All Forum Posts by: E. James Jackson

Ryan,

I came from a similar place when I started out as an investor. I have two partners, and we bought a few rentals and realized our strategy was not scalable. We also realized we could not really refinance either because our interest rates were so low, and we did not price in the interest rate increases (this was back in 2020/2021). We chose to start flipping and dump our profit into the rental business. To fund the flip projects, we would use a combination of some of our remaining funds, HELOCs, hard money loans, and primarily private money loans. I recommend taking inventory of your assets and their performance, your relationships, and skills. This way, you can hone in on what is working and how scaling will work best for you in your area. It sounds like a BRRRR would be a great option, and seeking private capital or hard money would help you fund that. You may also want to look into exiting one of your other positions if your projections are not showing the return you desire, but I would start with leveraging relationships and pulling together a private money fund. If you bring in equity partners, things can get very complex, but I would be happy to schedule a call to talk about that and to help set out a game plan with milestones so you can reach your financial and business goals.

Hello! Personally, I use the following methods:

1. ARV Comps: As a licensed agent in my area, I utilize the MLS and REALTOR Property Resource for Comparative Market Analysis. Depending on your relationship with your agent, you may be able to have them perform this for you. Otherwise, I previously used Zillow filters to pull comparable properties and then applied their price per square foot to my subject property. When searching for comps, I look for properties within 300 square feet, built within the same decade, sold within the last six months, similar finishes, and with the same bed and bath floor plan. While I may not always find properties that meet all these criteria, these are my ideal parameters. In my opinion, After Repair Value (ARV) is the most critical component of deal analysis.

2. Rehab Estimates: Initially, I typically estimated rehab costs based on an average price per square foot, depending on the project's scope. However, my approach has become much more refined with experience. If you have a close relationship with a general contractor (GC), you can also ask for rough estimates based on photos for your initial analysis. Additionally, RSMeans offers books with detailed job costing data, though that might be more detail than necessary for most initial analyses.

3. Profitability: I have established minimum profit thresholds required to pursue a deal, which vary based on the project's size and associated risk. These thresholds will differ for everyone, but for flipping, I consider the timeline, total project cost, and location to assess risk. For higher-risk projects, my minimum profit threshold is 20%; for medium-risk projects (which constitute most), it's 15%; and for fast, easy, low-risk projects, it's 10%. I have a risk matrix spreadsheet that I use to automatically pull the applicable risk premium based on the zip, sqft, timeline, and budget. 

I hope this information is helpful. If you are developing a tool to streamline this process, I would be very interested in discussing how it could work in more depth. As a CPA primarily working with real estate investors, flippers, and developers, I've gained significant insight into needs and preferences regarding deal analysis. Please feel free to reach out anytime if I can be of assistance!

Hello Vijay,

When embarking on your real estate investment journey, I always encourage investors to pose the following questions:

1. What are your ultimate objectives for your real estate investment business?

2. What is the desired timeline for achieving these goals?

3. What is your risk tolerance in this business?

4. How does this fall into my overall financial situation?

These questions will help you establish the appropriate mindset as you seek opportunities and guide your actions in the most effective manner. If you are interested in discussing this further, I am always available to schedule a virtual meeting at your convenience.

Hey Alex,

This depends on how the sales are structured, specifically whether you're doing an installment sale/land contract or just a sale with a promissory note and how you elect to recognize income.

Long story short:

With an installment sale, you recognize the gain proportionally over the term of the contract (IRC Section 453), or you can elect to take it all in one year.

With a land contract, the treatment isusually the same as above.

For a promissory note, it's pretty similar, but interest income is considered ordinary income. If there's a balloon payment, you'll recognize that in the year it is received, so it's not always completely proportional.

This can be a relatively complex topic, but if you'd like, you can schedule a free consultation on my website linked here. I'm a BiggerPockets Pro and run my own CPA practice, specializing in real estate so we should be able to figure this out! I can also share with you a spreadsheet we can use to parcel out the lots, calculate gains, and see what makes the most sense for your situation.