Does anyone here flip houses?

[California]

Managing rentals isn't for everyone.

When our kid was born my wife took a year's leave from her job. She told me she would collect rents and evaluate the repair requests. She lasted a few months, screaming with outrage at the bs stories she was getting from the tenants.

I made a formal analysis of hold vs sell and concluded that starting to sell the rentals and taking back second mortgages would provide a better income stream with no management.

On one property I sold to a reliable buyer but then he flipped (re-sold) to an attorney/r.e. broker partnership. That attorney never paid his half of the payments. My wife would visit his office with a screaming baby and demand a check, and I once nearly got thrown down the stairs when I went in and asked his secretary, with his clients watching, if her paycheck bounced same as this payment check I was waving around. When he appeared I asked him for whatever lunch money he had in his pocket toward that month's payment. Made quite an impression on his waiting clients.

I filed forclosure on him twice in a year, which forced the guy I originally sold to, to make the payment to me to protect his own junior mortgage on the property. Then the broker partner paid the loan off to dissolve their partnership and save his own credit rating. I never lost any money due to me, but I got a few gray hairs on that one.

For costing out any such venture, be sure to figure an hourly wage for yourself for this sort of inevitable responsibility separate from the speculator's profit you have to make. As I said above, it is crucial to forecast all posible costs BEFORE making a purchase offer.

 

[California]

Managing rentals isn't for everyone.

When our kid was born my wife took a year's leave from her job. She told me she would collect rents and evaluate the repair requests. She lasted a few months, screaming with outrage at the bs stories she was getting from the tenants.

I made a formal analysis of hold vs sell and concluded that starting to sell the rentals and taking back second mortgages would provide a better income stream with no management.

On one property I sold to a reliable buyer but then he flipped (re-sold) to an attorney/r.e. broker partnership. That attorney never paid his half of the payments. My wife would visit his office with a screaming baby and demand a check, and I once nearly got thrown down the stairs when I went in and asked his secretary, with his clients watching, if her paycheck bounced same as this payment check I was waving around. When he appeared I asked him for whatever lunch money he had in his pocket toward that month's payment. Made quite an impression on his waiting clients.

I filed forclosure on him twice in a year, which forced the guy I originally sold to, to make the payment to me to protect his own junior mortgage on the property. Then the broker partner paid the loan off to dissolve their partnership and save his own credit rating. I never lost any money due to me, but I got a few gray hairs on that one.

For costing out any such venture, be sure to figure an hourly wage for yourself for this sort of inevitable responsibility separate from the speculator's profit you have to make. As I said above, it is crucial to forecast all posible costs BEFORE making a purchase offer.

 

[CurlyDave]

What Eddie and some others are describing is more "housing rehabilitation" than "house flipping" to me, but I may not be thinking correctly about this.

I think the difference is that in rehabilitation the main profit is made through improvements and upgrades, with a secondary benefit from a general market increase. In flipping, the only source of profit is in the market increase.

A rehab is safer because you have added equity and value so that a market downturn is easier to withstand.

Since I am going to continue this activity after I leave my day job, I am wondering if a real estate license of a contractor's license would be of any benefit. Thoughts?

I won't really need the income, just a profitable hobby to keep from being bored. But, I would like it to be profitable.

 

[CurlyDave]

What Eddie and some others are describing is more "housing rehabilitation" than "house flipping" to me, but I may not be thinking correctly about this.

I think the difference is that in rehabilitation the main profit is made through improvements and upgrades, with a secondary benefit from a general market increase. In flipping, the only source of profit is in the market increase.

A rehab is safer because you have added equity and value so that a market downturn is easier to withstand.

Since I am going to continue this activity after I leave my day job, I am wondering if a real estate license of a contractor's license would be of any benefit. Thoughts?

I won't really need the income, just a profitable hobby to keep from being bored. But, I would like it to be profitable.

 

[Nat]

Ray, that is what I do for a living. All the above advice is good. I will not buy one unless it is a steal. There are plenty of bargains out there for sale, but few "steals". I just finished one and sold it to the first person who looked at it. It needed a new roof, new HVAC, Kitchen, windows and doors, and flooring. I bought it for 25,000 spend 12,500 on it and sold it for 55,000. It sounds as if I made a lot, but you have to figure that I did all the labor except fot the carpet and vinyl flooring. I replaced all the windows, I found a couple out of work guys that would paint the outside for 300.00 The tearoff and reroof cost me over 1,000.00 The sheetrock and trim work was relitivly cheap, HVAC was 3,000.00 cabinets were over a 1,000.00.
I don't think there is any money to be made on a contuining basis if you do like they do on TV and hire everything out, I know they show a lot of profit on each one they do, but I suspect there are a lot that just break even or ever lose money. Another thing is I absolutly will not buy in the city limits. I don't know about anywhere else, but here I can but a house in the city limits for 1/2 what I can in the county, but it cost just as much to fix it as one in the county, but I couldn't give it away. I am also a real estate broker and I won't even list a house in the city limits here cause it won't sell in 2 or 3 times the time as the same or simular house would out in the county.
I have one I'm working on now and it needed a new roof, windows and doors, floor joist/subfloor replaced, new kitchen and bath, paint, most everything. It sits on 1.6 acres in the county and has a 2 story shop and a fenced back yard. It looks like a new house now and will sell pretty quickly, but I also have to keep looking for the next on.
I don't think flipping is for everyone, but if you can do most all the repairs yourself and don't mind getting filty/dirty working on something you wouldn't sleep in yourself, and don't mind painting/plumbing/roofing,framing/wiring/trimming work/hauling of tons of trash, and have the means to pay for it all till it sells then go for it. It keeps me fed and clothed, and I can afford to go to TX and visit Eddie. Later, Nat

 

[Nat]

Ray, that is what I do for a living. All the above advice is good. I will not buy one unless it is a steal. There are plenty of bargains out there for sale, but few "steals". I just finished one and sold it to the first person who looked at it. It needed a new roof, new HVAC, Kitchen, windows and doors, and flooring. I bought it for 25,000 spend 12,500 on it and sold it for 55,000. It sounds as if I made a lot, but you have to figure that I did all the labor except fot the carpet and vinyl flooring. I replaced all the windows, I found a couple out of work guys that would paint the outside for 300.00 The tearoff and reroof cost me over 1,000.00 The sheetrock and trim work was relitivly cheap, HVAC was 3,000.00 cabinets were over a 1,000.00.
I don't think there is any money to be made on a contuining basis if you do like they do on TV and hire everything out, I know they show a lot of profit on each one they do, but I suspect there are a lot that just break even or ever lose money. Another thing is I absolutly will not buy in the city limits. I don't know about anywhere else, but here I can but a house in the city limits for 1/2 what I can in the county, but it cost just as much to fix it as one in the county, but I couldn't give it away. I am also a real estate broker and I won't even list a house in the city limits here cause it won't sell in 2 or 3 times the time as the same or simular house would out in the county.
I have one I'm working on now and it needed a new roof, windows and doors, floor joist/subfloor replaced, new kitchen and bath, paint, most everything. It sits on 1.6 acres in the county and has a 2 story shop and a fenced back yard. It looks like a new house now and will sell pretty quickly, but I also have to keep looking for the next on.
I don't think flipping is for everyone, but if you can do most all the repairs yourself and don't mind getting filty/dirty working on something you wouldn't sleep in yourself, and don't mind painting/plumbing/roofing,framing/wiring/trimming work/hauling of tons of trash, and have the means to pay for it all till it sells then go for it. It keeps me fed and clothed, and I can afford to go to TX and visit Eddie. Later, Nat

 

[California]

</font><font color="blue" class="small">( What Eddie and some others are describing is more "housing rehabilitation" than "house flipping" ... in rehabilitation the main profit is made through improvements and upgrades, with a secondary benefit from a general market increase. In flipping, the only source of profit is in the market increase. )</font>

For anyone expecting to make most of the money by forecasting market conditions, make it simple and just buy paper futures rather than the physical asset. This will give you an opportunity to see how good you are at forecasting without messy complications including tenants, permits, unexpected repairs.

</font><font color="blue" class="small">( A rehab is safer because you have added equity and value so that a market downturn is easier to withstand.)</font>

Without the equity created by rehab you will own nothing but a money-losing responsibility if the market doesn't conform to your forecast. And there is no reason it should conform.

</font><font color="blue" class="small">( Since I am going to continue this activity after I leave my day job, I am wondering if a real estate license or a contractor's license would be of any benefit. Thoughts?)</font>

I already had a contractor's license but aside from an occasional materials discount (mostly on paint), I don't recall it made any difference.

 

[California]

</font><font color="blue" class="small">( What Eddie and some others are describing is more "housing rehabilitation" than "house flipping" ... in rehabilitation the main profit is made through improvements and upgrades, with a secondary benefit from a general market increase. In flipping, the only source of profit is in the market increase. )</font>

For anyone expecting to make most of the money by forecasting market conditions, make it simple and just buy paper futures rather than the physical asset. This will give you an opportunity to see how good you are at forecasting without messy complications including tenants, permits, unexpected repairs.

</font><font color="blue" class="small">( A rehab is safer because you have added equity and value so that a market downturn is easier to withstand.)</font>

Without the equity created by rehab you will own nothing but a money-losing responsibility if the market doesn't conform to your forecast. And there is no reason it should conform.

</font><font color="blue" class="small">( Since I am going to continue this activity after I leave my day job, I am wondering if a real estate license or a contractor's license would be of any benefit. Thoughts?)</font>

I already had a contractor's license but aside from an occasional materials discount (mostly on paint), I don't recall it made any difference.

 

[RayH]

Just to cut down on confusion, Im thinking of reselling "rehabs". No way would I risk doing straight flips. Thats just insane right now.
The question about having a contractors license or real estate sales license is interesting. Actually I just had a conversation with my wife about this very thing a few minutes ago. I used to sell real estate a few years back. Ive let my license lapse and would need to retest and catch up on continuing ed to reinstate it. Ive been considering reinstating it but cant decide if its worth the trouble. No doubt I could save a little on commission by listing my own houses but I have to sit down and figure how much it cost to maintain a license verses how much commission I would be saving. Im fortunate because my wife works at the local community college and I can take all the required continuing ed classes for free. What kind of an agreement you have with your broker as far as insurance, use of office equipment and so on, how much it cost to maintain the needed memberships and how much classes cost will determine how much it cost to maintain your license and that will vary by area. If I recall, it cost me about $1800/year just to keep my license.

 

[RayH]

Just to cut down on confusion, Im thinking of reselling "rehabs". No way would I risk doing straight flips. Thats just insane right now.
The question about having a contractors license or real estate sales license is interesting. Actually I just had a conversation with my wife about this very thing a few minutes ago. I used to sell real estate a few years back. Ive let my license lapse and would need to retest and catch up on continuing ed to reinstate it. Ive been considering reinstating it but cant decide if its worth the trouble. No doubt I could save a little on commission by listing my own houses but I have to sit down and figure how much it cost to maintain a license verses how much commission I would be saving. Im fortunate because my wife works at the local community college and I can take all the required continuing ed classes for free. What kind of an agreement you have with your broker as far as insurance, use of office equipment and so on, how much it cost to maintain the needed memberships and how much classes cost will determine how much it cost to maintain your license and that will vary by area. If I recall, it cost me about $1800/year just to keep my license.

 

[RayH]

Heres another question that Ive been considering. I think I know what the answer is but I'll open it for discussion anyway.
What about taking on a partne? I have a friend who is also interested. He doesnt bring much money to the table but he does bring a healthy real estate background and he knows everyone and their brother (one of my shortcomings because Im relatively new to this area and not much of a people person). If it worked out, it could be a good deal for both of us, if it doesnt, you know how bad it could be.

 

[RayH]

Heres another question that Ive been considering. I think I know what the answer is but I'll open it for discussion anyway.
What about taking on a partne? I have a friend who is also interested. He doesnt bring much money to the table but he does bring a healthy real estate background and he knows everyone and their brother (one of my shortcomings because Im relatively new to this area and not much of a people person). If it worked out, it could be a good deal for both of us, if it doesnt, you know how bad it could be.

 

[CurlyDave]

Having a RE license is really an interesting question.

It would save some on commissions, both on buying and selling. The downside is that it takes time & money both to get one and to maintain it.

There is a second drawback, which is that, at least on the west coast, a seller must disclose if he/she is an agent. Whenever I see that in a listing, I immediately scratch it from consideration for purchase. Why? The same reason I won't play a pickup baseball game with people from a pro team. I know it will be priced at the top of the market, and that I am hopelessly outclassed in knowledge of the local market, and RE negotiation by a professional agent.

The only real positive is that having a license changes rentals from a passive activity to an ordinary business as far as the IRS is concerned.

 

[CurlyDave]

Having a RE license is really an interesting question.

It would save some on commissions, both on buying and selling. The downside is that it takes time & money both to get one and to maintain it.

There is a second drawback, which is that, at least on the west coast, a seller must disclose if he/she is an agent. Whenever I see that in a listing, I immediately scratch it from consideration for purchase. Why? The same reason I won't play a pickup baseball game with people from a pro team. I know it will be priced at the top of the market, and that I am hopelessly outclassed in knowledge of the local market, and RE negotiation by a professional agent.

The only real positive is that having a license changes rentals from a passive activity to an ordinary business as far as the IRS is concerned.

 

[California]

</font><font color="blue" class="small">( RayH: What about taking on a partne? I have a friend who is also interested. He doesnt bring much money to the table but he does bring a healthy real estate background and he knows everyone and their brother )</font>

One partner works his tail off, the other schmoozes and parties to keep up his contacts. That's a hard question. I couldn't stand to carry a partying fool on my back, but objectively I know I need one to provide the exposure I don't have time to create myself. That might work for you, wouldn't for me. I would gladly pay the guy a generous comission after he earned it.


</font><font color="blue" class="small">( CurlyDave: Having a RE license is really an interesting question.

... save some on commissions ...

There is a second drawback, which is that, at least on the west coast, a seller must disclose if he/she is an agent. Whenever I see that in a listing, I immediately scratch it from consideration for purchase. ... I know it will be priced at the top of the market, and that I am hopelessly outclassed in knowledge of the local market, and RE negotiation by a professional agent. )</font>

I never thought about it, but that's a very crucial point. Part of the salesmanship for getting top dollar includes letting the buyer think he can operate the rental for greater income than you did. An aw-shucks contractor looks less intimidating and more easily outfoxed than a professional broker/owner.

Still better, look like an amateurish cautious rental owner. The last duplex we lived in, in the early years, was bought by my tax preparer who saw all my records, and made me an offer out of the blue. I sold it to him for 45k over cost. He cried for years that it never appreciated a penny as soon as he bought it. Who outfoxed who?

</font><font color="blue" class="small">( The only real positive is that having a license changes rentals from a passive activity to an ordinary business as far as the IRS is concerned. )</font>

Huh? I've alwas considered my rentals as owner-managed and therefor active. I thought passive was used only for a limited partner or other situation where somebody else risks losing money before the taxpayer is at risk. What am I missing here?

 

[California]

</font><font color="blue" class="small">( RayH: What about taking on a partne? I have a friend who is also interested. He doesnt bring much money to the table but he does bring a healthy real estate background and he knows everyone and their brother )</font>

One partner works his tail off, the other schmoozes and parties to keep up his contacts. That's a hard question. I couldn't stand to carry a partying fool on my back, but objectively I know I need one to provide the exposure I don't have time to create myself. That might work for you, wouldn't for me. I would gladly pay the guy a generous comission after he earned it.


</font><font color="blue" class="small">( CurlyDave: Having a RE license is really an interesting question.

... save some on commissions ...

There is a second drawback, which is that, at least on the west coast, a seller must disclose if he/she is an agent. Whenever I see that in a listing, I immediately scratch it from consideration for purchase. ... I know it will be priced at the top of the market, and that I am hopelessly outclassed in knowledge of the local market, and RE negotiation by a professional agent. )</font>

I never thought about it, but that's a very crucial point. Part of the salesmanship for getting top dollar includes letting the buyer think he can operate the rental for greater income than you did. An aw-shucks contractor looks less intimidating and more easily outfoxed than a professional broker/owner.

Still better, look like an amateurish cautious rental owner. The last duplex we lived in, in the early years, was bought by my tax preparer who saw all my records, and made me an offer out of the blue. I sold it to him for 45k over cost. He cried for years that it never appreciated a penny as soon as he bought it. Who outfoxed who?

</font><font color="blue" class="small">( The only real positive is that having a license changes rentals from a passive activity to an ordinary business as far as the IRS is concerned. )</font>

Huh? I've alwas considered my rentals as owner-managed and therefor active. I thought passive was used only for a limited partner or other situation where somebody else risks losing money before the taxpayer is at risk. What am I missing here?

 

[Farwell]

If your potential partner is a real estate wiz he should have a bunch of money to bring to the table. I have heard many real estate "partner" horror stories, if you can swing it yourself, you will probably be better off. In a short length of time you will learn the business if you really want to. IMO. I have a mutual fund through Vanguard that is into real estate and it has been paying me over 20% in earnings per year since I have had it. A 20% annual return is not too bad for a real estate investment. The fund is called a REIT.
Farwell

 

[Farwell]

If your potential partner is a real estate wiz he should have a bunch of money to bring to the table. I have heard many real estate "partner" horror stories, if you can swing it yourself, you will probably be better off. In a short length of time you will learn the business if you really want to. IMO. I have a mutual fund through Vanguard that is into real estate and it has been paying me over 20% in earnings per year since I have had it. A 20% annual return is not too bad for a real estate investment. The fund is called a REIT.
Farwell

 

[RayH]

There is a disclosure that an agent must legally pass on to and have signed by a perspective buyer that insures the buyer knows that the selling agent is also the owner of the property.
Its true there could be some ethical issues with an agent selling their own property but its generally not a problem. Ideally, a sellers agent must always work in the sellers best interest but is also legally obligated to disclose known defects to the buyers. So there are certain ethical standards that you must meet as a licensed agent that you wouldnt have to worry about if you didnt have a license. With that in mind, all you guys that are avoiding buying from licensed agents, It may be worth considering that buying from an agent is safer than buying a FSBO. If theres something wrong with the house, they had better tell you about it or face legal recourse.

 

[RayH]

There is a disclosure that an agent must legally pass on to and have signed by a perspective buyer that insures the buyer knows that the selling agent is also the owner of the property.
Its true there could be some ethical issues with an agent selling their own property but its generally not a problem. Ideally, a sellers agent must always work in the sellers best interest but is also legally obligated to disclose known defects to the buyers. So there are certain ethical standards that you must meet as a licensed agent that you wouldnt have to worry about if you didnt have a license. With that in mind, all you guys that are avoiding buying from licensed agents, It may be worth considering that buying from an agent is safer than buying a FSBO. If theres something wrong with the house, they had better tell you about it or face legal recourse.