All Forum Posts by: Tim Silvers

Quote from @Haris Becaj:

Hey Tim, 

I also vote option #2 and agree with @Tim Silvers. As a local lender, our company has seen almost a dead-stop in mortgage applications with the rising rates, and they are projected to continue to increase. This will look even worse in the very near future. 

I live in the foothills of Henderson, by Lake Las Vegas, and befriended a GC who's been building homes for his investor in my area in the recent years. He stands-up these identical 3000sf, stick-built homes in 6 months or less. I think your estimation of 12-15 months is very conservative. He uses a local company http://ultryxdesigngroup.com/ as the designer and they pull all permits and deal with the city. This might be something worth looking into. 

Hope that helps. 

Can I ask whereabouts your property is located?

Thanks,

Haris 

The lot is located in a subdivision off W. Sahara and Arville. SFR build dates range in the low to mid 60s. Prices have been steadily increasing over the last several months.

We wholesaled a small multi-family deal to one of our buyers. The property had a sewer line damage and an insurance claim that had since settled. Seller provided us with an asbestos report which showed that 6 samples were done and all samples tested negative. Buyer purchased as-is. Subsequent to closing escrow, one of the units caught fire and in the process of the fire investigation, it was discovered that there was in fact asbestos behind the drywall. I have since learned there are 2 layers of drywall and you have to test both layers. Apparently, the testing company did not test for both layers. In addition, i have learned that there should've been about 30 samples tested for as opposed to only 6. I'm concerned the asbestos testing company's defense may be that they only tested the units for the damage related to the sewer line backup and not a full inspection. Don't know if that makes any sense.

What recourse does my buyer have, if any, at this point, as he is obviously dissatisfied with the purchase and is blaming the seller for non-disclosure even though the seller claims the report they sent is the only report they are aware of.

We wholesaled a small multi-family deal to one of our buyers. The property had a sewer line damage and an insurance claim that had since settled. Seller provided us with an asbestos report which showed that 6 samples were done and all samples tested negative. Buyer purchased as-is. Subsequent to closing escrow, one of the units caught fire and in the process of the fire investigation, it was discovered that there was in fact asbestos behind the drywall. I have since learned there are 2 layers of drywall and you have to test both layers. Apparently, the testing company did not test for both layers. In addition, i have learned that there should've been about 30 samples tested for as opposed to only 6. What recourse does my buyer have, if any, at this point, as he is obviously dissatisfied with the purchase and is blaming the seller for non-disclosure even though the seller claims the report they sent is the only report they are aware of.

So, as I understand it, you're essentially paying the tax on the gain in advance of what you'd eventually have to pay anyway, absent any loss or gain that would augment that tax liability,, correct?

Quote from @Victor N.:

@Tom Silvers because when you sell inventory, you can't spread out the gain with the installment method so you have to report it in the year of sale. If the buyer defaults and you repossess, that is a new taxable event and you may have a gain or loss on repossession. You may not want to seller finance flip sales.

So, if a loss, can that loss be carried back to the year of the initial sale to offset the tax liability - or, alternately, be carried forward to offset a potential future gain?

Quote from @Nathan Gesner:

Quote from @Tim Silvers:

I anticipate the market is peaking and won't last much longer. Inventory is low, prices have spiked for two years running, and even the market pros are anticipating something changing real soon. If you try a new build and it takes you 12-15 months to complete, you could very well be looking at a completely different market. On top of that, you're in a City that sees tremendous growth, but that also sees tremendous price drops when the market corrects.

Our market volatility, increases in materials and labor, etc. definitely fuels uncertainty, even moreso with a long-term project like this one. Nonetheless, someone who has the staying power and a captive construction crew and/or does this as an owner-builder, will make out pretty well on a new build.

Quote from @Chris Mills:

I'd vote for option 2, the bird in the hand. Anytime you can net healthy profit and remove unknowns and liability that's a win in my book.

Thanks, kinda was leaning in that direction before I posted.

I had a house I originally purchased to flip a year ago that subsequently burned to a crisp in a fire and now I am left with a big lot with a pool. The insurance proceeds will be covering up to most of the policy limit but that may not cover the cost to complete a new build with the materials necessary to get the most profit on the back end.

Time wise, due to all the bureaucratic delays in our city and pulling permits, architectural plans, etc. I am looking at over a year total turn time having my company's original cash tied up. Up to this point, time has been on my side with the market continuing to appreciate, despite the delays.

Here's the bottom line:

The biggest concern is the downtime (~4 mos.) and costs just to pull all the permits, etc. In addition, the fees can mount to tens of thousands of dollars before I even break ground. This is where cost overruns come as a concern in that I can be into the property for way more than I budgeted. This isn't including having to pay for security 24/7 (which insurance will not cover) to keep the vagrants from burning the building down again. The insurance company does not care whether I rebuild the property or walk away with the claim proceeds.

Furthermore, I have no working history with the GC who wrote the estimates and with whom I contracted to do the work a year back. The GC was referred to me from the adjuster. I am therefore leery about whether the GC will come in on time and budget as I am beginning to hear complaints from other customers of the GC at this point which I didn't know from the outset.

Some options I am contemplating:

1. New build: projected net profit of approx. $225K assuming no more than a 10% contingency above the insurance settlement proceeds and no more than 12-15 mos. to complete and get our CO. This also assumes the market remains at least steady into next year (I gave a 10% new build premium).

2. Sell the lot, collect the insurance settlement: projected net profit of approx. $140K - in the next 30 days. I could then later transfer the architectural plans/permits to another lot in a location in which I could command a higher sale price, avoiding the security issues (vagrants, vandals, etc.) that were associated with the current lot location. In the meantime, I can roll the insurance proceeds into other flips and profit enough to potentially equal or exceed the new build profit in the same time frame it takes to build a new house.

3. Structure a profit-share/JV deal with another developer/investor: I owner-finance the lot 100% (with the city-approved plans as a turnkey project for a premium price); investor partner builds the house 100% at his/her expense and we split the net sale proceeds on an agreed-upon number. 

Any insight and tips would be greatly appreciated.

Originally posted by @Greg O'Brien:

@Tim Silvers where did you end up and how is it going? Like you said, I do believe you'll see more firms with "all services under one roof" moving forward.  My firm integrated the services together and our clients have loved the one stop shopping for all RE accounting, tax, asset protection and entity work.  The "big" firms like AA may get a lot of hype but they generally can't compete on the next level tax strategies (Family office type strategies) nor customer service as their employee turnover is quite high.  

The out of the box strategies and set ups sold will never replace customized AP/Tax strategies based on individualized circumstances. 

Haven't yet taken the plunge. One of the reasons I am looking at moving forward with them is because I was a prior tax customer. Also, they are local to me. The one stop shopping is definitely the appeal, but remains hard to find.
 

Originally posted by @Alice Chen:

OP here, got some legal advice from a lawyer.  They recommended that the parents gift 100% of the property to the child before prop 19 takes in effect. So they would get the prop 58 exclusion.   Of course there is the risk to the parent because they are relinquishing property now. But it is cleanest way to do this.   Maybe there is other advice. 

Flip side to that coin: If the parents gift the property, it will have their carryover income tax basis. If the property has appreciated since purchase, the transfer may result in a large capital gains tax when the children later sell the property. The gifted property will not receive a step-up in income tax basis to fair market value, which the children would have received had they inherited the property. Depending on the size of the parents’ estate and the property value, the desire to minimize income tax may outweigh the property tax savings, especially if the property will be sold after the parents’ deaths.