Question about flipping - Posted by Frank - Ohio

Posted by Frank- Ohio on March 08, 2002 at 08:13:31:

Thanks Jason, This is great advise. I looked at 2 potential homes yesterday, so now I will work up the figures. Thanks.

Question about flipping - Posted by Frank - Ohio

Posted by Frank - Ohio on March 07, 2002 at 08:52:17:

Ok, So far I’ve been through Carleton’s program, read many Rich Dad books, been to my local REIA meeting, Talked with many local investors about flipping and investing in RE, and even have several investors lined up for flipping potential properties.

I’m going to look at my 1st 2 properties tonight, but I have a couple questions.

First, I’m looking for a few other escape clauses for the contract. I figure one I could use would be “subject to partners approval”, but what are some others??

Second, Is it ok to tell the listing realtor that you have many potential partners if you have to keep taking potential investors through to flip the property to?

Third, Say you make 5k on a flip, What happens to the 5k? Is it taxible? If so, who sends you a tax form showing you received this money, the title company? Do you just have to hold expected taxes back until after you file?

Forth (and final), How much is too much or too little to command for flipping a contract to another investor? Example, find house needing 15k in repairs, purchase for 40k repaired value 70-75k.

Your help is appreciated. Thanks in advance.

Re: Question about flipping - Posted by JX

Posted by JX on March 07, 2002 at 23:28:01:

Hi Frank,

For starters, I usually don’t use escape clauses when I flip, but if you feel that something could go wrong, then by all means. Escape clauses are a touchy subject and I really don’t want to say anything else about it. Sometimes having an escape clause could even kill your deal. So be wary and consult it with your RE attorney.
Your next question. It depends on the listing agent really. Some agents prefer not to deal with investors. Others don’t mind as long as you procure them their commission check. Just let it be known, you’re a source of income and not a broke deadbeat. Fake it till you make it.
Third, you will be taxed for the 5k. I would recommend discussing this subject with your tax accountant as they would have more info on this. I would also recommend you document all expenses, income, and transactions and have a bookkeeper keep track of your financial actions.
Fourth, it all depends on the deal. I use Ron LeGrand’s system for formulating a flip. I get the After Repair Value and multiply it by 70%. Deduct repairs and it leaves me with the Maximum Allowable Offer. Now this number is what I would resell the house to an investor. Your profit is made by deducting how much you want to make from MAO. Say 5k. So deduct 5k from MAO and that is what you would offer to buy for cash from the seller. Now you have to understand. You will be flipping a house to an investor. Don’t be greedy! They have to also be able to make money off this property too. Now let’s do an example of the figure you gave:

$75,000 After Repair Value
x .70

  • $15,000 Repairs
    = $37,500 What you would sell to an investor
  • $5,000 Your profit
    = $32,500 The highest you’d offer to buy the house.

Never buy at MAO. It’d be like you working for free. But that is just a simple formula that I use and it has helped me greatly when I flip a property. Remember, don’t be greedy when you flip and always seek professional help. Free advice may be good, but it is also the most expensive. Cheers!


Re: Question about flipping - Posted by JoeS

Posted by JoeS on March 07, 2002 at 11:04:00:

First; The only escape clause I ever use is “this contract subjesct to attorney review within 5 business days from the signing of this contract by all parties invloved”. I think “weasal” clauses are for weasals!
Second; I never tell them I have partners. In my purchase contract it states that “buyer shall be able to show property with a 24 hr notice to prospective tenants”.
Third; Yes, unfortunately it is taxable. Get a GOOD accountant and keep tract of EVERY expense.
Fourth; If I contracted a house for 40K, and it needed 15K in repairs, I would wholesale it for 60K. By the way, I probably would not contract a house for 40K if it needed 15K in repairs and it was worth 70K afterward. More than likely the most I would pay is around 30K. Hope this helps.