All Forum Posts by: Reed Vennel

Similar to what Steven said, my first thought would be to find an equity loan or HELOC. Could be the best of both worlds if you can find one!

Cash in  was ~$150k, so if he sells for $191k he'd get a ~$40k profit less closing costs and taxes.

The other option he looked at was refinancing out $122k.  Less closing costs, and he'd have around $40k of his own cash left in this deal.  If he went that route he'd theoretically have $80k in equity.

You could still go for a value add on the next property to get a higher return!  Sounds like you accidentally stumbled into a successful flip here.  Whether you were saved by recent market growth or had solid conservative numbers, that is a blessing I would take happily.  Don't fall victim to the sunk cost fallacy.

Absolutely sell!!

Consider your opportunity cost here as well. If you sell, you get the 41k profit AND the 40k left invested. Take that 80k and park it somewhere else. I don't invest in Tennessee, but I'd think you should be able to get close to 7% CoC on a turnkey rental in a nicer area where you're not sweating having your property scrapped out from under you. 

So either $2,760 a year (6.9% of 40k) and constant headaches

or $5,600 a year (7% of 80k) and a good night's sleep?

Seems like a no brainer to me.

See if you can find out who owns the powerline and pay to bury it yourself! Found an article that said it cost FEMA $11k per mile. $5k to bury the 1/4 mile surrounding your new house could be an amazing ROI project.

"The Federal Emergency Management Agency (FEMA) to bury a 5.5-mile segment of line in Beadle County just west of Huron. The cost of the burying the line was approximately $11,570 per mile"
https://www.fema.gov/case-stud...

Seller knowingly misrepresented, so it sounds like outright fraud to me.  Time to decide if you have a strong case, and if it's financially worth pursuing.

If you're missing $50 a month, the lease ends in two months and you can raise rent to what you expected to get or have other plans for the property besides renting as is, then I personally wouldn't find it worth the hassle.

I'd look at if the lease was included in any of the documents signed at settlement, see if the title company has any pertinent records or anything else that can corroborate that you bought assuming the rent was higher than it actually is.  Then I'd talk to my agent (if you used one) then a lawyer if the agent isn't able to get a satisfactory answer.

Listing with an agent, going FSBO, or getting your own license to get that commission yourself--what's your preference?

I'm particularly interested to hear from anyone who's pivoted on this aspect of your business and what effects you've seen from that change!



I'll start: For the 2-3 years I've been in REI I've been using the same agent for all of my transactions --both purchases and sales. I'd be lying if I said it doesn't hurt seeing a 10k commission check on a settlement sheet! BUT I see his value coming in a few ways:

1. Getting confirmation on numbers. 

Sometimes we'll disagree on prices by over 25k ARV or a few hundred in projected rent. As a smaller scale investor, that can be the difference between a worthwhile project and a waste of time. We both run our own comps and if we are in the same ballpark I am much more confident moving forward with a project.



2. Avoiding risks I might underestimate. 

I was interested in a property a little while ago that had promising numbers.  He VERY strongly pushed back on it, citing the nearby creek.  I've lived in the area only 5 years or so, while he's been an agent locally for 30+, so I listened to him over my gut and decided to wait till we found a project where we agreed.  Lo and behold: around 6 months later, that whole neighborhood was under a few feet of water!



3. Being more strategic on repairs. 

He's quick to answer his phone and with his experience, he can tell me things like whether to replace a fridge or just scrap the broken one in a flip.  That single text saved me time and something like $1,000, to say nothing of the ease of mind that it was the right call that I got by leaning on a more experienced professional.  In a flip I'm about to finish, he dissuaded me from adding a half bath on a 4 bed, 1 bath, slab-foundation home.  That submarket's comps doesn't show any added value for an extra half bath.



4. Freeing up time  

I've got a W2 in addition to my REI business with three employees. Every photo, listing, form, call and appointment he takes care of is something I don't have to do.





We've been across the table from plenty of bad agents where the above don't apply, and I think if my current agent were to retire, I'd have some tough thinking to do.  

Wow!  How'd you build up the kind of relationship where the bank contacted you to buy the house?  I'd love to be in that position.

 Mine was $62,500.  We bought it from the winning bidder at the sheriffs sale for something like 5k over what they paid.  The house precedes record keeping in the local area, so it's at least 120 years old.  Had been an illegal rental that became a crack den, then the landlord couldn't evict, because it wasn't a legal rental--so nothing was kept up and the occupants did more and more damage.  Then the police raided and tore the place apart looking for drugs, and THEN it finally went to auction.  

@Russell Brazil Ordinarily your numbers would be right, but sounded like this was a failed house hack so he should be getting that 250k exemption to bring him very close to zero.

@Chad Gilchrist Glad to hear it, best of luck with your new property!

not a lawyer or CPA but:

Simply saying the HELOC was taken for improvements isn't enough. If audited he'd have to have receipts for contractors and materials to be allowed to keep that cost basis. There's a chance he pulled the HELOC thinking it'd pay for a rehab, then hard times hit and that money all got diverted to medical expenses or something else like that.  Just because the loan was against a property doesn't mean it increased his cost basis.  

Having lived in it, yes he should be able to exempt that first 250k in capital gains.  His taxable gains will be
440k(sales price)
-250k(primary residence exemption)
-cost basis
or 190k minus the cost basis. 

He purchased it for 185k, so he's probably only looking at around 5k in taxable gains.


CAVEATS: 
1. if he was renting part of it and took depreciation costs on his taxes, there'd be depreciation recapture
2. if he didn't claim it as a primary residence, that might be hard to change retroactively to get the exemption 
3. if he can prove renovation expenses, that increases his cost basis and can provide extra cushion there.


If something in there is messed up like say he claimed residence at a family member's house and can't take the 250k exemption, you could talk to him about owner finance to spread the gains over a few years to be less painful.