.

Yes.. The timing is very tight.   I'm nervous about that too.  So I'm putting a cushion of additional 8-10wks on holding costs to play it safe.  But I have watched them build a 3 plex from ground up within 7weeks in the same area. Very impressive!!   Her construction team is quite large has connections with LA Building And Safety, Permits and Plans are already approved.   Breaking ground as soon as we have keys.  

I was thinking that too.   If I hold title under SCorp...  I wasn't sure if I would have transfer money to SCorp as needed (not all at once to reduce my heloc rate fees) as capital contribution to corp.   But not sure if its absolutely necessary to do that.  

Im waiting to speak to my CPA about this very question but he's one vacation for another week.

I figured I can't get away from Death and Taxes I guess.... but I was hoping to find a smarter more creative play to lessen the blow, perhaps reduce SE Taxes at the very least.

Not sure I agree about your comment that it doesn't matter how I hold title...  I would imagine there's a matter of liability and asset protection to consider.

Hmm... Are you sure you have a good Property Manager!!??!  LOL!    

In my 16yrs owning some rental properties of my own that I manage, I've only come across this 2 times. One is for a rental SFR with a 20yr old unit and my personal residence because I was too broke to buy a good brand then when I first bought and rehabbed my house.

Did they test the heater? If its still blowing hot air and not cold air, that means the furnace still works.. so the issue is likely just in the cooling part of the system.   I can't imagine why you need to replace entire system, unless both units are broken.   It may just be the thermostat, condenser unit going bad (coils leaking, etc), perhaps its out of freon, or maybe even bad fuse or solenoid.   Did they give you an detailed explanation of what exactly is broken or needs to be replaced???   Did your PM get multiple inspections/quotes??   

For my all houses, I go with good reputable brands like Trane, Carrier or Bryant.  Pay for the better brands... less headache for you later.    I used a Goodman brand on my residence before, and that condenser only lasted 7 yrs... it was a piece of crap.   I recently replaced it with Bryant that is high efficient retaining (which paid for itself because now my utility bills are cut in half compared to before).  Totally worth the upgrade. 

That said, these things are not made the same way they used to... none of them are.   So the expense is up to you to replace it...    If you have the bandwidth to replace entire system and not worry about it for the next 5- 10yrs depending on warranty, then go for it.  

Thanks for your response and i appreciate your concerns.  

The Lot is LAR2. So its Zoned for 2 houses... so no need to abide by 1200sqft max ADU or 50% of primary unit restriction in this area. We are building a 3/2 guest house in the back from ground up... not ADU. 3340sqft is max buildable sqft on this lot.

My partner for this project runs a full construction team including GC/architect/engineers.  She builds large apartment/complexes/hotels/commercial/etc... and has good relationship with city for permits/inspection approvals.   Really fast builders... ive seen her put up to 20 workers at a time even on another smaller rehab project.  So yes... target 8-10wks build time is completely doable for them.  But i am padding additional 8-10weeks on my holding costs estimate just in case.  I saw them build a 3plex in less than 7weeks from ground up... pretty incredible to watch them get it done so quickly.  I know she has another bigger project 106 unit luxury apartment building starting in October, so this must be completed before then.    We’ll be breaking ground as soon as we have the keys.   Permits/Plans are already ready to go.  Even Finishing materials have already been placed/ordered last week before escrow even closing this week.  

So here's where I am with this.... 

A couple of weeks ago, a close personal friend reached out to me about an off-market property she picked up in Eagle Rock, Los Angeles. She is now on escrow using a loan to purchase with 20% down. Her original partner on this deal (who was going to finance the downpayment and rehab) dropped out last minute. She was trying to do the project alone, but her funds are tide up with other projects and her personal cash injection for her downpayment did not meet the lenders "seasoning guidelines" to close the deal. So she reached out and asked me if I want to jump in to help salvage the deal and not lose her EMD. I should mention she runs a construction company and has other High End projects in the works.

Here are the property details:   Its a small 3/1 SFR (1200sqft) on a big lot zoned for 2 units in a hot area of Eagle Rock walking distance from Occidental College (prime area lots of high end homes). Purchase price at $835K (but comps are at $1M). I should mention the house came with approved plans for 2 houses but seller decided to sell instead.   There are 2 other "high end" flips on the market within a half mile listed for $1.65M & $1.98M. One is a 4/2 SFR + an additional Studio ADU - total is 2500sqft. The other listing is 2 unit is 4/2 house + 1/1 guest house - total is 3300sqft.  I was told that one for $1.65M just received multiple offers some above asking price. The other one just listed a week ago but is getting a lot of traction.

Here is the plan:  We will expand the 1st unit to a 4/2 and add a 3/2 guest house in the back from ground up... totaling 3440sqft (max allowable build size on the lot).  Total construction with high end finishing+holding costs estimate is about $450K max. Target is 8-10wks build time.  We plan to list conservatively priced at $1.75M-1.85M (if you can call this price range conservative LOL!).   Potential Net around $450k-550k to split between us.

I will be quitclaimed on title at end of escrow this week.  All funds for acquisition/construction/holding costs will be split 50/50 and so will the profits.   Being that this my first "high end" flip with big potential gains... Im wondering whats the best way hold title and the best way to navigate/optimize my taxed position.  I've been a "buy and hold" investor with all the properties I've bought under my name.  This is actually my first ground-up and "high end" flip under my name so I have some things I need to work out and need some perspective on:

1) Tax-wise, what is the possibility that I could get away from not being classified as a "dealer" given its my first flip?!?!  

2) Not going to hold title under my name of this for obvious reasons.   Im thinking It's too late to file a new LLC in time for the escrow, but I do have an S-Corp available that I can use... the only rub is it sounds like a real estate company so not sure if I can get away from being assumed as a "dealer" with the intent to flip.   Is this a good idea?

3) I should mention I will be leveraging my HELOC (5.7% interest rate) to finance this... roughly $435k max to cover my end. HELOC is obviously under my personal name. Can I still use this if I hold title under the S-Corp?

My CPA is out on vacation at the moment and won't be back until after closing...  This is moving fast, I can really use some input and expert advise.

Thanks for the input Tom.    To answer some of your question about the financing on this...  

She got a loan to purchase this property that require a 20% down. Her original partner (who backed out last minute) was going to finance the rest. She's too far into it now on escrow to bail out without losing her EMD... and reached out to me to salvage the deal. Because she has other construction projects (she's a small time RE developer with a full construction team), her funds are tied up and her personal cash injection is have "seasoning" issues. Im stepping in to help with financing. The downpayment/construction/holding costs will be split 50/50, so will the profits. Im using my HELOC money to finance my portion of this deal.

Yes, definitely getting title insurance.

You mentioned "I hope you have a lot of insurance because I see a lot of risk." -- What did you mean by this?   Should I be getting additional insurance for this deal?

Sorry, OP, I didn't mean to hijack your post.  I will repost this on the bigger forum.