All Forum Posts by: Marc Jolicoeur

@Shaylan Hurley  If you live in your flip make sure you own it for two years before selling. That way your capital gains are not taxed. If you want to rent it out while you own it, make sure you end up living in it for 2 years of the first 5 years, and sell within 5 years to avoid tax. 

The key for this strategy is to not overpay for it.  Currently inventory is tight so you have a lot of competition when you buy fixer uppers even.  So, when you buy ask your agent to estimate the after repaired value based on comps.  Then, make sure you factor in the additional investment for your repairs, and make sure you pay low enough to make a spread.

For example, lets say you are looking at $250K homes that need $20K of work.    $250-$20K = $230.   Lets say you want a minimum of 20% margin when you sell in two years.   So, pay no more than $180K.

In two years hopefully the market has appreciated or at least followed inflation and now those $250K houses are worth $275K and you are easily able to sell for $275K since your place is nice and updated.   After you pay realtor (6%) and closing costs (4%) for the buyer you should be able to net $248K.   Your profit of $48K is tax free.

In two years, its possible the market is lower than today or flat.   We are in an overheated market right now so beware.  At the very least I think there should be a lot more inventory than we have now so it wont be as crazy to find a new place then.   Lets say there was no appreciation whatsover for your $250K house and you sold it for $250K.  Then you net would be $225K and your profit would be only $25K.

If doing this here are my recommendations:

- Buy homes with good bones where future buyers will see it as a quality home.  Stay away from crumbling or leaky foundations unless you plan to fix them as part of your rehab.

- Buy in values less than $260K (twin cities median)

- Devise what will be your plan B if the market takes a correction.   Will you just stay there years longer, turn it into a rental, or sell for no gains?

- Buy a property that would cashflow as a rental if you turned it into a rental.  Use zillow and rentometer to estimate current rents of comparable homes.

Good Luck!

Lee,

I agree with your assessment and your predictions.  

I think one of the major issues is that builders are not building any new inventory =<300k.    I am guessing that it is because they can't make enough profit due to rising costs of land, labor, and materials. 

Even flippers nowadays are targeting high end projects in order to make a nice spread.

The 1100-1500 rental will remain in high demand for the foreseeable future.

West St Paul has some sort of restriction on the number of rental licenses allowed per block.   If there are 20 houses on a city block there are only two that can be rentals.  If your #3 you can only get a provisional license for two years and are forced to use a property manager to manage the unit.

This is a very silly ordinance.   For this reason, I do not value West St Paul property with as high regard as I view other twin cities suburbs with similar housing stock.  When you block out a whole class of buyer (buy/hold investors) you have to be lowering the demand for your SF homes.   

I would invest in WSP only if I was doing a flip or if I was planning to sell on a  Contract for Deed.

http://wspmn.gov/651/Rental-License-Application-De...

@Sam Stoffels in our current twin cities market I think duplexes and townhouses are tough to find; and both are GREAT strategies for a newbie.   

Regarding townhouses, there are a few downsides. HOA costs will cut significantly into your cashflow and associations can impose all sorts of rules and fees to restrict the number of rentals. If you owner occupy for a year with intention of making it a rental later, you could get caught in a rule change.

On the other hand you don't have to hire out snow clearing or lawn cutting, and don't really have to budget for exterior maintenance long term.

Duplexes in the area are often older buildings and may have deferred maintenance.   Cash flow or rate of return should be much higher with a duplex but I would estimate much higher capital costs long term.

Side note:

If you plan to owner occupy for one year you have a great advantage over other investors. You can buy HUD and Homepath homes that need a bit of work and you can bid on them two weeks before other investors. You should be able to get a good discount, and you might not need to put 20% down.

I also believe now is a great time to lock in great interest rates and its only going to get a lot more expensive to get financing later.

So, consider looking for a HUD or Homepath that needs cosmetic updates; get in with a low downpayment 3.5%-5% and use your extra cash to fix it up. Live in the house for one year. If rates are still low, refinance to get most or all of your money back out. Rent it out and go buy another place to live in.

When you do the numbers on these deals make sure you would make some cash flow on it once fully rented and refinanced one year from now.  Good Luck

@Bill Thompson You are at the right place to learn.  Listen to the podcasts and you will learn so much more than any weekend seminar.

Since it does not sound like you know which niche you want to focus on yet, I would recommend you start meeting LOCAL people who are doing various types of real estate investing and interview them about why they are doing it, what their short term goals are, and what their long term view is.

PM me and I would be happy to share my experience with managing a couple of rentals and doing a small flip.

Welcome @John Armenta Check out the Minnesota local sub-forums and also make sure to set up keyword alerts for Rochester.

@Albert George I believe the MN statute is very clear in saying that a written damage deposit letter must be provided within 21 days of move out.   Email may not stand up as it may be the loophole they are using to get you sued.  The statute says a letter with first class postage will suffice.   Make it a certified letter and you will have proof of sending. 

You have to give detailed account for everything you deducted from the deposit.

The 10 days before you collected rent from the new tenant can be deducted.   

The carpet cleaning can be deducted but the burden of proof is on you so hopefully you have pictures or receipts for having rented a cleaning system.

You can charge for your time cleaning.

You cannot claim losses for collecting less rent from the new tenants.   

Depending on your lease, you may be able to clam costs of advertising, etc..   If your lease does not have any clause for this, you may not be able to charge anything. In my lease I have a $300 lease break fee to handle this sort of thing.

Read the statute because I believe the penalty for not returning the DD is much larger than the deposit itself. I think you have some real risk here since you did not send a letter.

@Ian Fretheim  That is a tough one.  Did you get a decent deal when you bought?  Maybe you should sell it this year or next since the demand is strong and values are high.  Could you eeek out a profit?

@Eli Sunderland Ah, that is tougher and I don't have quite enough experience to be an expert on this yet.    Its a lot of trial and error but over time I have come up with my own way of doing it.  $350 per kitchen cabinet with DIY install, $5000 per bathroom, $250 per window pane, etc....   $3700 for six stainless appliances.  

Its not very accurate but it helps me get pretty close and set an initial budget.   I also review and fine tune my formulas every time I get a new project done with actual costs.    

Foundations and exteriors can be a real crap shoot so I would get a contractor in to give a bid.

For interiors start asking subs, window guys, flooring guys, painters, and tile guys to bid projects on some of your properties.   This will give you your starting point to refine over time.  If you are moving walls, reconfiguring plumbing or HVAC runs, those costs are a bit of a wild card.  

Also, if you hire a GC, add 25% for project management.

Marc

If you are trying to estimate the ARV to resell, look at comparable NICE properties. Look at others with nice landscaping, staging, great pictures, stainless appliances, nice bathrooms. When you rehab to resell you have to really make them shine. Your comps are often other flippers projects.

If you are trying to estimate ARV for a refi, its different. You should pick comps based on the numbers (sq footage, beds, baths, #fireplaces, deck, #garage stalls)

Stay within +/- 800 sf. and then adjust for $25 per sq ft difference for any above ground sf.  

Basement sf does not actually count in the comparable so only compare above ground Sf.

Stay within the same house style. If its a split entry, compare to sold split entries.  1.5 story should be compared to 1.5 story.

Bathrooms are worth about $5000 if your comp has one more or fewer.  Below grade bathrooms DO count.

I also adjust +/- $10K for unique features like screened porch, great back yard, nice basement, oversized garage, etc.

Upgrading countertops and bathrooms does not increase the home's value from an appraiser's perspective but they will adjust the entire home's estimated value based on the overall condition and age of renovation.  So you need to upgrade everything in order to get credit from the appraiser that the house is nearly like a new home.  Small updates here and there will not move the needle.