Keep a property or flip it? need help - Posted by ChicagoMikeW

Real Estate Investing
#21

Re: Keep a property or flip it? need help - Posted by Jeff

Posted by Jeff on July 18, 2007 at 10:49:45:

I agree with Brian and Penny (way to go guys)… I sure wouldn’t want to pay $18,750 in taxes, then another $12,000 for agent fees and closing costs. That brings your net to approx. $49.250 (if you sold for the full $180k).

You could take out an equity line for $35,000 and pay $300- $400 per month. Your rental would cover the debt service on your new loan and your off to the races on your next great deal.

What state are you in sounds like you got a great deal on that property. Keep up the good work

#22

Re: You guys have never been in a flat market - Posted by Brian_wa

Posted by Brian_wa on July 19, 2007 at 17:55:47:

So how many houses do you fix, flip, and sell each year? How about this year?

If you were investing in the 80s, I assume that you’re pretty old by now. Perhaps you didn’t approach the buy-and-hold strategy the correct way pop. And who said all buy-and-hold investors rely solely on appreciation? I don’t buy a house unless I could make money off that particular house the very next day.

You need to learn more about leveraging pop. “keeping your money working for you, rather than let it sit dead in a buy and hold”? Are you kidding me? Perhaps you haven’t heard of terms like HELOCS and refi.

I know you have certain ways of doing business. But guess what, there are other ways that are better than yours. That’s why there are lots and lots of people who are more successful than you and have done it in a much shorter time frame that you. You may think that you know a lot, but based on what I’m hearing so far from you, there are definitely some rooms left in that brain that still needs to be filled with more information.

Brian

#23

Re: Oh yeah… - Posted by Mike (Seattle Wa)

Posted by Mike (Seattle Wa) on July 18, 2007 at 23:44:22:

No offense Brian, but in the last couple years up here, you could have bought homes retail up here and not lost money :wink:

#24

Re: Keep a property or flip it? need help - Posted by Natalie-VA

Posted by Natalie-VA on July 19, 2007 at 14:19:23:

Brian,

I’m glad you’re on a roll, but make sure you’re not counting on appreciation. It should just be a bonus.

The market can change quicker than you think. I always thought that it would be gradual, but when ours changed in late August 2005, it was instant. We went from having 2 showings an hour to having 2 showings a week if you were lucky. Now it’s down to less than 1 showing per week, but that initial slowdown in August of 2005 shocked me. Luckily I wasn’t holding a lot and the ones I had were still good deals.

–Natalie

#25

Re: Keep a property or flip it? need help - Posted by Gene

Posted by Gene on July 19, 2007 at 10:12:30:

>>>>>>>>>>>>> 3. He still have to borrow from hard money lenders on his deals now >>>>>>>>>

This makes it sound like he spent the profits instead of rolling them into the next investment.

#26

Re: Keep a property or flip it? need help - Posted by Gene

Posted by Gene on July 19, 2007 at 10:12:05:

>>>>>>>>

This makes it sound like he spent the profits instead of rolling them into the next investment.

#27

Re: Keep a property or flip it? need help - Posted by Kristine-CA

Posted by Kristine-CA on July 18, 2007 at 19:33:54:

20K isn’t an appreciation rate. In Santa Barbara, 20K appreciation would
mean 1% per year. What was the appreciation rate for the last 3
years…as in the % increase in value per year. Kristine

#28

Re: You guys have never been in a flat market - Posted by Dave T

Posted by Dave T on July 23, 2007 at 23:41:34:

Brian,

I did not get the same take on Gerald’s post.

Gerald said that his market is flat – no appreciation. In that market, an 80% financed property with a breakeven cash flow is not making any money. That investor’s rate of return on his investment is zero – zero cash flow, zero appreciation. Adding additional financing with a HELOC can get Gerald to 100% financing, but this makes his cash flow negative with no appreciation to compensate.

Seems to me that Gerald’s admonition about “keeping your money working for you, rather than let it sit dead in a buy and hold” is spot on for his flat market.

#29

Real mature, Brian - Posted by stan

Posted by stan on July 19, 2007 at 20:12:14:

You are all class.

FYI Gerald is one of the most successful and knowledgeable investors who post on this board.

There are phoney blowhards who are wannabees, and spout off, when they are nothing but immature pretenders.

When I look at your history of childish posts – you just revealed yourself, dude.

#30

Re: Oh yeah… - Posted by Brian_wa

Posted by Brian_wa on July 19, 2007 at 10:03:37:

Hehehe,

Have you gotten calls from so called investors whose houses are in foreclosure? I’m short saling a couple of their houses right now. I guess these guys are just unlucky.

Brian

#31

Re: Keep a property or flip it? need help - Posted by Brian_wa

Posted by Brian_wa on July 19, 2007 at 10:25:53:

In general, when you have free, clear cash available, you do tend to spend more than if the cash is borrowed with interest. Furthermore, when he flipped the properties, he had to sell them at low prices.

For instance, he picked up a house for 230k. If he spent about 30k or so that house would have been worth 350k. However, he decided to wholesale it for 270k and netted about 30k in the process. Well, out of that 30k, he had to pay about 10k in taxes. This left him with about 20k to 22k.

As for me, I bought a similar house at the same price. I spent 30k to fix it up and then quickly refinanced at 300k. I got out 40k and still in the house at 300k while it’s worth 350k. I then rented the house out at a low rental rate so that I could pick the best tenant possible. My negative cash flow would be around $300 to $400 a month but that’s only $4800 negative a year.

If the housing market appreciates 7% a year, my house would be worth $374k in one year.

If it doesn’t appreciate, I basically got the house for $304,800 due to the negative cashflow. Even if I sell it, I still can make about 20k in addition to the 40k that I already gotten.

If the housing market depreciates a little, well I still can sell it quickly and still be no worse off.

The thing is that the housing market in the Seattle area has been appreciating 15% or so. My friend has missed all that appreciation because he wanted the 30k profit up front.

Brian

#32

Re: Keep a property or flip it? need help - Posted by Brian_wa

Posted by Brian_wa on July 18, 2007 at 19:58:35:

In Seattle? It’s been about 15% the past 3 years. When I said 20k, I was extremely conservative as even a 200k house appreciated 30k last year. So even though some of my houses increased 30k to 40k in value, I used only 20k as appreciation just so I could keep myself honest.

To put this into a better perspective, last year, I was able to find houses around 185k to 215k and that were considered good deals. This year, anything around 240k to 250k in the Seattle area are considered as good deals.

Brian

#33

Re: Real mature, Brian - Posted by Brian_wa

Posted by Brian_wa on July 19, 2007 at 22:02:51:

Dude,

Just because you’re successful, that doesn’t mean you can’t improve upon your methods or ways of doing business. I don’t care how knowledgeable he is, there are millions of things that he doesn’t know.

And unless he became a millionaire investing in real estate within a couple of years, starting out with literally nothing, he should try to at least listen a little. He shouldn’t use his age and perceived knowledge to bully people like saying people who buy-and-hold are brainwashed into doing it.

People like Gerald have a few outdated view on money. They think cash in their banks is real cash. Anything else such as HELOCS and credits aren’t real cash. These people need a good whack in the head once in awhile so that they know it ain’t the old world that they’re used to anymore. There are more innovative, advanced, and efficient ways of doing business now. What they worked so hard years after years for can now be made at a tiny fraction of the time and effort.

For instance, just this morning, I met a guy who used to replaced the carpet for a few of my houses. I asked him whether he’s still doing the carpeting gig. He said no. He had just finished building a house and had already found a buyer. Bought the piece of land with amazing sound view in a nice neighborhood for 600k. Spent a total of 500k to build a nice big house. With all other costs combined, he was into that house for 1.2 mil. The house is under contract to be sold for 2.2 mil. He’s Rusian and speaks broken English and didn’t know much about houses or development until about 8 months ago…

Here I am slaving away for a few hundred Ks a year and this guy, who doesn’t know much, just made close to a mil in 1 house. 1 house! Try telling this guy that fix and flip is way better than what he just did.

Brian

#34

Re: Oh yeah… - Posted by Mike (Seattle Wa)

Posted by Mike (Seattle Wa) on July 19, 2007 at 13:14:32:

Nah, I’ve been concentrating on the MH side of things for the last few months. All my medium term holds have been sold this year to free up some cash to really go for it on the cashflow side.

#35

Isn’t it just what this guy did? - Posted by michaela-CA

Posted by michaela-CA on July 20, 2007 at 09:04:19:

He bought the land and impoved it by building a house, then he sold it.

Looks like e flip to me.

Michaela

#36

Re: Isn’t it just what this guy did? - Posted by Brian_wa

Posted by Brian_wa on July 20, 2007 at 09:21:28:

That’s a build-and-flip instead of a fix-and-flip, which Gerald endorses heavily. I’m not sure about you but building and developing a house is a beast that is entirely different than simply fixing an old house.

It may be true that flipping the newly build house coincides with Gerald’s idea, however, I don’t think anyone in their right mind would hold a brand new 2.2 mil house for rental purposes.

What I endorse is a combination of methods. Depending on the situation, you can choose between holding a flipping. For instance, I would never hold a 2bd/1ba house for rental purposes in the Seattle market since the negative cashflow would be too massive. However, there are cases where the house is big enough that the rental amount you’re getting is very close to offsetting the mortgage payment. Combined with a good neighborhood and the fact that you got the house at an awesome price, it’s ok to hold a few of these properties.

Gerald thinks that all houses should be flipped quickly regardless of the situation. That, to me, is narrowminded and one-dimensional and could never be as profitable as the combination of methods I described above. To be a truly successful businessman, you must be adaptive to the changing environment because there’s never really a one-size-fit-all type of investing the way Gerald claims.

The mind is a very powerful tool. In order to utilize it close to its full potential, you must sharpen it every day with new info and be opened to new ideas-regardless of age, sex, or whatever else.

Brian