All Forum Posts by: Patricia Miller

@Mindy Jensen I listened to your podcast about living in your flips. Do you have an opinion about my calculations question above? Before I purchase that first "investment" property, I need to be clear about what constitutes a "real" gain in wealth with this strategy - whether I choose to rent or sell the property post-reno. (Also, since you are from Denver, you understand the current challenges with the local market). We are relocating to Denver.

[Side note, this new venture is actually our 7th house purchase - the previous 6 were just residences with no thought about investment potential.  Since we have been improving each and every purchase over the years (bathroom reno, tile, trim, custom cabinets, kitchen counters, flooring) we do understand about some of the basic ideas involved with renovating - let's call it updating.... ]

Thank you @Christopher Wand. All ideas add to my education!

If I am evaluating a property that I intend to live in while renovating to prepare it for sale (in 6 months or so), do I need to include the mortgage costs +utilities, etc while living there in the calculations for Cash-On-Cash return to determine whether it is a good deal?  After all, I need to be living somewhere, right? And whatever home I am living in will need to be financed, anyway. So.... 

I am considering this as a strategy for the short term while relocating in Colorado and this first purchase would be my only mortgaged property. (Yes, living in a house flip is not for everyone!) This way, I avoid having to buy one property to live in and one property to flip - twice as much cash outflow early on.  Of course, if both properties had investment potential - that would be another story. But, that is not my question here with this post (another Forum, perhaps).

I'm also going to post this in another area of the forums...

@John Powell True... and yes, only including, say, 1 year of expenses or 6 months (we did a lot of stuff) would be a better picture. Even so, it was our primary residence. And because I am considering doing future live-in flips (after selling this house) - I'm wondering about the calculations in that circumstance. 

As an exercise, and to practice running the numbers, I decided to evaluate the investment potential of the house I currently live in and treat it like a live-in flip. (It was purchased new 3 years ago and we have been doing a ton of work to finish it inside and out.) Knowing that I probably didn't include some of the costs that should be included in cash-on-cash returns analysis, I was shocked to find that we were at -14%. Then, it occurred to me that it might not be necessary/appropriate to include such costs as mortgage, utilities, etc. because, after all, we have to live somewhere. If, on the other hand, this house was purchased solely for flipping while we lived in another house - none of the expenses of our residence would be considered in these calculations, right? Of course, the incentive in flipping, normally, is to do it as quickly as possible to minimize costs associated with mortgage, utilities, upkeep while it is being flipped. In our current situation, we have been in this house for an "extended" flip you could say. (It was never intended as a flip in the first

So the question is - is it appropriate to omit certain cash outflows with a live-in flip if the property is the sole residence?

Thanks.

Yes, indeed! And, thank you for the guidance @Jeff Bridges!

@Jeff Bridges - There was a property in a complex in Lakewood, CO - but now it has an offer so I can't find the HOA but I believe it was under $200.

441 Wright St APT 126, Lakewood, CO 80228  
This was not a property we would have considered as the projected rent was far less than 1% of the asking price but I thought I noticed a low HOA.

Then there are some in Thornton, Arvada - very small condos (1/1), one with an HOA of $212.

Still, I hear you about doing a thorough analysis before any purchase. At this stage of the game, I'm just trying to screen a lot of stuff to see if any are worthy of a more complete analysis. Then there is also the question of - what kind of property is this going to be in 5 years? So, anyway, I was using the 50% rule as a preliminary - maybe not a useful idea. As you suggested, we should set up a more comprehensive spreadsheet as a screening tool. 

Thanks @Edward B. - it is clearer to me now. However, in spite of your encouragement, I'm feeling a little nervous about starting out with properties that potentially have HOAs hanging a dark cloud over that strategy - especially since finding good cash-flow deals in the Denver area these days is not a cake walk to begin with. But then, I also think about the hidden gems that can be found with SF residences - those surprises that even a decent inspector might not pick up which could end up looking like the condo "special assessment" in terms of $$$. Of course, one can argue that REI is not for the faint of heart and that risk aversion should be a red flag for anyone thinking of going this route. I will press on, however.

Regarding the HOA fees (@Jeff Bridges) I'm a little confused as to what part of HOA fees might be considered within the 50% rule. Mind you, I understand that not all HOAs are created equal and that the 50% rule is a general guideline. But if an association has a low HOA fee (say, $150 - $200) and it stipulates exterior maintenance, roofing, water, sewer, insurance - are those not costs contained already within the 50% rule calculations? And therefore, could not part of the HOA fee be considered covered within this? Of course, some units have very high fees covering common areas, pool, fitness facility, etc. - not something the investor typically wants to pay for (unless rent covers it). I also know that special assessments can appear suddenly. If that is the case - is that potentiality written somewhere in the fine print of the HOA documents? In other words, I'm wondering if all HOA fees should be considered in excess of the maintenance-vacancy-CapEx calculations, or maybe all of this just a big gamble. Surely there are a lot of investors with properties that have HOA fees, right?