Posted by Nancy PA–CA on September 25, 2003 at 20:39:47:
Just a question on capital gain tax. If it’s an owner occupide property, hold for more than 1 year and less than 2 years, is the capital gain tax 15%?
thanks
Nancy
question for hard-core rehabbers - Posted by rm
Posted by rm on September 23, 2003 at 19:45:07:
Are you buying all of your properties at 65% of ARV or less… or do you have to “fudge it” a little to stay active?
And, if/when you did fudge it, did you get burned, or did you come out okay?
Re: question for hard-core rehabbers - Posted by jasonrei
Posted by jasonrei on September 28, 2003 at 03:20:59:
I’ll do a quick rundown of a few of my deals:
Purchase price / Retail value =
73%,40%,59%,74%,60%,47%,56%,56%,57%,48%,32%,54%,27%,47%,20%,45%,50%,44%,etc.
I’m pretty surprised at how many are under 50%. I would’ve thought a lot more were over 65%. The 73 and 74 were still good deals. One sold quick, and the other is now my home. I don’t shoot for a percentage figure, I shoot for a $10k+ profit or better. If I’m ever tempted to fudge on anything it’s my budgeted holding time. Sometimes I think “well, this one should sell in 3-4 months so I can subtract $XYZ”. I think I’d change marketing before I’d change my formulas. Hope so anyway.
Re: question for hard-core rehabbers - Posted by michaela-ATL
Posted by michaela-ATL on September 24, 2003 at 06:47:22:
I normally look for 80-100k profit. For example: buy at 70k, put 50-60k into it. ARV of 250k. I do major rehab, because I enjoy the designing and buying things for the project etc. Due to those numbers I usually have enough margin to cover any budget overruns or bad surprises.
Michaela
Re: question for hard-core rehabbers - Posted by Del-Ohio
Posted by Del-Ohio on September 23, 2003 at 23:06:59:
Hello,
I personally dont pay much attention to % of arv. I just try and make sure I have 20,000 for a significant to major rehab project. Most of our properties cost 20,000 - 60,000.
if it requires minimal work such as only new floor covering and paint I will cut the margin closer. Maybe 15,000.
Recently did a modular, painted the deck, did some mulch, planted some flowers, profit 14,000. That one I was expecting 10,000.
I have come out OK on all projects so far, even the one where the termites had consumed half the kitchen and bathroom floors.
My Viewpoints.
Del-Ohio
Re: question for hard-core rehabbers - Posted by rm
Posted by rm on September 24, 2003 at 07:30:31:
Wow.
While I’ve only been looking for a short time, I’ve only hit one “home run,” a house that should yield 30-35k once I’m done.
Guess I need to raise my standards, think bigger.
BTW, are you using HML’s or strictly partners?
Re: question for hard-core rehabbers - Posted by Kgreen
Posted by Kgreen on September 24, 2003 at 08:26:49:
Del
Are the majority of the houses you are rehabbing in lower income areas? And if so do you notice any longer holding periods associated with these properties? Meaning longer times to find buyers.
Re: question for hard-core rehabbers - Posted by michaela-ATL
Posted by michaela-ATL on September 24, 2003 at 08:19:49:
There’s nothing wrong with what you’re doing. What I do is not for everyone. I specialize in victorians, where ‘character’ is the major selling point. Also,
the kind of major rehab I do is not for everyone. All of the homes I do have had termites in them at some point. There’re a lot of unknowns and you have to be able to deal with them.
For a lot of people the hassle of dealing with those unknowns are worse then the hassle of doing 3 smaller rehabs. Also, if you rehab those victorians the way you owuld a suburbian vanilla type house, you wouldn’t get the kind of profits, that I see.
As to partners. I’ve recently done the first and last deal with a partner. Have worked 2 years on talking the seller into selling to me, 120k potential profit. And my partner screwed me over by not paying subs, which made it impossible for me to keep going. Since so many people here told me, that I shouldn’t give up so easily (i was just going to sign over in order for my HVAC guy to get paid) I talked it over with my HVAC guy and I filed a lawsuit against my former partner. If he forecloses on me I can petition the remainder of the 70k escrow account and then file a lis pendens. It may take a few years and he may want to settle in the meantime. I’ll see how that goes.
I would rather deal with HML, because it’s so much cheaper than a partner.
Michaela
Re: question for hard-core rehabbers - Posted by Del-Ohio
Posted by Del-Ohio on September 24, 2003 at 10:10:49:
We buy properties mostly in small towns, 1,000 to 30,000 people.
We ruled out two towns that are “lower” income. We also wont go into the lowest ends of the other towns.
We will only buy in decent areas where there is pride of ownership in the neighborhood. The lawns are maintained no trash in the yards that type of thing. We look for the worst properties in decent neighborhoods.
So far all our properties have sold within 60 days, except a trailer took 90.
Del-Ohio
Re: question for hard-core rehabbers - Posted by kgreen
Posted by kgreen on September 24, 2003 at 12:08:31:
We have had a similar stratagy. We stay within three towns that we know well. Since we own an appraisal business and work in these same areas and have a good working knowledge of the market. We also watch the days on the market of sales in the areas and try to stay in the same neighborhoods. We have also started putting in added features in the homes and and reduce the listing price by a few percent to attract interest. This has work very well so far. As long as we buy the home at the right price our profit does not suffer either. It is nice to know that you are not way out in left field with your statagies.
Re: question for hard-core rehabbers - Posted by Charles
Posted by Charles on September 24, 2003 at 11:43:10:
Question for Micheala and Del:
Do you two use money from your own pockets to rehab the homes or somehow get it financed in the mortgage? For example, if you bought a home for 100k, the home needs 10-15k worth of work done, you take out the loan for a $130k loan to cover the costs. Is that feasible? The extra $30k on the loan can be pulled out for repairs some way correct? I’m very interested in trying to figure out the easiest way of purchasing my first property and resale it for what it’ll be worth after rehab. Thanks.
Re: question for hard-core rehabbers - Posted by Del-Ohio
Posted by Del-Ohio on September 24, 2003 at 13:53:23:
Curious what added features you have found to be desirable and offer a good ROI?
As far as being out in left field, I much prefer to be there if everyone else is in right field.
Many of “cities” around here with 50,000 to 200,000 people have a lot of stiff competition.
We bought our first property in a small town (1 traffic light, two bars, no grocery store, one gas station).
During the next six month, in this town, we purchased a church, a empty lot for a modular, a single family home one mile out of town and we just signed on another house two blocks from the multi.
Similar “luck” in 1 traffic light town 10 miles down the road.
I have grown to love these small towns.
Del-Ohio
Re: question for hard-core rehabbers - Posted by Del-Ohio
Posted by Del-Ohio on September 24, 2003 at 13:32:44:
You have the basic idea. Our bank will finance our properties at 80% of purchase price or appraised value, which ever is less. He then adds into the mortgage 100% of the estimated renovation costs.
We go one step further to do all our deals low/no money down. We have the bank use equity in a different property for the downpayment, effectively using little or none of our own money.
When we started this in Jan, we bought, rehabbed and kept some properties, increasing their value and creating equity. This is what allowed for the no/low money down scenario described.
With the profitable multi-unit keepers, good cash flow, profitable rehabs, our banker just approved a line of credit for us to be able to buy houses, rehab them and sell without having to finance every property individually.
This cuts down costs and speeds up the process.
For your first property you have a couple options depending on your cash/credit/equity situation.
The easiest method is to purchase a property with a conventional mortgage, and use a home eguity line of credit to do the rehab and then sell the property.
Or you can ask the bank to use equity in your home as the downpayment, thus you have no interest or principal payment on your downpayment. You still need a HELOC for the renovation costs.
Do a few of these and keep investing the profits in more projects, keep your day job until you are making more money with rehabs, then switch and REALLY make some money. Or just keep doing a few rehabs a year for a nice extra income.
Wishing you the best in your endeavors.
Del-Ohio
Del-Ohio
Re: question for hard-core rehabbers - Posted by kgreen
Posted by kgreen on September 24, 2003 at 12:27:06:
We have a private mortgage lender that we work with. He will allow us to borrow 80% of the ARV of the home. Once we have estimated repairs, holdings etc. we can structure an offer that will allow us to cash money out at closing for repairs.
Example:
ARV 100,000
repairs and holdings 10,000
profit 20,000
offer=80k (80% of ARV) - 10k repairs - other esxpenses.
We do this whenever possible. We have done a few simple rehabs that were just carpet and paint that we had to come up with our own repair money. In the begining we just used a credit card for repairs. By doing this though you have to discipline yourself to pay the card off once you sell the house. If you don’t you can get into big trouble. And loose the access to those funds. You can also use Home depot or Lowes credit. They both have descent rates on there comercial accounts.
Keep in mind that not all lenders will follow the same rules as the one I am working with so your rules may be a little different.
Re: question for hard-core rehabbers - Posted by Charles
Posted by Charles on September 24, 2003 at 11:56:13:
Another thing…when reselling these homes, you are subject to capital gains taxes correct?
Re: question for hard-core rehabbers - Posted by Darrin
Posted by Darrin on September 24, 2003 at 13:58:03:
Del,
Is it hard to get good comps in areas this small?
Re: question for hard-core rehabbers - Posted by Brent_IL
Posted by Brent_IL on September 24, 2003 at 23:15:19:
Just so we’re clear when others read this, under a year is a short-term capital gain taxed at ordinary income rates, not 15%.
Re: question for hard-core rehabbers - Posted by Del-Ohio
Posted by Del-Ohio on September 24, 2003 at 13:38:12:
Yes and if you sell more than four or five you become subject to something called dealer status. Now you have to pay, not 15% capital gains tax but regular income tax on the profits.
Talk to a competent realpestate tax advisor to minimize your tax consequences if you are going to do a quite a few rehab/sell.
Del-Ohio