Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Does this RE deal sound good?
Old 03-21-2006, 12:29 PM   #1
Thinks s/he gets paid by the post
thefed's Avatar
 
Join Date: Oct 2005
Posts: 2,203
Does this RE deal sound good?

I always have an ear to the street for good RE investment opportunities. I have a line on one that I think might be a winner.

First, remember that this isn't California with grossly overpriced homes. I found a small (800 sf) 1 bedroom slab home in Akron that needs rehabbed for $16k. Taxes are 1400/yr (double lot). County appraised value is 46k, comps are coming in around 50k. Might be able to make a 2nd bedroom out of the wierd layout,m which would help when reselling.

I can repair everything for under $10k...no problem. I have a close friend who's willing to rent it for 500/month while it's put on the market to sell. He may stay longer if he likes it, but is willing to do the small restoration stuff while living there (tile floors, cabinets, bathroom fixtures, paint, landcaping etc)

It's not the best area, and definately not the worst. I dont like the idea of collecting rent, and really dont like the idea of selling a one bedroom home ...they sit too long.

All in all, I would sink about 26 into a home I 'could' sell for 46k. While I hold it, rent would provide me a cash flow of about 150-200/month (160/mo interest only HELOC, 130/month taxes and insurance).



PROS: 20k equity, 150-200/month cash flow, 300/month piti is very low if not rented, break even for a year would be 40% vacancy.

CONS: ONE bedroom, harder to rent or sell, not the best neighborhood for attracting quality tenants

my intentions are to buy a home, and flip it for at least a 10k profit. If not, rent with a cashflow of 200/month.


What do you all think? I hear a lot about the pitfalls of renting homes, but that's why my first p.o.a. is to sell it right away. Renting is the contingency, unless my friend would liek to stay there.

__________________

__________________
thefed is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Does this RE deal sound good?
Old 03-21-2006, 12:31 PM   #2
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Does this RE deal sound good?

Quote:
Originally Posted by thefed
First, remember that this isn't California with grossly overpriced homes.* I found a small (800 sf) 1 bedroom slab home in Akron that needs rehabbed for* $16k. Taxes are 1400/yr (double lot).* County appraised value is 46k, comps are coming in around 50k. Might be able to make a 2nd bedroom out of the wierd layout,m which would help when reselling.
As long as you're going into a rehab with a bigger lot, what about expanding a wall into a 2nd BR with perhaps a 2nd (public) bath?
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 12:39 PM   #3
Recycles dryer sheets
 
Join Date: Oct 2003
Posts: 452
Re: Does this RE deal sound good?

I wonder if Akron is a "flippable" area ?
Will your friend move in right away or after it's rehabed ?
Can you really count on him to move in and out when you want ?
Or will he change his mind and not rent it ?
About how long will it take to sell ; a realtor might be able to answer that question.
Every month it sits costs you $300.
__________________
renferme is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 12:44 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Does this RE deal sound good?

Sounds like you know the basic issues.

What 'rehabbing' does it need? I would think a house that you can buy for $16k would cost 10k the minute you looked at it.

Add to that for surprises. Putting on some siding and finding rotten 2x4's. Termites. Pulling up a carpet and finding a rotten floor...or a bunch of asbestos tiles.

How old is it? Homes older than 1980 frequently have a layer of lead paint on the walls, maybe buried under a few other layers. Homes much older than that sometimes have lead pipes, asbestos floor tiles, asbestos pipe wrapping, etc. Unless you're willing to tear that out with respirators and dispose of it 'correctly', you have to pay a hazardous materials company to come in and remove it.

What kind of plumbing? If its old galvanized pipe and cast iron drains, you might be spending $3-4k on new pipes. Windows in good shape? Could be another 1-2k. Roof? Another grand or two if the sheeting is rotten. Any mold? Pest inspection show anything?

Is the slab in good condition? Any big cracks or settlement? Concrete still solid? Any white stains on it (effluorescence)?

Is the house up to code? How is it zoned? Will adding on to the original property cause anything bad to happen tax-wise or require an expensive building permit? Any endangered species known to frequent the area?
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 12:46 PM   #5
Thinks s/he gets paid by the post
thefed's Avatar
 
Join Date: Oct 2005
Posts: 2,203
Re: Does this RE deal sound good?

Quote:
Originally Posted by bennevis
I wonder if Akron is a "flippable" area ?
Will your friend move in right away or after it's rehabed ?
Can you really count on him to move in and out when you want ?
Or will he change his mind and not rent it ?
About how long will it take to sell ; a realtor might be able to answer that question.
Every month it sits costs you $300.

Anything is flippable if you get into it for the right price. From what I can see, 25k on the table, and letting it sit 1yr @ 300/mo = 29k. Realtor fees on a 45k listing= 3k totalling 32k in it. If I sell it even for 15% under 'retail' that's 38k, with a 6k profit. That's collecting NO rent ever, and it sitting one year, and paying a realtor.

I dont think it would sit a year, nor do I think I would never collect rent....


As far as adding on....I'm considering it....only if I could do it myself. I think it could be a viable option.

__________________
thefed is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 12:52 PM   #6
Recycles dryer sheets
 
Join Date: Oct 2003
Posts: 452
Re: Does this RE deal sound good?

ok , put in 32k, sell for 38k, that's about a 20% profit.
anything above 38k, makes the profit all that much better.
A lot of work; but if you enjoy it - then go for it.
__________________
renferme is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 12:53 PM   #7
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Does this RE deal sound good?

Quote:
Originally Posted by thefed
As far as adding on....I'm considering it....only if I could do it myself.* I think it could be a viable option.
Aaaaaahh, contractor hell!

Good luck with that.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 12:59 PM   #8
Full time employment: Posting here.
Arif's Avatar
 
Join Date: Jun 2005
Posts: 761
Re: Does this RE deal sound good?

I plugged your figures into my spreadsheet I use for flipping properties and you should make about 16k assuming the numbers you gave are accurate. I would go for it but without the renting part unless you can't get it sold in say six months. Just factor the mortgage pmt as an expense during this period. The more complicated you make it the more there is an opportunity for the deal to go sour. If your friend rents it out and doesn't want to leave even though you've got a buyer then what? I would add a few thousand for unexpected things that need to be repaired but did not see during the inspection. BTW- my profit figures factored in paying a 3% closing cost for the buyer of the property.
__________________
You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill - you stay in Wonderland and I show you how deep the rabbit-hole goes.
Arif is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 01:17 PM   #9
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: Does this RE deal sound good?

Quote:
Originally Posted by Cute 'n' Fuzzy Bunny
Sounds like you know the basic issues.

What 'rehabbing' does it need? I would think a house that you can buy for $16k would cost 10k the minute you looked at it.

Add to that for surprises. Putting on some siding and finding rotten 2x4's. Termites. Pulling up a carpet and finding a rotten floor...or a bunch of asbestos tiles.

How old is it? Homes older than 1980 frequently have a layer of lead paint on the walls, maybe buried under a few other layers. Homes much older than that sometimes have lead pipes, asbestos floor tiles, asbestos pipe wrapping, etc. Unless you're willing to tear that out with respirators and dispose of it 'correctly', you have to pay a hazardous materials company to come in and remove it.

What kind of plumbing? If its old galvanized pipe and cast iron drains, you might be spending $3-4k on new pipes. Windows in good shape? Could be another 1-2k. Roof? Another grand or two if the sheeting is rotten. Any mold? Pest inspection show anything?

Is the slab in good condition? Any big cracks or settlement? Concrete still solid? Any white stains on it (effluorescence)?

Is the house up to code? How is it zoned? Will adding on to the original property cause anything bad to happen tax-wise or require an expensive building permit? Any endangered species known to frequent the area?
Odds are it is not up to code, has old plumbing and electric, old windows, has a damp basement and lead paint somewhere. CFB, you have been in California too long. Eastern housing stock is much older and houses sell with their old windows, plumbing, electric, lead paint and all. In my part of the country, if you don't have a damp basement with some mold in it, that is unusual.

I would worry more about serious structural issues, such as bad leaking roofs, bowing basement walls, or walls and floors way out of kilter. Also, in some parts of the country if you do a significant amount of work on a property, the entire property might have to be brought up to code. Otherwise, generally property does not have to be brought up to current code, only the new work has to be to code.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 02:20 PM   #10
Thinks s/he gets paid by the post
thefed's Avatar
 
Join Date: Oct 2005
Posts: 2,203
Re: Does this RE deal sound good?

To clarify some things:

first off, it's a slab home...ie no basement. That's partially why I looked at it....basements are a headache!

Secondly, I just went back to look @ it, and here's what it needs. About 1/2 the windows are still wood, the other 1/2 have been replaced. IF I have soemone else do it, it'd run about 275 each, and there's 6....figure 2000. Has new vinyl siding. Some of the subfloor is rotted and warped....lots of labor to be supplied by me and my friend, and say 500 for supplies. Flooring house-wide (cheap carpet, vinyl tile) figuring 1000. I can do the tile in bathroom and kitchen. Roof looks okay, but bows in the middle...pay someone 2000 to replace the bad wood and re-shingle (small roof!). Bath/kitchen fixtures are okay, might need a cabinet here and there, and a lot of the plumbing is exposed, and looks like an afterthought (maybe someone stole the copper in the past??). I figure 500 to re-route these pipes with some pvc and hide them well. Furnace and electric look okay, hot water might need replaced....I'll figure 1000 for new hot water and maybe furnace repair (never know til you turn the stuff on!). Planning on another 500 to DIY a wall tear down to expand what WILL be the second bedroom. It's a 8x9 room with no closet. I can take the wall down and add about 3x8 feet of space, including a closet (i think the wall is NOT load bearing, but will check first, of course).That brings me to about 7000, with 3000 for misc stuff. I'm sure at least 1000 of that would be used (landcaping, paint, etc). Minimum 8000, max 10000.

The house to the left and right of this one are freshly sided with vinyl and look nicely kept. This home is a large lot for the city (38 x 130) and its set WAY back (only a 10 ft back yard, but a 80 ft front). One neighbor is similar size, but two beds, and sold for 50k recently. If I do this right, this can be considered a two bedroom home.

My friend definitely WILL stay in the home while fixing it, and that will be a bulk of my labor. I will figure on 6 months vacancy before selling. However, he has expressed to em that he will rent it @ 500/month for up to 6 months after its done being rehabbed.



I think I will offer about 14k and go from there. I have a second, larger home I'm looking at .2 miles down the street for 14k. It needs a bit more work, but has a dry basement (from what I can tell) ALL new electric, updated kitchen, and new sheetrock house-wide (to eliminate lead paint). All the sheetrock needs taped and finished. all windows are new. The majority of the work is in the drywall, and luckily, my father is a drywall contracter/painter...maybe I could get some cheap labor The basement isnt too pretty, but is currently dry as a bone. Furnace needs replaced as does hot water. It's been added on to, and has 2 poss 4 beds. It's about 1200 square feet vs 800 in the other.

__________________
thefed is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 03:19 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Does this RE deal sound good?

Biggest concern I see is the bowed roof. Either the supporting roof studs or the load bearing walls below are rotten or have been eaten by something. That could be very expensive to fix. The rotten subfloor is also concerning. I'd take a long thin probe like a flathead screwdriver and test the bottom plates if you can find a way to access them. Maybe if theres a little room below the baseboards, or pull off a baseboard with the owners permission. Corners and/or areas near the subfloor rot are good to check. Inserting the screwdriver just above the slab level, horizontally, you should hit hard wood right behind the sheetrock where the horizontal 2x4 or 2x6 should be. If its mushy, theres nothing there, or your screwdriver comes out with green or black stuff on it, look out. You'll have to tear off the interior or exterior walls, jack up the house, replace the bottom plates and at least the bottom of the studs. Big stuff and tough to do unless you're very experienced with home repair.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 04:32 PM   #12
Thinks s/he gets paid by the post
tryan's Avatar
 
Join Date: Mar 2005
Posts: 2,449
Re: Does this RE deal sound good?

Quote:
I would go for it but without the renting part unless you can't get it sold in say six months
The numbers look good. I would go for it; rent it for a year then flip it. Holding it for a year will give you a long - vice short - term capitol gain. This will put ~15% of the profit back in your pocket. Holding it also allows time for a larger gain. When you buy property for 16K the down side risk is very small.
__________________
FIRE'd since 2005
tryan is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 04:33 PM   #13
Thinks s/he gets paid by the post
thefed's Avatar
 
Join Date: Oct 2005
Posts: 2,203
Re: Does this RE deal sound good?

thanks for the advice fuzzy bunny.

I am still trying to figure out the subfloor issue. Some of the house in right on a slab, while some is over a shallow crawl space. It's areas, of course, over the crawl space that are warped a bit. Not weak, or soggy, just warped a bit.

I saw NO evidence of water anywhere in the home (dryawall, plaster, ceiling, quick look in the attic standing on a stool with a weak flash light). But i did notice the decking a bit warped on the roof.

I'll test those base plates tomorrow and see what I come up with.

thanks
__________________
thefed is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 04:34 PM   #14
Thinks s/he gets paid by the post
thefed's Avatar
 
Join Date: Oct 2005
Posts: 2,203
Re: Does this RE deal sound good?

Quote:
Originally Posted by tryan
The numbers look good. I would go for it; rent it for a year then flip it. Holding it for a year will give you a long - vice short - term capitol gain. This will put ~15% of the profit back in your pocket. Holding it also allows time for a larger gain. When you buy property for 16K the down side risk is very small.
That's what I'm thinking....the downside is minimal.

What are the tax implications on long vs short term cap gains?

I thought I would 1031 if I do sell this, to defer taxes. would the length I hold it effect taxes in that situation?

Thanks
__________________
thefed is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 05:39 PM   #15
Recycles dryer sheets
 
Join Date: May 2004
Posts: 495
Send a message via AIM to yelnad Send a message via Yahoo to yelnad
Re: Does this RE deal sound good?

DH and I flip properties. We would definitely go for this, but to be fair, we tend to buy things that no one else will touch.
__________________
Yelnad --"What you're paying for is an education, not a room at the Sheraton,and sometimes that education is uncomfortable."- Jim Terhune, Dean of Student Affairs, Colgate University
yelnad is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 06:26 PM   #16
Full time employment: Posting here.
 
Join Date: Aug 2005
Posts: 942
Re: Does this RE deal sound good?

My experience with doing re-habs for many many years, is that what ever I pencil out my cost to be on paper (no matter how thourgh I try and be), I can count on it costing AT LEAST 50% more, for all the unexpected. So if you figure you can do it for $10,000 COUNT ON IT COSTING 50% MORE. ($15,000 and you might be in the right ball park)

I have never been disappointed this way. I also would agree that changing it to a two bedroom would be wise if financially feasable.
__________________
modhatter is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-21-2006, 07:14 PM   #17
Thinks s/he gets paid by the post
tryan's Avatar
 
Join Date: Mar 2005
Posts: 2,449
Re: Does this RE deal sound good?

Quote:
What are the tax implications on long vs short term cap gains?

I thought I would 1031 if I do sell this, to defer taxes. would the length I hold it effect taxes in that situation?
Short term gains are taxed as ordinary income (28% for most of us ... but could be as high as 33%). Long term gains are limited to 15% (thanx to GWB).

No time limit on when you can sell into a 1031 exchange BUT the property bought must be like-kind. In this case a rental/business property. No guidance on how long the purchased property must remain rented ... I was told 1 year would suffice (before, say, it became your residence).
__________________
FIRE'd since 2005
tryan is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-22-2006, 10:26 AM   #18
Recycles dryer sheets
 
Join Date: Dec 2005
Posts: 209
Re: Does this RE deal sound good?

Take it from an experienced structural engineer, vinyl siding frequently hides a rotted out wall structure . Be very, very careful about what you cannot see, especially when something is intentionally hidden.
__________________
bbuzzard is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-22-2006, 11:32 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Does this RE deal sound good?

Yeah, I was thinking that too but I figured I'd already scared the pants off of him...thats why I suggested checking the bottom plates...any leaks would have created the worst rot there and around the window sills and casings.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Does this RE deal sound good?
Old 03-22-2006, 11:49 AM   #20
Full time employment: Posting here.
Arif's Avatar
 
Join Date: Jun 2005
Posts: 761
Re: Does this RE deal sound good?

Quote:
My experience with doing re-habs for many many years, is that what ever I pencil out my cost to be on paper (no matter how thourgh I try and be), I can count on it costing AT LEAST 50% more, for all the unexpected. So if you figure you can do it for $10,000 COUNT ON IT COSTING 50% MORE. ($15,000 and you might be in the right ball park)
I agree that's why I say add a few thousand on top of his estimates. Things always pop up that you can't see until you get in their and start pulling walls down.

Quote:
Short term gains are taxed as ordinary income (28% for most of us ... but could be as high as 33%). Long term gains are limited to 15% (thanx to GWB).
Don't forget you have to recapture the depreciation you took while you rented it. Not much in this case but just so others that try to flip also are aware of that additional tax.
__________________

__________________
You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill - you stay in Wonderland and I show you how deep the rabbit-hole goes.
Arif is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Is Hard Work/Play Good for You? TromboneAl Health and Early Retirement 28 01-22-2007 03:33 PM
Looking for a good real estate forum free4now FIRE and Money 4 01-07-2007 04:43 PM
Good basic stuff from Vanguard mickeyd FIRE and Money 4 12-27-2006 09:18 PM
Good Travel Site or Boards for the RE Travel Lifestyle???????????? dex Other topics 6 11-05-2006 12:43 AM
Pretty good deal if you like tools cute fuzzy bunny Other topics 2 03-01-2006 12:41 PM

 

 
All times are GMT -6. The time now is 01:10 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.