All Forum Posts by: Joel Cummings

@Dave Foster You misunderstood my point. I was not asking what the difference is between a tax deferred 1031 and the primary residence exemption or suggesting you can do a 1031 on your primary residence. I'm perfectly aware, though I'm sure someone appreciated your explanation. My point is, is there an inherent advantage in executing the OP's strategy, which requires you to live in the property for 2 years and then sell, versus buying and holding an investment property for two years and then selling through a 1031? Yes, the 1031 is tax deferred instead of tax exempt, but the result is still the same; you are able to apply the full gain to the next purchase. In my opinion, the 1031 is the superior vehicle because there is no required timetable from original purchase to sale, and you don't have to live in the property. There is that gray line of intent to purchase and resell for the 1031, so there would need to be some evidence of intent to hold from the original purchase. Maybe as an intermediary you could shed some light on that? As far as I understand, you cannot use a 1031 for a property you intend to buy and then resell immediately. 

The only thing I could think of that would make the "live in flip" more desirable as a strategy is the fact that owner occupied financing is easier to obtain, which for some could be a great benefit. 

There's nothing wrong with it. It's perfectly fine, it's just a little slow. And there can be pretty big shifts in the market either way after two years. It's a great way to add to your portfolio, just not a great primary strategy in my opinion. Things to think about: What is your end goal or how does this help you build wealth? Are your profits reinvested in the next owner occupied property or an investment property or both? How is this strategy superior to a 1031 other than there are no complicated rules to follow?

The Lenders above hinted at it, but Online Lenders have a very poor reputation in the real estate professional community. They are notorious for closing late, or never at all and not being available for communication which is so important during the contract process. Speaking as an agent, the number one quality I look for in a lender is responsiveness and a track record of closing on time. As was hinted above, lenders don't really compete against each other on rates. Rates are what they are. I bet if you looked into that lower online rate there is a significant difference like a completely different loan program. Fees sometimes can be competitive for sure, but the competition is really in how the customer is serviced.

@Patrick Boutin Yes, in a vacuum cash is always better than financing, especially a 203k loan. However, it may not be in YOUR situation because of your experience, or lack of, and your other strengths. With your good credit and strong income, banks will love to work with you, while if you use a HML all that won't really matter. Using Hard Money in a high priced market (I work in Seattle, so we are in very similar markets) squeezes your margins razor thin, and considering your lack of experience it may be safer to use more reliable financing that is not going to kill your cash flow if something goes wrong. I have lenders here in WA that will finance owner occupied rehabs with much better terms than a HML, so if you have $150k for a down payment, that may be something to look into. There is the option Katherine pointed out of doing a normal FHA loan and funding the reno costs yourself. The only problem with that is if there is too much damage to the house the bank won't lend on it at all. You could also do a similar idea with a 5% conventional loan depending on the condition of the property.

In my opinion, the BRRRR strategy works better in lower priced markets. Because refinances are always done on a percentage of equity, it is always going to be harder to find a house at 80% of value in a higher market than a lower one. For instance, it's easy to find a house for $80k that will appraise at $100k. It is MUCH harder to find a house for $400k that will appraise for $500k. Also, 80% is a pretty aggressive number. Most lenders will only go 75 or even 70% of ARV on a cash out refi. If you do decide to go this route, I highly recommend prequalifying both yourself and the idea with a reputable local lender before purchasing.

You have an advantage as an owner occupant that other investors will not be able to overcome. However, if you go the HM route and throw yourself in there as just another investor, but with less experience, it's going to make the purchase more difficult and possibly more costly. Just my thoughts. 

Not necessary to get your license, but helpful. Depends on how much extra time you have as it will give you extra work to do. 

Rockwell is the "standard", but any online school like trainagents.com or realestateschool.org will work. 

I assume you mean fees. The initial classwork runs $300 usually. There are various fees from the state that will add up to $500 or so, including the $150 for the test you mentioned. You will also have MLS dues of $480 per year, and if you join a realtor office those dues are $550 per year. And you will have to pay your broker depending on your arrangement with them. It can range from $50-$300 per month for desk fees, plus transaction costs or commission splits.

In time, it generally takes people a couple months from beginning to end. 90 clock hours is a long time. Then you have to schedule your test, which can be up to a month after that. Then you have to officially join your brokerage, take your MLS classes to get access, and finally you can start using your license. It's a haul, but I think it's helpful. Good luck!

Is the property on the MLS or off market? What, if anything, do you have to put down? Do you have stable w2 income that a bank would like? Do you have a good credit score? What are you bringing to the table that would give someone a reason to partner with you?

Second the 203k. It would depend on how things are moving in your market, and yes 203k will turn some sellers off, but not banks usually. Banks generally prefer owner occupants. While your idea is sound with the HML, the cost of the financing is going to cause you to have to find a much better deal to make it work. Also, most HMLs are very strict with newbie investors and don't offer great terms. You will need a significant amount of cash in the deal compared to the 3.5% for the 203k. Find a good lender with a great track record of closing these loans, probably from a good realtor referral, and do exactly what they say. Listen to your agent and be aggressive and you'll come out ahead with the 203k.

FYI this is a pet peeve of mine so sorry if this sounds critical: An agents job is not to find you homes to buy. Anyone can do that, as you've explained. Good agents will also look for homes that aren't for sale and still fit your criteria, but that rarely results in a sale. 90% or more of all homes are bought and sold off the MLS with two brokers involved. An agents job is to educate you about the current market so you know what to expect whether buying or selling. An agents job is to help you make a good decision once you find a possible purchase by providing knowledge and insight you wouldn't otherwise know or even where to find it. An agents job is to make sure you understand the contracts you sign so that you don't get stuck in a bad deal or lose your earnest money because you missed a deadline. An agents job is to have trusted partners that will get the job done for you when you need it. An agents job is to be available to you all the time so they help you do things you can't do yourself, legally or otherwise. An agents job is to make sure once you have a property under contract that everybody else does their job so that it closes. I could go on. Is your agent lazy? Maybe. Hell, even probably. But calling them lazy because they aren't sending you anything you can't also find on Redfin, which is basically an MLS feed, and because you have been outbid twice in this CRAZY hot market is a little ridiculous. Is your criteria realistic? Is your financing competitive? Are you making realistic bids based on market conditions? Are you listening to your agents advice about offers or your buying criteria? Are you moving as fast as humanly possible when a deal comes available? If you haven't signed a contract with your agent you can always have a discussion with a couple others and see if the knowledge is higher in another agent. What it sounds like is your agent didn't do a good job of explaining what to expect as a buyer in the Seattle market. End rant.

I believe it's the city proper only.

Hi Chester Knapp . Expect a PM from me soon. My BP mobile app isn't letting me send one right now. I'm waist deep in the Seattle investor market with multiple clients looking for similar properties in various areas. I'd be happy to help you find your next great investment.