All Forum Posts by: Joseph England

Originally posted by @Ryan K.:

Great work and very motivational, I enjoyed reading and seeing the transformation of the properties. 

One item you you might want to double check on is taxes. You stated you will only pay capital gains if held for 4-6 months, but the IRS sees it (flipping) as ordinary income with self employment taxes. Typically amounting to much more than capital gains which only applies if asset held for more than 12 months.

Originally posted by @Joseph England:

@Ian Barnes

I have experienced GCs asking anywhere from 10% to as high as %60 as a upfront deposit! At the end of day you have to come to agreement that works for the GC (to get the work started) and for you (to mitigate risk or poor work or them walking away with your money). What I like to do with GCs working with me for the first time is pay for materials up front which can be 15%-20% and then spread all they labor payments over the next number of weeks, and they are only paid by me when I personally inspect the work done. After more trust is built between you and a GC payment options maybe adjusted but never over expose yourself.

@Oumar Bah

For this property I used a private money lender who funded 90% of the purchase and rehab and I supplied the rest. Since I started my investing I have only used conventional loans twice. They were both for turn key properties. Conventional lenders will not lend on distressed properties (ie.If the HVAC doesn't work they wont lend). For all these rehabs I have done cash of some form ie. private money, hard money, my own money and combination of two or three of these.

@Keri Ayres

They do decrease your ROI but that is accepted loss in my strategy. I can either wait a whole year to get a return on my money so it can be used or I can accept the capital gains tax and get my money back in usually 4-6 months and then use it to fund the next project. Also you can mitigate the impact of these taxes with smart tax strategies. Everyone has their own strategies and I choose to pay a little extra to expand quicker.

I hoped my answers helped

I apologize if my answer was misleading due to a typo. I meant to say "income tax" instead of "capital gains tax". I was in a rush during this response and just retyped capital gains tax when I meant income tax. This brings me to a good strategy because depending on your original documented intent will be the difference between you paying capital gains tax or income tax.  You can flip a few houses and qualify the income to be taxed under capital gains tax instead of income tax if you are able to document and prove that your original intent was use the property as an investment i.e., put the property up for rent and then you get a offer to sell too good to turn down. Where you can run into trouble is if these occurrences keep happening -6-7 times a year.

Also another confusion seemed to be when I said " get my money back in usually 4-6 months then use it fund the next project". I wasn't saying that you only pay capital gains taxes or income tax in 4-6 months, which isn't the case, but I was only referring to the fact that I am usually in and out of my flip projects in 4-6 months.

I hope this helps to clear up the confusion.

@Tim Youse

 It actually didn't cost me a thing. Some scrap metal guys we know (will travel from site to site looking for scrap metal) took it off our hands and even helped us get it out of the house. Other than that I don't know if there would have been any additional hoops. I wish I had a better answer but that has been the only time I have encountered this. Maybe someone else reading this post can give a better answer.

Let me know if you have any more questions.

@Matt Geerts It will piss them off but that will also help you to weed out the realtors who have what it takes to work with a investor. My realtor has adapted her systems to accommodate my aggressive methods.

@Tyler Caruso The property I purchased for $9k is currently under rehab and it will be turned into a rental. The rehab will cost about $20k and it will probably rent for about $1,000-$1,200 a month. I have three other properties within a two block radius that have been successfully rehabbed and rented for around this amount. Here are the three other properties that are already rented and completed and their details:

Low Income Rental #1

Purchase Price: $20,000

Rehab Cost: $18,000

Rent: $1,156 a month

Low Income Rental #2

Purchase Price: $15,000

Rehab Cost: $17,000

Rent: $975 a month

Low Income Rental #3

Purchase Price: $17,000

Rehab Cost: $15,000

Rent: $1,000 a month

@Christopher B.

I do have a standard materials list that I have developed through trial and error and is constantly evolving. I always try to find better and cheaper ways to accomplish the looks that I want. This list is on a excel spreadsheet where I have a master tab and in addition I keep a tab for each property to track what materials I used on each property. The more properties you do the more they run together and its always a great tool to be able to look back on what worked and what didn't. I do the SOW for all my properties and then based on the feedback from the inspectors and the GC walkthrough with the GC hired for that project, I will edit and finalize the SOW.

Let me know if you have any more additional questions.

@Tim Youse That is a very good question. I have rehabbed about 10 of these properties with the exact same floor plan and every time I do these, I always try to get rid of the wall between the kitchen and the dining room as well as the wall between dining room and the living room. Unfortunately what has already been built into these walls needs to be taken into consideration. If you see on the first property I was able to get rid of both walls and on the second property I was not able to get rid of the entire kitchen wall and very little of the wall between the dining room and living room. The main difference between these two properties was the ductwork and electrical work inlaid throughout these walls on the second property. The first property didn't have a ductwork and very little electrical located within these walls, because of this we were able to take down these walls and re-dry wall around the newly installed ductwork. In the second property there was already ductwork. I have a guy who installs HVAC systems for really cheap(its quality work) but the only catch is he doesn't do ductwork! We can reroute ductwork when need be but I will do a cost base reward analysis of the wall in question. The kitchen because I intend to put in a island, I believe removing that wall holds more value and I will reroute ductwork more often there. In the second property I didn't see the value increasing to the level of the cost it would have taken to widen or remove the wall between the dining room and living room.

I hope this answered your question.

Here is Flip #2 in the Loch Raven area of 21239:

Brick row home, 1200 sqft, 3 beds/ 1.5 bath

Purchase price: $65,000.00

Estimated rehab costs: $38,000.00

Estimated ARV: $160,000.00

Actual Rehab costs: $46,574.33

Sale price: $160,000.00

Profit: $25,700.83 (this went under contract within one week and closed six weeks later)

Pre-Rehab Photos:

Repairs Completed:

Replaced inoperable heating system with complete HVAC system(Had to remove old oil tank that still had a lot of oil in it)

Complete kitchen rehab to include granite and all refurbished SS appliances(put dishwasher and sink in the island to create more counter and cabinet space)

Complete 2nd floor bathroom rehab

Painted entire house

Hardwood floors were in too poor condition to be refinished. Tore up hardwood floors and installed engineered hardwood throughout entire first floor.

Installed all new ceiling fans

Replaced all windows and doors

Finished Basement. New ceiling with recessed lighting, carpet and decided to keep the wood paneling in the first half of the basement. The other half was completely refinished with framing, drywall, recessed lighting, carpet and a full bathroom(Finishing the second half of the basement and upgrading to a second full bath was no apart of the original scope of, I added this after realizing mistakes of flip#1).

Rehab of basement half bath into full bath(this was not decided until I realized I had made a mistake not adding a second full bath on flip#1

Fixed gutters and railings throughout the exterior

Landscaping with black mulch and a assortment of flowers

Stained Deck

Post-Rehab Photos:

That should be mostly everything. Let me know if you have any questions.

@Matt Geerts the above post was in response to your question. I hope that helped. 

That answer is yes to both but mostly to the latter. I put a offer on almost every house that comes on the market in the areas I'm looking at. Then I make sure to put in offers so low that they would embarrass most people. One of the best pieces of advice I ever received was"every time you put in a offer ask yourself are you embarrassed by this offer? If no, then you offer is too high". Most people tell me no but eventually someone counter offers and then we start that conversation. If we can make it work, great! If not keep going and keep offering. Its a numbers game! As Grant Cardone would tell you "massive action is required".

@Sharon Barry

There are few places that you can go to get a few things at discount ie. refurbished appliances and used cabinets but the majority of everything you are going to buy is either going to be from Home Depot, Lowes and Sherwin Williams. Unless you are getting refurbished materials (higher level rehabs you don't want to use refurbished materials) these locations are generally the cheapest. You can experiment with different materials, styles and colors to save money. I get all my paint from Sherwin Williams and if your GC doesn't have a business account there go create one at the branch you will most likely use(your business account is stored only at the branch you create it at, but if you or your GC is visiting another branch they will just have to call the branch you created the account at to get your information). Your business account at this location will allow you to save a lot of money on paint.

@Arthur Botting

This may surprise you but I purchased 90% of these off of the MLS. One of the advantages of people being scared of Baltimore is less competition! This diminished competition allows me to still find good deals on the MLS that meet my profit margins. I have also purchased a few on auction sites and from wholesalers.

I hope this helped. Let me know if you have anymore questions.

@Amy X. We used a private money lender who supplied 90% of the rehab money and I supplied the rest

@Henry Good unless you are going for a light rehab (ie. paint and flooring) conventional lending will not work. I don't like light rehabs. The worse the condition the house is in the better! I do stay away from major structural problems but if I walk into a house and I see and smell black mold, I see a $$$! I like very distressed houses for two reasons. 1) The profit margin is higher 2) less competition from other investors due to lack of cash and most investors being scared of a heavy rehab. I use a combination of private money, hard money and my own cash.

@Chuck McEvoy

Great question! This is probably the second hardest part to rehabbing properties...finding private money lenders! My first rehab I used my own cash but knew I wanted that cash as back up so for my second rehab I went searching for private money lenders and acquired a few hard money lenders as back up financing. I was able to get a private money investor through a friend a mentor of mine. We served in the military together and was able to vouch for my dedication and work ethic. I continued to search for more private money lenders and I went to the best locations to find them. Where do a lot of private money lenders congregate...IRS strategy meetings and REIAs! The trick with private money lenders is you cant go up to one and just ask "can you lend to me". That generally wont work. You have to allow them to come to you! You will then ask how you do this while actively searching for PMLs. You go to these meetings and meet as many as people as you can and just simply talk about your business and its recent successes. Make it a habit to always talk about what you're doing and where you're going. Most PML are looking for a confident investor to invest in. If a PML likes what he hears he/she will come up to you. That is just one of the strategies I have used to acquire more private money lenders.

$30,389 is how much put in pocket after all expenses minus capital gains tax. Which I estimate to be about $6,000. So my profit after capital gains tax will be about $24,000.

@Jeff Lezark Yes, I do believe its a fair number based on the ARV levels of these properties. Once you go above $350,000 ARVs that percentage can be revaluated. I generally have been following the 70% rule but have recently adapted the 65% rule to increase my profit margins.

@Abena Sidibe

I started looking in the Loch Raven area because it was a area that was up and coming and it met our price range. We continued to do rehabs here because we were able to continuously find properties and we built a good rehab system for this area. We found our low income rental rehab area while actively looking for properties on Zillow and the MLS and then driving those areas multiple times until we found a area that was a "diamond in the rough". These areas require a literal block by block analysis. While this takes more due diligence and has more inherent risk, these are our most profitable properties(Typical property in this area: Purchase and rehab=$35K, rents for $1k a month)

@Mark Douglas Thank you! That is very encouraging! I just might haha.