Flipping houses for anyone who cares

[R.U.G.]

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.

Webster doesn't sell their mortgages, they keep them in-house. Their legal team in Waterbury will not approve the offer. Both my atty and the agent has pushed, but the offer is too low and they want to hold out. I am told there are other investors, but it's been sitting and sitting.

 

[guru1000]

Webster doesn't sell their mortgages, they keep them in-house.

That's what a portfolio lender means.

Their legal team in Waterbury will not approve the offer. Both my atty and the agent has pushed, but the offer is too low and they want to hold out. I am told there are other investors, but it's been sitting and sittin

Has litigation commenced? Is so, did defendant(s) file an answer? Mediation hearings/settlement conferences? Who originated the note, Webster? Did you run a mortgage audit on the original paperwork? Discovery in the litigation? Was possession of the note challenged? Engineering/mechanical reports? Comp appeals?

Saying you and your atty pushed means crap if you are not employing negotiable leverage.

 

[RichardTheFrog]

@R.U.G. @guru1000

Can either of you explain how it ever makes sense to buy and hold rather than flip?

I have many listings available to me right now that would return 150%+.

With buy and hold, even at a great cap rate like 10%, if you put $1 million in, you will make $100k/year BEFORE DEBT SERVICE. So you will be at a negative ROI for the first 10 years at least.

Even major billion dollar firms make their best returns by flipping large properties.

 

[R.U.G.]

That's what a portfolio lender means.


Has litigation commenced? Is so, did defendant(s) file an answer? Mediation hearings/settlement conferences? Who originated the note, Webster? Did you run a mortgage audit on the original paperwork? Discovery in the litigation? Was possession of the note challenged? Engineering/mechanical reports? Comp appeals?

Saying you and your atty pushed means crap if you are not employing negotiable leverage.

The foreclosure is set for July. It seems, from what information we were able to gather, the bank wants to take ownership. The comps are much higher, about 400k, and that is what's the issue. The house is structurally sound, but needs a complete gut.

 

[BeExcellent]

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?

Only through your rents. You can try some type of triple N structure but nobody will understand it and they will go rent someone else's units. The MARKET sets the rents. The market doesn't care what your costs are, it still sets the rents. In one of my markets few landlords require security deposits. The result? My units sit vacant longer because I will not rent without a security deposit. But rent + deposit = more $ for renters to come up with on the front end. I'd rather have the vacancy loss and wait for the better renter who can afford rent + security deposit...but this is an election I am making in the face of somewhat adverse market forces. The no deposit crowd ends up with less financially responsible renters and more damage they have to cover at their units on the back end, and higher turn over. So I take a lower cost hit on the front end (by requiring security deposits) and as a general rule end up with better renters who are more stable and stay longer.

That's why the old maxim 'you make your money when you buy'. The better your price (and the better your terms) the more cushion you have insofar as profit margin goes. Rents can take a downturn in a down market just as purchase prices can. Higher profit margins are a hedge against this. I sometimes can adjust my rents up, and once in a while I have to adjust my rents down.

"it's like Monopoly, in order to win, you need to keep collecting properties"

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)

Correct in my experience on both points. I am in a transitional year where I am optimizing my portfolio in order to live on primarily the passive incomes from the portfolio. Selling one place to pay off three others and things like that.

What statistics do you look at when researching markets?

Price of acquisition; market rents; demographics; proximity to a major airport (I operate in small markets rather than major metro areas), employers in the area; disposition of state and local law toward landlord/tenant courts; community trends (is the community growing or contracting); availability of competent property management; management cost & structure; ease of travel for me to get there (I own both local and long distance).

Big markets are inflated currently in major metro America. But all markets are local and they are not in lockstep at all. I however am already seeing some softening in one of my markets. And I am actively acquiring and sitting on both cash & hard money funds to grab up solid deals if I see them.

 

[R.U.G.]

@R.U.G. @guru1000

Can either of you explain how it ever makes sense to buy and hold rather than flip?

I have many listings available to me right now that would return 150%+.

With buy and hold, even at a great cap rate like 10%, if you put $1 million in, you will make $100k/year BEFORE DEBT SERVICE. So you will be at a negative ROI for the first 10 years at least.

Even major billion dollar firms make their best returns by flipping large properties.

Blackrock, Buffet and JPM went on a buying spree in 2010 and held until recently. They weren't flippers, they were holding out for a recovery. If the house is income producing, it's better to hold. Better tax advantages, accounting and monthly cash flow. Flipping is an accounting nightmare as you always need to do a 1031 exchange and only have 45 days to find a new prop. with six months to close. Doing multiple at a time can lead to problems and issues. Taxes are better with buy and hold than flipping.

 

[R.U.G.]

Only through your rents. You can try some type of triple N structure but nobody will understand it and they will go rent someone else's units. The MARKET sets the rents. The market doesn't care what your costs are, it still sets the rents. In one of my markets few landlords require security deposits. The result? My units sit vacant longer because I will not rent without a security deposit. But rent + deposit = more $ for renters to come up with on the front end. I'd rather have the vacancy loss and wait for the better renter who can afford rent + security deposit...but this is an election I am making in the face of somewhat adverse market forces. The no deposit crowd ends up with less financially responsible renters and more damage they have to cover at their units on the back end, and higher turn over. So I take a lower cost hit on the front end (by requiring security deposits) and as a general rule end up with better renters who are more stable and stay longer.

That's why the old maxim 'you make your money when you buy'. The better your price (and the better your terms) the more cushion you have insofar as profit margin goes. Rents can take a downturn in a down market just as purchase prices can. Higher profit margins are a hedge against this. I sometimes can adjust my rents up, and once in a while I have to adjust my rents down.





Correct in my experience on both points. I am in a transitional year where I am optimizing my portfolio in order to live on primarily the passive incomes from the portfolio. Selling one place to pay off three others and things like that.



Price of acquisition; market rents; demographics; proximity to a major airport (I operate in small markets rather than major metro areas), employers in the area; disposition of state and local law toward landlord/tenant courts; community trends (is the community growing or contracting); availability of competent property management; management cost & structure; ease of travel for me to get there (I own both local and long distance).

Big markets are inflated currently in major metro America. But all markets are local and they are not in lockstep at all. I however am already seeing some softening in one of my markets. And I am actively acquiring and sitting on both cash & hard money funds to grab up solid deals if I see them.

I am similar. I've acquired props. with ZERO deposits and I was amazed. I require at least one month deposit, but in some areas (CT/NJ) I require two months. Reason being, it covers the costs better for a potential eviction and clean-up.

 

[BeExcellent]

Can either of you explain how it ever makes sense to buy and hold rather than flip?

Richard, aren't you currently managing a trailer park? I know personally a couple of men who deal almost exclusively in trailer park type properties. They own them now all around the US. They are PRINTING money.

It ain't glamorous but its lucrative. So is being in the lower cost modest properties in flyover country as I am. I could care less about NYC property or LA property. I make 20% to 40% annual returns on my units in the under 50K per unit (sometimes WAY under 50K) and can acquire them in chunks. I've picked up 7 units in the past 6 months. Increase in my loan exposure? $650/month. Increase in my gross rents? $2700/month.

It may seem small potatoes but lots of small potatoes still means lots of potatoes, and in bites that are easier to buy for cash or with creative finance like hard money (non-amortizing simple interest).

 

[guru1000]

@R.U.G. @guru1000

Can either of you explain how it ever makes sense to buy and hold rather than flip?

I have many listings available to me right now that would return 150%+.

With buy and hold, even at a great cap rate like 10%, if you put $1 million in, you will make $100k/year BEFORE DEBT SERVICE. So you will be at a negative ROI for the first 10 years at least.

Even major billion dollar firms make their best returns by flipping large properties.

Depends where you are in your career. IF you are overly funded or have good hard money relations with 100 LTV because you are buying discounted, then you only need capital for renovations, carrying costs, and staffing. Once you are capitalized beyond this point for all the properties your business could reasonably buy, fix, and sell, as a self-employed individual, you should invest into a R/E retirement portfolio for cash flow when you retire as you don't have a pension.

As you are just starting out, you're best to invest fully into your business. In another 10+ years, when you are overly capitalized, start piecing away toward a R/E retirement portfolio too.

 

[RichardTheFrog]

Blackrock, Buffet and JPM went on a buying spree in 2010 and held until recently. They weren't flippers, they were holding out for a recovery. If the house is income producing, it's better to hold. Better tax advantages, accounting and monthly cash flow. Flipping is an accounting nightmare as you always need to do a 1031 exchange and only have 45 days to find a new prop. with six months to close. Doing multiple at a time can lead to problems and issues. Taxes are better with buy and hold than flipping.

Here is an example of a random distressed property that I picked out of my email inbox.

Purchase price = $165k
Rehab = $15k
ARV = $220k

If using HML, you can get in with just over $50k. That includes down payment, plus everything else they require.

Profit just over $16k assuming you pay 2.5% to a buyers agent.

If it takes 3.5 months from purchase to sale, that is an ROI of over 110%.

Can you explain to me in mathematical terms how you can get a better ROI by buying and holding?

And this is just the first email I looked at. I didn't even dig hard for a good one.

When I spoke of large firms flipping, I didn't mean buying and then waiting for the economy to recover. I meant intentionally renovating $100+ million properties.

But even if they do rely on market appreciation, then it is still true that they make their best profit only when they sell it, not while they are renting it. Here's an example.

Purchased for $12 million in 2012. Sold for $87 million in 2018. 104% return.

https://commercialobserver.com/2018...s-sale-union-investment-412-west-14th-street/

 

[guru1000]

Here is an example of a random distressed property that I picked out of my email inbox.

Purchase price = $165k
Rehab = $15k
ARV = $220k

If using HML, you can get in with just over $50k. That includes down payment, plus everything else they require.

Profit just over $16k assuming you pay 2.5% to a buyers agent.

If it takes 3.5 months from purchase to sale, that is an ROI of over 110%.

Can you explain to me in mathematical terms how you can get a better ROI by buying and holding?

And this is just the first email I looked at. I didn't even dig hard for a good one.

When I spoke of large firms flipping, I didn't mean buying and then waiting for the economy to recover. I meant intentionally renovating $100+ million properties.

But even if they do rely on market appreciation, then it is still true that they make their best profit only when they sell it, not while they are renting it. Here's an example.

Purchased for $12 million in 2012. Sold for $87 million in 2018. 104% return.

https://commercialobserver.com/2018...s-sale-union-investment-412-west-14th-street/

Operating margin is awfully low there. You may have hangups, such as mortgage financing for the buyer, unanticipated repairs/costs, inspections that force you to invest deeper, C/O issues that the buyer may need for financing [not sure how FL works] that force costly repairs not previously accounted, illiquid market forcing longer carrying costs.

There is a degree of risk there.

IF I get involved with buy/sell it's with huge margins $150,000-$300,000, so potential risks of unanticipated repairs to cure or costs do not destroy the profit as it would in such a thin margin.

 

[RichardTheFrog]

Operating margin is awfully low there. You may have hangups, such as mortgage financing for the buyer, unanticipated repairs/costs, inspections that force you to invest deeper, C/O issues that the buyer may need for financing [not sure how FL works] that force costly repairs not previously accounted, illiquid market forcing longer carrying costs.

There is a degree of risk there.

IF I get involved with buy/sell it's with huge margins $150,000-$300,000, so potential risks of unanticipated repairs to cure or costs do not destroy the profit as it would in such a thin margin.

What kind of things can you flip for a $150k-$300k profit, and where do you find them?

 

[guru1000]

What kind of things can you flip for a $150k-$300k profit, and where do you find them?

I doubt you will find much in FL with those numbers unless you're dealing with 50+ unit properties (which may be illiquid in FL). As I once told you, I invested in Jacksonville there. Bought direct from Freddie Mac, two 4-family at $30k a pop. Renovated and sold. 100%+ returns, but boy, what a headache for pennies.

You need higher priced markets that retail at close to or above 1mil per property to operate at those margins.

 

[RichardTheFrog]

I doubt you will find much in FL with those numbers unless you're dealing with 50+ unit properties (which may be illiquid in FL). As I once told you, I invested in Jacksonville there. Bought direct from Freddie Mac, two 4-family at $30k a pop. Renovated and sold. 100%+ returns, but boy, what a headache for pennies.

You need higher priced markets that retail at close to or above 1mil per property to operate at those margins.

Was it a normal deal through a normal commercial broker? Was it "exclusive" or "off-market" in any way?

Should I just call up a few commercial brokerages and ask them if they have anything I can flip?

 

[guru1000]

Was it a normal deal through a normal commercial broker? Was it "exclusive" or "off-market" in any way?

Should I just call up a few commercial brokerages and ask them if they have anything I can flip?

Bought as an REO. Sold directly to an investor I know in NY, giving him fully occupancy at an 18% cap.

As I stated, I don't know the C/O regulations for regular buyers in FL as I never dealt with conventional buyers who need to secure mortgages.

You need to do due diligence in the area. What is the net cap for commercial properties in the area? How much of a turn around to fully rent (put an ad on trulia/zillow and monitor incoming)? Can you get hard money with commercial properties (5 unit+) in your area? Fannie/Freddie-backed banks (which comprise most banks) don't typically lend at anything below $750,000 for commercial. How will the prospective buyer get financing? What are the specific portfolio lenders' guidelines in the area for the prospective buyers? Will the property be eligible under those guidelines? Who are you going to market the sell to, investors (hedge funds, VCs), private, mom & pop?

 

[RichardTheFrog]

Let's cut all the BS on aappreciation vs cash flow, I'm more interested in software that helps with managing property, if anybody knows of an application that emails or texts tenants the rent is due, please share it.

Lol. Wtf? You're too lazy to send a text message?

Let me know when you find an "application" that can fix a leaking pipe. You obviously have no clue about any of this.

 

[R.U.G.]

Depends where you are in your career. IF you are overly funded or have good hard money relations with 100 LTV because you are buying discounted, then you only need capital for renovations, carrying costs, and staffing. Once you are capitalized beyond this point for all the properties your business could reasonably buy, fix, and sell, as a self-employed individual, you should invest into a R/E retirement portfolio for cash flow when you retire as you don't have a pension.

As you are just starting out, you're best to invest fully into your business. In another 10+ years, when you are overly capitalized, start piecing away toward a R/E retirement portfolio too.

Agreed. I only got into it as something to do with my time after I sold my business. Frogger has family money, so he doesn't need to wait. However, I still recommend starting small and grow from there. Get your feet wet, etc. If I was in FL, I'd start in the college towns and look to acquire student multi-families. Pretty safe bet and easy to accumulate.

 

[R.U.G.]

Let's cut all the BS on aappreciation vs cash flow, I'm more interested in software that helps with managing property, if anybody knows of an application that emails or texts tenants the rent is due, please share it.

Cozy is good for rental payments, they also offer tenant screening. However, I prefer to use Transunion's Smart Move for tenant screening. If you have multiple properties, then consider appfolio, but it is not cheap. Several of my PMs use appfolio.

 

[R.U.G.]

Lol. Wtf? You're too lazy to send a text message?

Let me know when you find an "application" that can fix a leaking pipe. You obviously have no clue about any of this.

Cozy has a maintenance ticketing system, as does appfolio. One is free, the later is not.

 

[R.U.G.]

You absolutely right on the money with your comment, however not all real estate investors dedicated 100% to real estate, we have jobs that generates income to be able to buy more properties. I cannot be calling/texting tenants on my employer time, that’s called stealing, plus hiring a management company for a handful of apartments doesn’t make sense financially.

If you have five or six units, you may be able to get a PM's rate down to 6 or 7 percent. Might be worth it so they do not bother you. Cozy is good for you if you just need to collect payment and have a basic support contact system. You may want to setup a call service center for a few bucks a month where your tenants can call in and they will then text or e-mail you the reason for the call or support request. For the properties I am managing directly in NJ and the BX, that is what I do. The ones OOS, I hand off to a PM.