Bonneville America Forums Forums Off Topic Discussion Forums Lounge I had a fear of this

Jessica and i were sitting on the deck this evening talking holding hands watching Jake try to take apart a bench, when she tells me she wants to get into realestate.. I am like ok so you want to get your realitor(sp) license? she says no, she wants ot start flipping houses. I look at her as if she has lost her mind. Says she can cash in 2 of her IRA's to get us started. And she knows about 3 houese that will sell real cheap. 2 are bank repos, and one is a tax lean home. All 3 are in nice neighborhoods, and really pretty nice homes. See this is what happens when your wife watches to much HGTV and that other channel that has the "Flip that House" show on it? Man I see a lot of smashing my self with a hammer in my future.

Maybe you can get a bank to help you offer sub-prime loans to attract buyers..........

Bad time to try and start doing that. In most areas the market is pretty bad right now.

Yeah tell me aobut it. I think she might try to hold onto the house for a wile. Hopefully it is just a idea.. Heck i will buy her something shiney to take her mind off it lol..

Hey Matt! Did your father-in-law own an Edsel back in the day?

Better check! This could all be genetically based, ya know!


Yep! Bad timing I'd say offhand, but ya never know. She could make a go of it.

(good luck)

only good part ( if there is one) to this, is it is not my money. I dont know what is gonna happen but hopefully she wont go through with this

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See this is what happens when your wife watches to much HGTV and that other channel that has the "Flip that House" show on it? Man I see a lot of smashing my self with a hammer in my future.

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see what happens when she can watch it largerthanlifewithsurroundsoundonyournewhometheater...

I hate posting like this, but since there is a lot at stake -- It always comes down to the math. Maybe it's just me, but I believe that in order to make a decent return, you need to work with at a minimum, $300K and above homes. There is a theoretical mark up / gross profit level out there somewhere. For the sake of argument, let's say it's 20%. 20% of a 100K home is a lot of work for the return, which could result in minimum wage or less per hour for your troubles. Remember too that while you're doing the flip, the expenses for the project keep coming, as in insurance, interest, electric, taxes, water & sewer fees, and so on.

With the market currently in the toilet, the risk of re-sale at a healthy mark up is indeed a big gamble. I am involved with a 45 acre hill top property with 4,000 sq ft home and dramatic mountain view that comps at 1.2. There isn't even a slight interest at 700K. In the meantime, expenses still accrue, including tax, maintenance, and so on, all of which gnaw away at any chance of profit.

It's tempting to Mom & Pop a venture like this, in order to stay under audit radar, but Mom & Pop mode does splay one wide open to liabilities. An LLC (or other corporate veil) and a good insurance policy is to be considered as well. You are a link in the liability chain as deed holder, should any ancient pollution or other issues arise. Be aware too that a typical insurance policy usually allows only a very paltry $50,000 maximum limit for pollution coverage. Once the 50K is gone, guess who they look to for the rest?

Be wary of all your tax implications too. In addition to the ever popular cap gains tax(es), if residential restoration is sales taxable there, as it is here, a field auditor could consider the entire gross profit is income, and so subject to state sales tax. One way or another, the revenuers are going to take a chunk, whether it's personal income tax, cap gains, or corporate income tax if you go LLC. It wouldn't hurt to figure to lop at least 30% off the gross for taxes when planning your net profit margins.

If there's a way to buy some time in order to research this a bit further, (read - stall the idea) perhaps that would be prudent at this juncture, as the saying goes. The advice of local & seasoned real estate agents could prove useful. Part of their job is researching comparable pricing, and so they should know the local market very well.

I'm sorry for bringing all the doom & gloom, but they're all part of the package. A large part of operating a business in the US in today's world is dancing with the assorted state & federal devils, and trying to dodge their pitch forks. Perhaps a dry run on paper would be useful, and incorporate all my doom and gloom expenses from above. In this market, a 20% gross profit might be too generous a yield, but at least it's a start in the cipherin' process.

Yeah and when you can't sell the houses you can become landlords-maybe a relative or friend will be your tenants and you can chase them for the rent!!!
I'm in that boat-I'm stuck with a house in SC and can't sell it and even having a hard time finding a renter whose deposit check doesn't bounce!

Eeesh. On one hand I say go for it. Nothing worth having ever came without risk. On the other hand....
I have a "Side Business" with my brother. We generally work for 2 young guys who have become tired of their Wall St jobs and want to be realestate moguls. That fantasy quickly ended and they are now landlords. Their first 2 homes have been on the market for over a year. There is a right way to do this but I don't think cashing in on your retirement in this market is it.

You've got to get her to see this is not the time to START flipping houses. A few years ago maybe, not anymore. Especially around Y'alls area, and definitely don't gamble w/ the IRA's, they are there leave them alone.

My wife had made the same suggestion a while back but luckily the hgtv shows are now pointing out that some or many of the flips are not selling and reality steps in so it is not so lucrative now. Whew!

mike

What does your wife do now? Im all for supporting your wife but the way I see it, its gonna be alot of extra work for you. So now you have a full time and a part time job to deal with. Good luck

A recent drive through SC sure seemed to reveal a lot of depressed housing and buildings....

Hmmm, that is a feast and famine business. If you can afford to survive the famine part untill the current slump is over, I suspect that a lot of people are going to bail out before it's done with. That would mean that she will be in a great position because she will have some experience by then and not much competition in a newly booming market.

Also, don't forget that some very clever people made fortunes picking up the pieces during the 1930's depression.

Thought I'd chime in here. Good solid facts from Bucky, thank you from us readers. A small elaboration on a fact that you might not know. The capital gains tax means you can't really sell the house until you own it a year without paying a big tax on it. I have worked for a guy (as a carpenter) on his flippers for a couple of years now. After I fix them, he tries to rent them until the year is up, very tricky sometimes. Be very careful, my friend.

Ah.... if this was as easy as the shows make it out to be, wouldn't the realtors be doing it themselves?
At least on the side?

It's kinda like watching them build a bike, or Emeril throw together a dish on tv.... There's way more to it than they show you.

Tell her to do a LOT of research....
and good luck!
Oh, doesn't she have to pay taxes on those IRS's if she turns them in early?
Mary
Mary

On the bright side ...

Consider yourself lucky - my wife wanted to go into the restaurant business.



I'd rather get a $40 3-legged plow mule and try to grow a crop in solid granite than be in the restaurant business.
Too much like work for me.

Matt, I own a good bit of real estate and did want to throw in my 2¢ worth. If your intention is to buy a house at a good price, fix it up, hold on to it for awhile then sell after the market picks up, OK. But, if your intention is to buy and flip in a short period this is not the time. One of the main reasons the market is in such bad shape (besides the variable rate mortgages) is due to people that wanted to flip properties while the market was hot and got in too late. They are stuck with properties that are probably worth less than their "deal" and they will have to hold them much longer than ever anticipated or dump them at a loss.

Parts of the country are doing better than others, but overall it probably won't be until 2009 that the market starts moving back.

The money on a flip is made on the purchase not the sale. if you can buy it for less then 50% of the going comps you may win only if you put in less the 20% of the going comps to fix it up. That said, you have to sell it. Competing with more and more houses on the market by the day.

All things are possible. Good luck to your wife.

Wife is a former cop, she recetly left the aw to open a home day care. ong story short the first floor of my house is cover in kis stuff.God thing we live in the second floor I guess, but so much for my pool room. I take to her for a few min on the phone today and she is researching a ot of homes but she knows the market is not a good one right now. Hopefully she will wait a year or 2 before doing this.

I agree with Bucky's essay...lol. Now is not the time to flip houses, too many costs involved...tell her take it from another woman her idea is GREAT but wait 18 mths or so until the market gets better. She wants to be an investor not a lanlord...right?

Look, its pretty easy to see this isnt the time to enter in. The excess inventory situation is expected to go on into 2010. In some markets, the inventory may not so bad, but that a market to market thing. In your area, is there an overload of spec houses on the market? What houses are selling right now, and over the last year ( I mean what price ranges, new or existing, etc ). Are customs doing well now, and at what price range are they?

Then figure in what you need to buy at and will it fit in in the range that has high demand and sales, and will you be able to turn it for a profit?

With the credit crunch, it may not turn well nor fast. Again, not a good time to do this.

Couple of comments. A) Now is a GREAT time to get into Real Estate. You can find steals, like Martin's $1.2M pad for $700k (less another $100k for market downturn plus closing, of course ;-)).

My wife is also a big fan of "flip this POC". What you don't see is the associated costs of flipping (which have been mentioned- mortgage or draft, utilities, insurance, etc.)

The two things that scare me about your post (really, they scare me) are she cashing out retirement savings and she doesn't have a RE license.

If you're buying real Estate, use someone else's money. Also, a successful flip will bring you 6-10% after it is all said and done. Bring in a RE Agent and there goes 6%. There is a lot of entertainment in the TV shows, but some truth if you look for it. You will notice ALL of the flip specialists in the TV shows are brokers- not agents, but full brokers.

If you are going to do this (more fortunes have been made in RE than any other business), buy and flip with (mostly) someone else's money, at the very least get your RE license, and do it quick. If it can't be on the market in 29 days, it isn't a deal... (P.S. make friends with a state licensed RE Inspector -ask me how I know!)

she doesn't have a RE license.

Bullocks! Not needed and not necessary. Just make sure you have a good real estate lawyer. They will handle the entire sale for you for a few hundred bucks, more or less, depending on where you live (around here, going price is around $350).

Just yesterday, I closed on a property I purchased three months ago. I found a buyer and turned everything over to my lawyer. She handled everything from the contract to closing, and all I had to do to close the deal was drive down to her office, sign a few papers and pick up my check.

Also, a successful flip will bring you 6-10% after it is all said and done.

Then you ain't doing it right! I won't touch a property unless I can get at least a 15-20% ROI. The above mentioned property I closed on yesterday got me a little less than 80% ROI (ie: I almost doubled my money). I typically average somewhere in the 45-55% range and have never got a return less than 23%.

WARNING: These results are only possible if you are patient and do the proper research to find the right deals. I will typically research 1000 properties only to find a handful that I would consider worth my while and worth the risk. If it's marginal, let it pass.. there will be many more to come along.

PS: The ability to sell a property depends entirely on what you are asking for it and what the market will accept. Don't be greedy. Getting a little less than you want will result in faster sales and quicker turnover. Fair market value is the price at which an average property in the area will sell for within 90 days. If it takes longer, you are probably asking too much.

Cheers,
Brad

86% of all stats are made up on the spot...


I'm genuinely glad that you are successfully at flipping property, but these folks , on outward appearances, look to be brand spankin' new at it. We both know the paperwork is the easy part (Brokers have RE Attorneys on retainers). The real benefit to having a RE License, IMHO, is that it gives you exposure and networking/marketing. Our neighbors (and good friends) have those connections for us- they manage property for a living.

Help 'em out, Brad, and share with them your experiences. You know, what to look out for so she doesn't loose her retirement. Help her be successful.