Flipping houses for anyone who cares

[Bible_Belt]

The vinyl that was down had asbestos under it, which was my first major surprise.

Obviously, you have never worked on houses before. Any vinyl from the mid-80's and earlier should be expected to contain asbestos.

 

[RichardTheFrog]

Obviously, you have never worked on houses before. Any vinyl from the mid-80's and earlier should be expected to contain asbestos.

Awesome. Go away now.

 

[Bible_Belt]

Awesome. Go away now.

Takes a real genius to spend your rich daddy's money, doesn't it? That's why girls are not impressed.

 

[RichardTheFrog]

Takes a real genius to spend your rich daddy's money, doesn't it? That's why girls are not impressed.

And your blocked.

 

[MoreThanSmooth]

I flipped a house once. It was a short career.

 

[Bible_Belt]

I flipped a house once. It was a short career.

Me too. Only I didn't have the rich daddy to fund my adventures. I did it entirely with other peoples' money, and made a nice fee for my efforts. I did that at the age of 21, too...true story. That's why I am not impressed with people who spend their rich parent's money and call themselves a genius for it.

 

[taiyuu_otoko]

Jeremy Renner is also a house flipper, and has been for a while.

Apparently the dude likes to get in there and get dirty.

http://www.businessinsider.com/jeremy-renner-before-he-was-a-movie-star-2015-10

Renner and his family friend, Kristoffer Winters, began renovating houses in Los Angeles in 2002 and would live in them. At the time, Renner had a few TV guest spots under his belt, but wasn't earning enough to get a swanky house in the Hollywood Hills.

"We pulled our money together and bought a house and fixed it up a little bit," Renner told Business Insider at an event held by Rémy Martin Cognac to promote its ad campaign with the actor.

Renner said the initial intention wasn't to sell the house, just to make it livable for the two of them, like adding another bathroom so they didn't have to fight over the one.

https://www.bloomberg.com/news/articles/2016-03-22/home-design-tips-from-actor-jeremy-renner

 

[RichardTheFrog]

3. I have properties that I have paid cash for that have paid back to me in rental income the purchase price in less than 2 years. I have properties with massive cash flows that required nothing down at all. Those sorts of terms create much higher ROI than the stock market but in order to get those kinds of returns you have to know what to buy, where to buy, and how to buy. You cannot accomplish that except in markets that meet very tight criteria. So I research my markets thoroughly and know what I aim to accomplish before I invest.

Can you explain the numbers on a property you paid cash for that paid you back in 2 years?

$45,000 purchase price with $1,875/month income? Or something similar?

Do you ever do lease options? Are you able to charge above market rents in any way?

I have tried many times to find how people made a living as a landlord, and it always seems like they aren't making much. My brother used to work at a bank and told me that practically nobody made profit on rental houses.

I know some people that do Sub 2 --> Owner Financing, but that's just like flipping a contract.

Are you always responsible for all the maintenance, taxes, insurance, or is there a way to get tenants to pay for those, similar to NNN leases in commercial?

What statistics do you look at when researching markets?

 

[BeExcellent]

Can you explain the numbers on a property you paid cash for that paid you back in 2 years?

$45,000 purchase price with $1,875/month income? Or something similar?

Yes. I operate in small towns where people still need housing but there isn't the hot real estate market. This is why in other threads you'll see me discuss that appreciation is gravy. I have houses that I've owned for a decade that haven't appreciated substantially at all, but that throw off income. Here are two examples of the numbers I see:

Example 1:

Purchase price: $14,000 cash (for a nice 2 bed 1 bath with central HVAC, automated garage door, corner lot, fenced backyard, cute & structurally sound with all new replacement windows throughout). The neighborhood is full of 50K post war cottages. This house was on the market for 1 day and was a VA foreclosure that had fallen out of contract at 19K, so the VA knocked it down another 5K and I lucked out and spotted it on the day it was back in MLS. I went under contract on day 1 and 3 back-up offers came in right behind me.

Liability to Solve: Bathroom was in the midst of an incomplete remodel job and needed dry wall, plumbing and electrical work completed as well as flooring/paint/decor.

Cost of Liability: $3000.00

Total Basis: $17,000 cash

Monthly Rent: $500.00 ($6000 annual)

Time to pay back of initial 17K investment: 2.8 years

Example 2:

Purchase price: $5,000 cash (for a 1 bed 1 bath, corner lot, fenced yard, cute & structurally sound). The neighborhood is full of 30K post war cottages. This house was unlisted and was partial commission payment to my real estate broker as part of a larger deal with someone else. My broker called and offered me the house for 5K to liquify the remainder of his sales commission.

Liability to Solve: Bathroom required tile, flooring and paint; front of house needed siding and paint; needed half of a roof replaced.

Cost of Liability: $3000.00

Total Basis: $8,000 cash

Monthly Rent: $300.00 ($3600 annual)

Time to pay back of initial 8K investment: 2.2 years

My brother used to work at a bank and told me that practically nobody made profit on rental houses.

You make money through volume. I have dozens of houses like the two above, some do not create the massive returns that these do, and cost a bit more, but volume is how you create income.

 

[sazc]

When I sought advice " should I purchase more?" From a wealthy family friend, who has always owned apartment buildings in the SF Bay area, he said "it's like Monopoly, in order to win, you need to keep collecting properties"

Right now is not a good time to consider investing to hold for rental UNLESS you find a steal. Right now is a great time to buy low, fix and flip for profit. Wait till the housing market crashes again, it always does.

From what I have been able to ascertain, if you want to be able to live off rental income, you have to have a fairly large portfolio. Lots of houses or an apartment building (s)

People in Texas purchase properties that have foundation issues, at deeply discounted prices, and then rent them at, or close to, market rental prices.

You can't resell a property with a foundation issue easily, but you can hold it and clear $1300 a month in income until it is paid off. Then you clear $1500, or more.

Lots of ways to make a buck

 

[RichardTheFrog]

When I sought advice " should I purchase more?" From a wealthy family friend, who has always owned apartment buildings in the SF Bay area, he said "it's like Monopoly, in order to win, you need to keep collecting properties"

Right now is not a good time to consider investing to hold for rental UNLESS you find a steal. Right now is a great time to buy low, fix and flip for profit. Wait till the housing market crashes again, it always does.

From what I have been able to ascertain, if you want to be able to live off rental income, you have to have a fairly large portfolio. Lots of houses or an apartment building (s)

People in Texas purchase properties that have foundation issues, at deeply discounted prices, and then rent them at, or close to, market rental prices.

You can't resell a property with a foundation issue easily, but you can hold it and clear $1300 a month in income until it is paid off. Then you clear $1500, or more.

Lots of ways to make a buck

I'm pretty sure that you will ALWAYS make a better ROI by flipping than renting. It's also a lot more work.

Many of the listings I see for flips have ROI's of 150% annual or more after I run all the numbers. This is assuming 3.5 months from purchase to sale.

 

[R.U.G.]

I do this for a living. You can make good money if you have several multi-family houses. The key is MULTI-FAMILY. SFR you'll get creamed as soon as the economy turns. It also helps if you can buy for cash and not carry a mortgage. Example, I have about 16 multi-families with 2 - 4 units in each bringing in anywhere from 650 - 850 a month gross. Let's average that to 750 x that by 2 units = 1500 per month x that by 16 = 24000 a month gross. When you get bigger, you may need a PM, that will eat in about 8%. All work, I supply the materials and only pay for the labor. I pay water, insurance and taxes. Tenant pays electricity and rent. You need the volume to hold you over with vacancies, which are less than 5% across my portfolio. I am also in major cities, so that helps as well. Do not forget, you also have 27.5 years for depreciation. So, if you have 2,000,000 in real estate, you'll be receiving a 73k yearly tax deduction. Sometimes, I have a loser house, so I flip it, but it is rare. This is a hard business. It takes time, patience, balls of steel and patience. Many do not show a profit due to the depreciation on the tax return. Or, they have a high mortgage rate, they do not know how to manage money and expenses, etc. It's not as easy as what you see on TV. Very stressful, but it does bring in a decent income once you stabilize the buildings. You also have turn-over repairs, which are around 500 bucks. I try to mitigate that with the security deposit.

Flipping is easy in a hot market. Landlording is hard in every market. But, you need volume. At least 10 units, not buildings, units to have a nice income. Then parlay that into other units. I try to stick to 2 - 4 unit buildings, as they are less headaches and easier to acquire. I had a few apartment complexes, and they were a money pit and more expensive.

 

[RichardTheFrog]

I do this for a living. You can make good money if you have several multi-family houses. The key is MULTI-FAMILY. SFR you'll get creamed as soon as the economy turns. It also helps if you can buy for cash and not carry a mortgage. Example, I have about 16 multi-families with 2 - 4 units in each bringing in anywhere from 650 - 850 a month gross. Let's average that to 750 x that by 2 units = 1500 per month x that by 16 = 24000 a month gross. When you get bigger, you may need a PM, that will eat in about 8%. All work, I supply the materials and only pay for the labor. I pay water, insurance and taxes. Tenant pays electricity and rent. You need the volume to hold you over with vacancies, which are less than 5% across my portfolio. I am also in major cities, so that helps as well. Do not forget, you also have 27.5 years for depreciation. So, if you have 2,000,000 in real estate, you'll be receiving a 73k yearly tax deduction. Sometimes, I have a loser house, so I flip it, but it is rare. This is a hard business. It takes time, patience, balls of steel and patience. Many do not show a profit due to the depreciation on the tax return. Or, they have a high mortgage rate, they do not know how to manage money and expenses, etc. It's not as easy as what you see on TV. Very stressful, but it does bring in a decent income once you stabilize the buildings. You also have turn-over repairs, which are around 500 bucks. I try to mitigate that with the security deposit.

Flipping is easy in a hot market. Landlording is hard in every market. But, you need volume. At least 10 units, not buildings, units to have a nice income. Then parlay that into other units. I try to stick to 2 - 4 unit buildings, as they are less headaches and easier to acquire. I had a few apartment complexes, and they were a money pit and more expensive.

I'm on other forums that are for real estate.

Everything I've ever seen tells me that it always makes sense to finance purchases.

If you could buy 1 multifamily in cash, why not use that same amount of cash to buy 5 that are financed?

Even with the mortgage payment, it has always come out to a better ROI every time I've looked at this.

Do you not agree with this?

 

[BeExcellent]

Concur with @R.U.G. about volume. I have half a dozen two unit properties. Bought very cheap. They make ridiculous returns.

Small apartments also Ok.

Volume is key. You need at least 10 units to be reliably profitable & then you need to maintain properly.

Mine are stable across the portfolio and I'm over the hump on non- recurrent costs & deferred maint. If occupied by happy long term renters? You can do very well.

 

[Bible_Belt]

Multi-family units lower the cost per unit, which makes them more profitable as rentals. Lower-priced units return a much higher percentage of their value in rent. But then you start to become a slum lord at some point, if that value drops too low. My family has had more than one renter stay for 15+ years, and pay in rent over that time more than enough to purchase the home; like BeExcellent said, those were happy long-term renters. A well-maintained rental trailer, with a good working-class poor type of tenant, is the best rental in my area. My family also tends to forgive other things that other places don't, like pets and past felony convictions. One of our best renters did a jail term for shooting a dude in a Chicago gang fight. He's actually a really nice guy, all he does is work at his crappy job. And no place else is going to rent to him, so he's not going to move.

 

[RichardTheFrog]

Multi-family units lower the cost per unit, which makes them more profitable as rentals. Lower-priced units return a much higher percentage of their value in rent. But then you start to become a slum lord at some point, if that value drops too low. My family has had more than one renter stay for 15+ years, and pay in rent over that time more than enough to purchase the home; like BeExcellent said, those were happy long-term renters. A well-maintained rental trailer, with a good working-class poor type of tenant, is the best rental in my area. My family also tends to forgive other things that other places don't, like pets and past felony convictions. One of our best renters did a jail term for shooting a dude in a Chicago gang fight. He's actually a really nice guy, all he does is work at his crappy job. And no place else is going to rent to him, so he's not going to move.

But ROI with flipping is still much better.

Even large multibillion dollar firms get their best profits from flips.

 

[Von]

But ROI with flipping is still much better.

Even large multibillion dollar firms get their best profits from flips.

No choice when you have no tenant... even in the commercial real estate... you can own a building and the building has a value... if you have no office/compagnies as tenants... than you have a pill of rock....

Pill of rock until you flip and sell it to another. At which point, you do something to increase its value (like the developper owning the condos in the building he built for a 5 years terms)

House flipping is like Stocks or Corporate Sales.... If you in a booming market... you will get something.

However, its when the market crash that you see who really had pants on (Warren Buffet quotes)... Are you clothed or Naked underneath your business ''success and attributes''.

I don't know much about flipping but I know alot about investments.

You need to study your market, you need to invest and check spending vs returns, you need to see the added value it has on the market (location, maintenance, tenants etc..)you need to hold or sell at the ''good time''...

Rental remains the most ''long term'' effective strategies since you have a ''residual income''.... However... it can become a nightmare too...

The biggest issue I see with people who own Rental Properties = Tenants (the bad ones... and you always running after the check) and property maintenance.

I remember an article about 'what not to do in the rental business'.... and it was actually flipping the rental units... spending ALOT of money to repair,upgrade the place in hope rising the rental/tenant monthly rental fees.... well that didn't work well for the owners and they lost everything.

You shouldn't buy a rental property (with a mortgage likely) than pay 50 000$ in repairs.. when you have no tenants or people to sell it to... with the Hopes someone will buy you. (its a business risk that is costly...)....

One issue with RealEstate (any kinds)... its that its a immobile asset (you can't sell unless you have a buyer and that can take alot of time... unlike stock where you click and its basically sold)

So that's why flipping works in good market... cause the buyers exists (any kind).

Anyway... one day when I have build enough a stock/investment/mutualfund/ETF portfolio... i'll go in the multi-residential rental (2-3 units and maybe more) but definitely will have someone to manage it (turn my family in slave).

In the Real Estate... Rent is like having a Pension Fund that will send you money no matter the conditions... quite valuable when in a sizeable situation that makes a difference (like rent in gross of around 20 000$ +... I am being conservative.... at 50 000$ yearly gross you should be fine).... but it means Time, Mortage, Tenants management

 

[RichardTheFrog]

No choice when you have no tenant... even in the commercial real estate... you can own a building and the building has a value... if you have no office/compagnies as tenants... than you have a pill of rock....

Pill of rock until you flip and sell it to another. At which point, you do something to increase its value (like the developper owning the condos in the building he built for a 5 years terms)

House flipping is like Stocks or Corporate Sales.... If you in a booming market... you will get something.

However, its when the market crash that you see who really had pants on (Warren Buffet quotes)... Are you clothed or Naked underneath your business ''success and attributes''.

I don't know much about flipping but I know alot about investments.

You need to study your market, you need to invest and check spending vs returns, you need to see the added value it has on the market (location, maintenance, tenants etc..)you need to hold or sell at the ''good time''...

Rental remains the most ''long term'' effective strategies since you have a ''residual income''.... However... it can become a nightmare too...

The biggest issue I see with people who own Rental Properties = Tenants (the bad ones... and you always running after the check) and property maintenance.

I remember an article about 'what not to do in the rental business'.... and it was actually flipping the rental units... spending ALOT of money to repair,upgrade the place in hope rising the rental/tenant monthly rental fees.... well that didn't work well for the owners and they lost everything.

You shouldn't buy a rental property (with a mortgage likely) than pay 50 000$ in repairs.. when you have no tenants or people to sell it to... with the Hopes someone will buy you. (its a business risk that is costly...)....

One issue with RealEstate (any kinds)... its that its a immobile asset (you can't sell unless you have a buyer and that can take alot of time... unlike stock where you click and its basically sold)

So that's why flipping works in good market... cause the buyers exists (any kind).

Anyway... one day when I have build enough a stock/investment/mutualfund/ETF portfolio... i'll go in the multi-residential rental (2-3 units and maybe more) but definitely will have someone to manage it (turn my family in slave).

In the Real Estate... Rent is like having a Pension Fund that will send you money no matter the conditions... quite valuable when in a sizeable situation that makes a difference (like rent in gross of around 20 000$ +... I am being conservative.... at 50 000$ yearly gross you should be fine).... but it means Time, Mortage, Tenants management

Wrong.

In flipping, you force appreciation. You don't rely on the market.

 

[R.U.G.]

I'm on other forums that are for real estate.

Everything I've ever seen tells me that it always makes sense to finance purchases.

If you could buy 1 multifamily in cash, why not use that same amount of cash to buy 5 that are financed?

Even with the mortgage payment, it has always come out to a better ROI every time I've looked at this.

Do you not agree with this?

Really depends. If you take out the mortgage equation, all that money saved can be then poured into the next multifamily. If you have a vacant unit or two and you have a mortgage, then you will still be paying the mortgage with no money coming in. I only have mortgages on my really large units. Larger units, larger problems. I am not a fan of borrowing money and growing slow. If you have cash, cash is always the better way. When the housing market crashed in 2007 - 2009, many people with cash were buying up the properties for cash and holding them w/o a mortgage. Now, if you can get a mortgage rate between 2% - 3.5%, sure it makes sense to do so. However, for investments and non-owner occupied homes, the rates are usually 5%+. In addition, the closing fees are pricey. This is why I prefer to buy with the funds I receive from the rents on my units and then buy other units. Some are rehabs, some are not. I am a hawk on expenses, so it is important to keep them in line or when the sh!t hits the fan, you will be upstream without a paddle.

Just remember, leverage is good and bad. It is good if you can control costs and have enough leeway in good and bad times. In bad times, when the vacancies and evictions go up, and you have 10+ mortgages to pay, chances are money is going to be tight. If you are just starting out, trust when I say, start with one, then two, and so on. Slow and steady. You will undoubtedly make mistakes, we all do. It's better to make mistakes on small 2 or 3 family buildings than on 10+ apt. complexes. I only had mortgages on my complexes, because I wanted to unlock those funds to buy other buildings. Example. I purchased a 15 unit two years ago for 500k for cash, it's appraised value was 640k. I had to put 50k into the complex, and I then received an 80/20 mortgage for 445k on the upgraded value. I then took that 445k and purchased three other buildings. One for 40k, one for 215k, and one for 200k. I rehabbed the 40k building across from a major area for 250k, and it's appraisal is over a million dollars. The second one needed about 40k, and it's new appraisal is 300k. The third needed about 50k, and it's worth now about 450k.

In the above mentioned real life example, mortgaging a complex is worth it. However, I am tempted to sell the complex as it's a major headache. The later three have no mortgage, but I have the option in drawing a credit line on them; should I need. Mortgaging a building under 250k doesn't make much sense if you have the funds to pay cash and hold. Yes, you can go over to Bigger Pockets and they say mortgaging and leverage is the best. They are making 200 a unit. Wow. Cannot live off that. However, if you do not mortgage and go cash, you are then making 600 a unit (or more). It really depends on what your tolerance is and how much money is backing you.

 

[R.U.G.]

Multi-family units lower the cost per unit, which makes them more profitable as rentals. Lower-priced units return a much higher percentage of their value in rent. But then you start to become a slum lord at some point, if that value drops too low. My family has had more than one renter stay for 15+ years, and pay in rent over that time more than enough to purchase the home; like BeExcellent said, those were happy long-term renters. A well-maintained rental trailer, with a good working-class poor type of tenant, is the best rental in my area. My family also tends to forgive other things that other places don't, like pets and past felony convictions. One of our best renters did a jail term for shooting a dude in a Chicago gang fight. He's actually a really nice guy, all he does is work at his crappy job. And no place else is going to rent to him, so he's not going to move.

Unfortunately, yes. There really is no money in the A and B areas. I've sold one of my B area units and cleared a 22% profit only because I purchased it from a seller who was underwater and needed to get out. The house was for sale for 140k, I got him to sell it to me for 115k, and I put a new roof, floors, paint and windows on it. It was in a good area, but hard to rent, so I sold it a year later for 161k. I own one building in a upscale area, only because I bought it for nothing and was just lucky. All the others are C areas (D - F are gang and warzones). One of my PMs says I am a slumlord, but I corrected him as I'd live in any of my buildings. They are all kept in good condition or better. C areas are bringing in around a 20% gross return. A - B areas are bringing in a 4% - 9% return. Hence, there's basically no money in the A - B areas unless you buy an old building and rehab it. Even then, the owners are asking crazy money for old buildings. There's this old industrial warehouse which is just a shell in Brooklyn, NY. A complete gut. Easily need 2m dollars. The owner is asking 7.8m. I am in four states, so I have the run of the mill in terms of tenants. I try to work with all of them, because I do not want to deal with eviction fees.

All in all, cash is king. It always will be.