All Forum Posts by: J Scott

Tim,

Making $50K per deal may not be possible in some markets and during some market phases...

For example, in my area (Atlanta) during this market downturn, all the buying is concentrated in the $100-150K range, with first-time homebuyers using FHA loans making up the bulk of the buyers.

You'll never get $50K on a deal in this price range, but it's easy to make $20K pretty easily (Atlanta is one of the biggest hit foreclosure markets, but there are still plenty of buyers in this price range). And making $20K per deal is better than sitting on the sidelines.

Btw, the reason I'm able to do 20 deals per year is that I'm not doing the work myself. I have a strong team surrounding me, including contractors and general contractors, and they allow me to focus on the hard part of the job -- finding the deals.

Once you start to treat it as a business (and not just a hobby), it pretty easy to do a couple flips per month...

Every investor needs to personalize their financing to their specific strategy, their financial situation, their risk tolerance, and their business plan. There's no right or wrong way, but if you're not careful, you risk ending up in a situation where you're not liquid enough to cover either the deals you find, or worse yet, the deals you've already locked up.

Personally, I was able to ramp up to a couple houses a month after only 6 months. I started back in August, bought 4 houses between August and December, and have already bought 3 this year.

I do this full time, and devote about 30% of my efforts to building systems and processes that allow me to streamline the whole effort. Additionally, my wife has gotten her real estate agent license (which saves us about $100K per year in commissions), and I've hired an employee to do much of my project management and other "grunt work."

There is a difference between "expenses" and "capital improvements". Things like new roof, new HVAC, etc, are capital improvements, and must be budgeted for during the lifetime of ownership of the property.

Generally, expenses refer to everything else -- vacancy, PITI, maintenance, property management, etc...

Your expenses may be lower if you tackle the capital improvements earlier, but probably not significantly. For the most part, capital improvements are "all or nothing" -- you either need them (your roof is leaking) or you don't.

Certainly there are some maintenance expenses that you can make up front (plumbing repairs, better insulated windows, etc), and those may save you some money on maintenance expense, but again, it's whether you spend it now or later...

The biggest advantage that I can see is that you can use pre-tax earnings from your investing business to purchase the office space for that business.

The tax advantages are the biggest reason why you might want to do this (barring any specific need for the space).

Plenty of big public companies break their operations down into separate entities (often called subsidiaries or sister companies), and very often register a single address for every entity. It's not at all uncommon...

15-20% is pretty standard in my experience...if you can generate 15% return on a typical flip (that you hold for less than 6 months), you're doing pretty well.

In terms of how many per year, it really depends on your ability to create and manage systems and processes. I'm hoping to do about 20 this year, and while it's time consuming, it's not all that complicated. In a year or two, I hope to be able to do closer to 50.

Some keys are:

- Have a business plan. Live by your business plan;

- Create repeatable systems and processes that will allow you streamline each part of the purchase, rehab, and resell process;

- Have a great team surrounding you (CPA, Attorney, Agents, Contractors, Project Managers, etc);

- Have a financing plan in place *before* you start;

- Treat your business like a business, not like a hobby. Have standard contracts available, have minimum requirements for contractors (licensed, insured, references, etc), manage your finances well, etc;

- Don't get bogged down in doing the details yourself...hire that stuff out. You shouldn't be doing the rehab work, you shouldn't be doing the marketing, you shouldn't be doing the project management. These are $10/hour jobs...you should be doing the $500/hour jobs (like finding deals, building lender relationships, defining you business strategy, etc);

- Focus, focus, focus.

You can certainly get out of the deal if you want (financing contingency, don't sign the addenda, due diligence period, etc), but if you do, you risk pissing off your agent, the listing agent, and the seller.

Presumably your offer was a good deal for you (or you wouldn't have made it), so why not just accept the deal and move forward?

I've never heard of an REO seller accepting earnest money more than 48 hours past binding agreement (let alone at closing!).

In my experience, you can get them to push it 2 days past the point where all the contracts are signed, but then you have to get them certified funds.

To Steph's point, I've bought 3 REOs in the past two months where my purchase price was LESS than my original offer price. The bank rejected my original offers, eventually lowered the price to below my original offer, and I offered even lower than that. In one case, my purchase price was 50% of my original offer price ($22K vs $44K).

It happens all the time...banks (and listing agents) just aren't all that on-the-ball these days...

Correct me if I'm wrong, but I believe that's if the rental has been held for less than 1 year. If more than 1 year, they'll use the income/expense information directly from your previous year's tax return (along with the actual lease as proof of rental).

This has been my experience, but may have changed recently...