All Forum Posts by: Kyle B.

@Roman Pak, I have to be honest with you. I don't know any contractor that would be willing to tag along with me when I look at properties to help evaluate repairs. For the most part, these guys are very busy and know it is not in their best interest to look at every property you see. Odds are you will look at many many homes before finding one that works for you, so it just isn't a very good use of time for them.  Really what you have to do is get an idea of what repairs costs and how to identify them. Cosmetics are easy but structural items such as plumbing and electric can be more difficult. What I do is budget something for both of those categories, assuming some repairs will need to be made. I've seen enough houses where I can be fairly confident if I see major plumbing, electrical, foundation, HVAC issues. However, I always include an inspection period in my offer. Once I have the property under contract, then I bring in the contractors to give me a more thorough evaluation. That doesn't really solve your problem of under estimating the repairs and then having to back out once you discover more issues, but at least in my area, a legitimate contractor is going to be too busy to look at every house I see unless I was bringing him major business (which isn't the case for me). Maybe others have better advice for you, but essentially it comes down to being able to recognize issues yourself and being liberal in repair estimates. I think there is a tendency to minimize repair costs in or to justify an offer price, but that is a good way to bring down profit margins.

As we gear up for winter in the cold weather states, how do rehabbers handle flips during this time of year that need exterior work (landscaping, exterior painting, roofing, siding, windows, etc.) or foundation work. I'm just trying to look ahead and plan as I expect to do some rehabs over the winter and may encounter this problem. I've never rehabbed during winter so curious as to the solutions.

Thanks!

P.S. - we can only hope winter isn't half as bad as it was last year.

@Shawn Holsapple, agree completely. Thanks again for your feedback earlier.

@Sean Gallagher, I've been experiencing the exact same thing you have. Anything on the MLS seems to be priced to high to purchase (flip in my case) or if it is priced right, gets bid up by investors. I still get listing sent to me but now focus almost entirely on off market properties. I spend a lot of time generating and researching these leads, but the key is no competition from other investors. I haven't been doing it long enough to be 100% confident it is a sustainability business model, but it has worked out well so far. And I know there are others much more experienced on here that have used off market properties to build a sustainability business model. My plan is to head towards that direction.

Hope this helps.

Kyle

@Gwendolyn Davis, to determine what price to purchase the property for, you need to think about how the investor you are selling the home to is going to make money on the transaction. I will try to illustrate this using the example you provided.

After rehab, the home will sell for $120,000. The investor will need to make minimal repairs (let's estimate $5,000). They will also have to pay closing costs as well as holding costs. These consist of fees paid to the title company when they purchase the property and when they sell it, insurance for the home for the period of time when they own it, utilities for the property, real estate taxes on the property, as well as a realtor fee if they choose to hire one on the sale. Let's say all these holding and closing costs add up to 10% of the sale price ($12,000). Finally, the investor will also need to make a profit on the deal. Let's say the desired profit is $25,000. So, from a sale price of $120,000, we will need to subtract the cost of repairs ($5,000), holding/closing costs ($12,000) and desired profit ($25,000). This gets us to $78,000. Using very basic assumptions, your buyer would need to purchase the property for this price. Keep in mind, I made up all of these assumptions on the fly. You will need to verify them yourself.

Finally, you need to think about what profit you would like to make on the deal. Let's say $5,000. So you should try to get the property under contract for $73,000. Hopefully this example is easy to follow. There are simple formulas that can get you to this number much quicker (ie. ARV x 70% less repairs), but I think it is important to understand the drivers behind it.

I hope this helps.

Kyle

@Account Closed,

You should be doing these things simultaneously. I definitely recommend networking with other buyers in your area (go to your local real estate investment clubs). You say you can get a deal under contract, but how do you know it is at a price other investors are willing to purchase it for without ever have spoken to one in the area. While continuing to look for properties, I would reach out to other investors and ask them what type of properties they like purchasing, in what specific areas and at what price range. If you come across a property you need to take action on immediately, reach out to one of these buyers (or a few) and ask them what price they usually purchase a property for in that specific area - this should give you an idea of what you need to get it under contract for.

Just keep in mind, there is no step by step process for getting into real estate investing. Your goal should be to continue learning as much as you can in all areas of real estate.

Good luck! Hope this helps.

Kyle

@Brandon Hall, @Pavel Sakurets,@Nathaniel Busch, @Shawn Holsapple 

Thanks everyone for the great advice. I'm definitely going to look into forming an S-Corp.

Kyle

@Mark Marinaccio, obviously the most sure-proof way to protect yourself would be to get an attorney to write up an agreement for you. If you do not want to go that route though, I would write up an agreement stipulating the profit split between the both of you, and that the other party can't deal with this transaction without your involvement over a reasonable period of time.  

I have written up/used agreements not written by a lawyer and they have worked out fine. I've trusted the people going into the deal as well, so that is obviously something you will want to consider. 

Thanks,

Kyle

@Will F.

For my flips, I use a vacant home policy. A local American Family Insurance agent offers this product for me. I purchase the policy in three month increments and any portion of a policy I don't use after three months is reimbursed back to me. To give you an idea of their pricing, I rehabbed a house that I sold for about $160k and the policy ended up costing me about $600 over 4 months if I recall correctly (I think they base the amount of replacement value of the property, not necessarily your total investment). I'm not sure if this type of product is offered in your area of the US. I will tell you, I had to reach out to several insurance agencies before finding one that would offer this type of product.

Thanks,
Kyle

I wanted to see if anyone has been able to (legally) avoid paying self employment taxes on the profit from their flips. I met with an accountant and he said I would have to pay a 15% tax for self employment - essentially the 7.5% an employer would withhold for social security, medicaid, etc. as well as the 7.5% contribution an employer makes on their employees behalf. 

I asked if it were possible to categorize the profit from a flip as a short term capital gain, therefore avoiding the 15% tax, but he said that it wasn't possible given the fact that it was not a passive investment - essentially I've established this type of work/investing as my primary job and was actively involved in it.

I just wanted to see if was possible to avoid this tax at all or if it is some thing I will always have to anticipate.

Thanks,

Kyle