Flipping houses for anyone who cares

[R.U.G.]

Wrong.

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

Can't flip when the market is cold or sour. The flippers then hold on to that property until someone comes over and offers them a low ball offer. They, decline, but come back a few weeks or months later. That low ball offer is then even lower, which they then agree because they do not have the funds to cover the carrying costs. If you have no mortgage, then the carrying costs are minimal. Hence, it's usually the mortgage that sinks the "investor".

 

[RichardTheFrog]

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.

Refinancing is the same as a mortgage as far as I'm concerned.

Here's an example:

$250k purchase price. You could either buy with $250k cash, or finance 80% ($200k) over 30 years at 4.5%. This is a monthly payment of $1,013.37.

So if you bought with cash, you'd be saving $1,013.37/month ($12,160.44/year). But you would have $200k in cash that you wouldn't otherwise have. It would take you over 16 years to make that back with what you saved by not getting a mortgage.

But this is oversimplified because I would think most investors would buy things that are distressed anyway.

Bigger Pockets does mention refinancing as the best strategy to get into things with as little cash as possible.

 

[RichardTheFrog]

Can't flip when the market is cold or sour. The flippers then hold on to that property until someone comes over and offers them a low ball offer. They, decline, but come back a few weeks or months later. That low ball offer is then even lower, which they then agree because they do not have the funds to cover the carrying costs. If you have no mortgage, then the carrying costs are minimal. Hence, it's usually the mortgage that sinks the "investor".

You can flip as long as the market isn't actively going downhill.

Even if it's at the bottom of a recession, you can as long as it's already truly bottomed out.

 

[guru1000]

Can't flip when the market is cold or sour.

Sure you could. Bad R/E markets are the best markets for flipping, given poor R/E market conditions lead to unsellable housing, and thus greater foreclosures. Greater foreclosures lead to greater short sales.

Short sales negotiated correctly with the banks (BPO =>argue the BPO with other comps ==> mechanical, engineering, contracting/cost-to-cure reports) are the biggest bucks for house flipping, replete with investors buying at 50-60% market price (MP).

Resell at 90% MP even in a poor market for non-commercial, and 100% for commercial properties (5 unit+) with 125% DSCR after reno and fully renting.

 

[RichardTheFrog]

Sure you could. Bad R/E markets are the best markets for flipping, given poor R/E market conditions lead to unsellable housing, and thus greater foreclosures. Greater foreclosures lead to greater short sales.

Short sales negotiated correctly with the banks (BPO =>argue the BPO with other comps ==> mechanical, engineering, contracting/cost-to-cure reports) are the biggest bucks for house flipping, replete with investors buying at 50-60% market price (MP).

Resell at 90% MP even in a poor market for non-commercial, and 100% for commercial properties (5 unit+) with 125% DSCR after reno and fully renting.

Yea I was gonna say something similar. Poor market means greater inventory of distressed property.

 

[Murk]

I'm thinking of using savings to buy a house up north (UK) near a university town. For some perspective you're looking at average £500k ($700k) for a house in London (average area not some place nice). Up north you're looking at £150k ($200k). I'm looking to put some walls up and convert a 2-3 bed into 4-5 and rent it out to University students.

£150k is easily done with a mortgage that 5 students will be more than paying for off the bat. It wont take much effort to plaster wall a bedroom and living room in half.

 

[guru1000]

Yea I was gonna say something similar. Poor market means greater inventory of distressed property.

The greatest return in R/E besides buy and hold in the highest appreciable areas like Manhattan, parts of Brooklyn, and other metropolitan cities and developing are short sales. Period.

Hard money at 10 points/annum, no points at closing, buy 50-60% MP, invest into the reno, carry costs, and staffing and walk away with 100+% returns (reno/carrying costs/staffing investment) within 12 months.

It's a niche that very few have.

 

[R.U.G.]

Refinancing is the same as a mortgage as far as I'm concerned.

Here's an example:

$250k purchase price. You could either buy with $250k cash, or finance 80% ($200k) over 30 years at 4.5%. This is a monthly payment of $1,013.37.

So if you bought with cash, you'd be saving $1,013.37/month ($12,160.44/year). But you would have $200k in cash that you wouldn't otherwise have. It would take you over 16 years to make that back with what you saved by not getting a mortgage.

But this is oversimplified because I would think most investors would buy things that are distressed anyway.

Bigger Pockets does mention refinancing as the best strategy to get into things with as little cash as possible.

Well, it's not as simple as that. One, you will most likely be not getting a 4.5 rate, unless it's a SFR, which are too risky for me. You are also forgetting vacancy issues and eviction costs. Should you own it outright, your costs are significantly lower and should able to be kept above water; if you are not over leveraged. I'd take what people say on BP with a grain of salt. I've went to some of those meetups. They are not as successful as they appear. Again, I can only speak from my experience. Then again, I had a decent amount of cash to cushion and support me when I first started as I sold my business. Most people who go into REI are under cash utilized and things are good when the market is stable. However, in most areas, it's starting to get a bit frothy. I am building up my cash reserves and planning on adding to my real life monopoly position in key markets.

 

[R.U.G.]

You can flip as long as the market isn't actively going downhill.

Even if it's at the bottom of a recession, you can as long as it's already truly bottomed out.

Well, the problem is, no one knows when the bottom will fall out. All I can tell you is that NYC is softening, so that is a key that things are a bit top heavy. If San Fran and Los Angeles start to get top heavy as well, it's time to sit on the sidelines and eat some popcorn. When there is blood in the streets, people with cash reserves will be making a killing again. Why? Simple. REI's are over leveraged and cannot handle the carrying costs.

 

[R.U.G.]

Sure you could. Bad R/E markets are the best markets for flipping, given poor R/E market conditions lead to unsellable housing, and thus greater foreclosures. Greater foreclosures lead to greater short sales.

Short sales negotiated correctly with the banks (BPO =>argue the BPO with other comps ==> mechanical, engineering, contracting/cost-to-cure reports) are the biggest bucks for house flipping, replete with investors buying at 50-60% market price (MP).

Resell at 90% MP even in a poor market for non-commercial, and 100% for commercial properties (5 unit+) with 125% DSCR after reno and fully renting.

Depends. I know many were sitting on the market because the bank would not go lower than 10% of the note. You were dead in the water from 2007 - 2009 a banks really weren't moving on their baseline loss sale price.

 

[R.U.G.]

I'm thinking of using savings to buy a house up north (UK) near a university town. For some perspective you're looking at average £500k ($700k) for a house in London (average area not some place nice). Up north you're looking at £150k ($200k). I'm looking to put some walls up and convert a 2-3 bed into 4-5 and rent it out to University students.

£150k is easily done with a mortgage that 5 students will be more than paying for off the bat. It wont take much effort to plaster wall a bedroom and living room in half.

Good idea, just remember to do the #'s and see if the payoff is worth it. I do not know much out of the US, so I cannot advise on experience.

 

[R.U.G.]

The greatest return in R/E besides buy and hold in the highest appreciable areas like Manhattan, parts of Brooklyn, and other metropolitan cities and developing are short sales. Period.

Hard money at 10 points/annum, no points at closing, buy 50-60% MP, invest into the reno, carry costs, and staffing and walk away with 100+% returns (reno/carrying costs/staffing investment) within 12 months.

It's a niche that very few have.

Manhattan and Brooklyn are softening as the pricing is still very high and have a negative cap rate. Brooklyn will fall first, then Manhattan. Even Harlem is overpriced. The only ones with a half decent cap rate are the rent controlled buildings, which I stay far far away from.

 

[guru1000]

Depends. I know many were sitting on the market because the bank would not go lower than 10% of the note. You were dead in the water from 2007 - 2009 a banks really weren't moving on their baseline loss sale price.

The note is irrelevant to you and the servicer (which must follow investor directives) insofar as they would be holding inventory and reselling REOs at retail not the note value. You negotiate based on property value.

You have to know the loan servicer, the investor, how to negotiate the comps properly, move for cost-to-cure on the mechanical/engineering reports, tie the house up in foreclosure with solid litigation, appeal to the investor directly, subpoena bank for bad faith, argue comps, secure good relations with RMs, application after application, etc.

It is a business. And a very profitable one at that.

 

[guru1000]

Manhattan and Brooklyn are softening as the pricing is still very high and have a negative cap rate. Brooklyn will fall first, then Manhattan. Even Harlem is overpriced. The only ones with a half decent cap rate are the rent controlled buildings, which I stay far far away from.

Manhattan is primarily at a 3-4% cap. Brooklyn at a 5-7% cap depending on where. There are still deals to be had. Manhattan retail commercials from a hold and rent perspective are crap.

Bronx is a great area right now.

Rent stabilized can be great investment with buyouts and primary residency to evict, especially long-term tenants and previous non-astute owners who did not appeal to their greed.

 

[R.U.G.]

The note is irrelevant to you and the servicer (which must follow investor directives) insofar as they would be holding inventory and reselling REOs at retail not the note value. You negotiate based on property value.

You have to know the loan servicer, the investor, how to negotiate the comps properly, move for cost-to-cure on the mechanical/engineering reports, tie the house up in foreclosure with solid litigation, appeal to the investor directly, subpoena bank for bad faith, argue comps, secure good relations with RMs, application after application, etc.

It is a business. And a very profitable one at that.

Really depends. I've been offering on the prop. value on short sales in BX, Yonkers, and a few other places. Banks are not moving too much.

 

[Murk]

Good idea, just remember to do the #'s and see if the payoff is worth it. I do not know much out of the US, so I cannot advise on experience.

I did the math 8 years ago when I was paying £1500 per month with 5 others in a house built for 3 with a mortgage of about £850 per month. Only now I'm in a position to act wisely and step ahead and lay down some cash.

 

[guru1000]

Really depends. I've been offering on the prop. value on short sales in BX, Yonkers, and a few other places. Banks are not moving too much.

You need to know what you are doing. Who is the loan servicer? Who is the investor? How much did the BPO come in at? Do you have engineering/mechanical reports with cost-to-cure? Appeal letters to the investor directly? Where exactly is the property in the litigation? Potential standing issues? How many apps submitted?

This is not as simple as applying with the loan servicer and getting approved.

 

[R.U.G.]

You need to know what you are doing. Who is the loan servicer? Who is the investor? How much did the BPO come in at? Do you have engineering/mechanical reports with cost-to-cure? Appeal letters to the investor directly? Where exactly is the property in the litigation? Potential standing issues? How many apps submitted?

This is not as simple as applying with the loan servicer and getting approved.

I know the drill. I've been doing this since 2004. Even with that, little movement on a short sale. There is this one in Yonkers, needs a complete rehab. The bank would not approve. They wanted 130k. Needs about 125k in rehab costs. Offered 72k. Declined. It's been sitting for a while. Bank is Webster. The original mortgage was 199k.

 

[R.U.G.]

I'm thinking of using savings to buy a house up north (UK) near a university town. For some perspective you're looking at average £500k ($700k) for a house in London (average area not some place nice). Up north you're looking at £150k ($200k). I'm looking to put some walls up and convert a 2-3 bed into 4-5 and rent it out to University students.

£150k is easily done with a mortgage that 5 students will be more than paying for off the bat. It wont take much effort to plaster wall a bedroom and living room in half.

Don't forget the permit. City officials can be a bit hard on conversions.

 

[guru1000]

I know the drill. I've been doing this since 2004. Even with that, little movement on a short sale. There is this one in Yonkers, needs a complete rehab. The bank would not approve. They wanted 130k. Needs about 125k in rehab costs. Offered 72k. Declined. It's been sitting for a while. Bank is Webster. The original mortgage was 199k.

Webster is a portfolio lender. Easier to work with investor-backed loan servicers, Chase, Mr. Cooper, Ocwen, etc who have fiduciary directives from their investors. You need investors like Fannie, Freddie, Deutsche, MBSs, etc.

Are you pressing on the litigation? In-house counsel? Private attorney? No attorney? What's the deal?

Portfolio lenders can be dealt with nicely as well. Servicing breaches, standing issues, lack of notices precedent to a foreclosure, improper billing, no GFE, no notice-of-rescind, non compliance with RPAPL 1303, 1304? What exactly is your litigious leverage?

This goes beyond numbers.