All Forum Posts by: Drew Dim

additionally, not sure if this helps....

I've owned the land for over a year, demoed a house on it and will divide and build 3 houses. That meets the rule of thumb of buy and hold for a year and the improvements just happens to be an entire house rather then a fixer upper.

Not trying to "cheat the system" or bend any rules, but just curious

Thank you both

@Jon Holdman and @Bill Walston The cost is approx. $225k to build + land (which I own out right). So if my llc sold me the house for $225k it is worth approx. $425k. This isnt speculation, I personally know the builder selling these exact houses in the same subdivision for this. These builds would be the comps for my 3rd house. In 2yrs + these houses could very well be in the upper $480-90s realistically to even over $500k. This is why I want to protect the instant $200k from taxes as I would buy the house for cost.

So llc builds the house, i buy and its a complete wash. No profit as it covered cost, is this beneficial at all?

I need the llc so I can have a business banking account for the investors to deposit the $ too. Do y'all have any other suggestions?

I have what seems to me to be a potentially complex question, som here goes:

I own a lot in my own name. This lot is actually 3 combined build able lots (yes it's all legal/permitable, etc so please don't get distracted by that). I have money lined up from friends etc and my other friend will be the builder. Profit margins etc look and are fantastic.

I want to set up an LLC, roll the property into this llc, build the 1st home with the $225,000 of lent money. Sell the home and 1031 the profits into the 2nd build.

FIRST QUESTION: due spec builds qualify for 1031? The land and everything was purchased and handled as an investment and I would hire the 3rd party to hold the money etc. but before any of this IS IT possible/legal????

Next, I would rinse and repeat for the 2nd house and for the final 3rd house.

It is on this house i would like my LLC to sell my personally the house (at cost) and 1031 and $$$ into a new project, live in the 3rd for 2yrs + and qualify for the capital gains exemption, which would/could be in the $300k margin.

Not sure if this is too complex OR even able to legally stand up against a tax audit.

Advice or a lead to someone who would know (lawyer/CPA w/ real estate exp) would be greatly appreciated!!!!

Thnx

Drew

1. Karen,

The lot is are all 3 build able lots. As i said the GC and a very good friend of mine is doing this very thing about 50 yards down the street and working towards me. All the lots are the exact same and already legally their own lot. This is the same exact subdivision (currently about 100 regular lots) and these new builds are town homes to fit the reduced lot size.

Legally and permit wise absolutely everything is on the up & up

Yes I've thought about over budget hence the $250k amount requested to lend. As to date its $212k to build and I naturally give quiet a bit of wiggle room. The $212k includes absolutely everything, security systems, vacuum system in the garage and extremely high end appliances etc. Absolute worse case some of these items can be cut and it still be high end.

Like I said he's a very close friend, thats why he's helping me get on my feet. Kind of like other mentors, why do they help potentially create their own competition. I had cash and he knew of a lot. He currently build these from his own cash and as over $400k was tied up, and this deal came on the market it was a win win. Not to mention he's still the builder and it potentially helps add value to the additional 30+ buildable lots in this small subdivision. My friend lives here and has for the past 30+ yrs so as people die or move out he was the go to guy, now he's striking while the irons hot and helping me get my feet wet.

We would do 1 build at a time, and try to time a 6month turn around so all 3 would take a year and a half. I figured it would be a $250 investment the it would be repaid with interest and if he felt comfortable throw that same $250k back into the ring for another build. A 6-9 month turn around (currently it's about 4.5 months from start to close) is what I am aiming for.

The investor is someone my neighbor knows, I've never met him. I would be furnishing the land (Owned free and clear) and the investor is 100% of the money. It would be a silent investor type of transaction as my friend builds for a living and I will be assisting so the investor would be the financial backer.

So my first true deal (besides a raw land flip) will be a spec build. Actually it'll turn out to be 3! My good friend is a builder and let me in on a deal that he knew of. I purchased an old house that I will tear down next month and I'm currently looking for investors. My neighbor is a new realtor (1yr in) and knows an interested investor and we're currently at the discussion phase. If we lock down the money, I'll probably pay her a finders fee ($1,000?)

* Is that common? And if so what amount is typically appropriate?

Im curious of what others think of this deal.

Cost of property (initial + misc holding & tear down) = app. $72,000

* this lot has 3 buildable lots already subdivided by the city

Building:

Materials app. $225000 w/ a pool

GC (my friend's cost - I'll be assisting) app. $35,000 (to be paid at closing)

Realtor 5-6% app. $20-$25k

(if I use my neighbor, prob. be able to do a 5% deal on all 3 houses)

My friend/GC would be the primary GC and I would be assisting and learning as much as I can and trying to lighten his work load bec. of his lower cost.

He has built several of these houses and already has the plans draw up and they have been selling for $400k and his new builds will be going for approximately $415k as the first few were sold to establish the street.

Being conservative I estimate a profit of approximately $60k +or- per build.

I originally was looking to borrow $250k per build to leave room for unexpected costs, and I was offering 15% of the borrowed amount upon completion of the project (not APR) and no monthly payments. Currently these exact houses in the same neighbor hood/street are going under contract before he even breaks ground.

*Does 15% seem like a fair return for a financial investor?

What advice does anyone have for such a project?

Thanks

Drew

Thnx @Brian Gibbons & @Casey Carroll. I'll have to look into it for next time. It was an excellent learning experience, even my realtor didn't know this. (I have a new one by the way)

Thnx the the advice,

@Sam, you mean the "live 2 of the 5 most recent years" to avoid capital gains? I was thinking if holding it for longer then that. You recommend renting for 3yrs and selling (by the end of the 3yr mark)???

Sharon, I imagine maybe an FHA. The original loan was conventional and and the refi was w/ the same credit union. We would be willing to even down size to a condo or something else , live there then turn that into our 2nd rental.

About 6 months ago I made my first deal by selling some raw land I owned. To lock in the price I wanted I offered to owner finance w/ 50% down. As I was reviewing the contracts I learned that if you owner finance in Tx if the buyers default I don't get the property back, it actually goes to auction. The title company lawyer and a different real estate attorney I spoke with both said its true. Does any one know any more details about this? I could very well not understand everything correctly.

Is it possible to get around this legally, one could "rent-to-own" or do something to where if the buyer defaults u can foreclose on the property and get it back vs. having to put it to auction??? What financing methods are available???

I have lived in my 3/2 1600sf house for almost 6 yrs. I refinanced over a year ago and my monthly payments are approx. $450 a month plus about $3500 in yearly taxes and HOA dues (it is in the Houston NW suburbs). It could rent for about $1200-$1350 a month.

I purchased the house to eventually rent out as it is a great size and in a great location. I'm curious as my refinance was with my Credit Union, and the loan has since been purchased by Fannie Mae (owner) w/ the Credit Union managing it, per a letter I received. Can I rent the house as it'll no longer be my primary res.??? I reviewed the contract and have fulfilled the 1yr requirement. Is it common for contracts to have a clause while there's a loan it must remain ones primary res??? There's one paragraph that I've read that appears to say that but as I'm not a real estate attorney I could (& prob am) be mistaken. Just curious of people's thoughts and experiences with this type of situation.

Thnx!

Drew