The RIGHT things WRONG in maryland? - Posted by joePD

Posted by Heather -Tx on August 11, 2003 at 12:04:50:

I am still new, only a couple deals done… so take this with a grain of salt :slight_smile: But I will answer your last question… since I asked the same one awhile back and give you the answer that was given to me.

In a neighborhood that is primarily 3/2’s I wouldn’t touch a 1/1. It will be VERY hard to move more than likely. The exception IMHO the ONLY way it may work is if the area is mostly rentals, then you MIGHT be able to move it. (Might being the imperative word here)
My first deal was a 3/1 in a neighborhoood that even had a lot of 2/1’s but took us 6 months or so to sell it. The number one reason most buyers gave us for lack of interest, was they wanted 2 bathrooms.

So being this drastic a difference between room AND bathrooms… I would steer clear.

Hope this Helps,

The RIGHT things WRONG in maryland? - Posted by joePD

Posted by joePD on August 11, 2003 at 11:46:35:

  1. AGE of property:

I hear that ideally rehab properties should be 20~30 years old in decent neighborhoods, but would a 1946 built fixer in P G County Maryland be on the bit-too-old side?

  1. Tax issue:

Do you just rent it out for 2 years and sell later or just pay the capital gains TAX even if it means only getting half of the gross profit?


What kind of cash flow do you expect to get after rehab and renting out? $300 plus, or do you expect more?

  1. Compare Apples to Apples,
    but what if you can’t find similar apples?

If you saw a small 1bed 1bath sfh listed for $65k, in a neighborhood of 3bed 2bath sfh’s that are selling for $120k ~ $140k… and if there are NO other 1bed 1bath homes anywhere near the area…
how would you calculate the maximum retail value for this home?

some responses - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on August 11, 2003 at 13:56:53:

Joe PD

1–this is a matter to check with LOCAL knowledgeable people. Talk to real estate investors and licensees in your area. Here within Oakland, is a separate city, Piedmont, which was largely built out between 1910 and 1930. So many of the houses are of that era. This is a premium location because of good schools and reputation. So older houses here? No Problem. It depends upon the reaction to the location.

2–I think you are confused here. If you are referring to reselling immediately, there is no capital gains tax, the whole profit is ordinary income.

Why would you ever plan to buy and resell in two years time? What is the sense in that approach? If you are going to be a successful investor, I suggest you either hold until you die or you do quick turn-over real estate merchandising, buying below market and selling as soon as possible for a profit.

If, for some reason, you need to move your investment out of a specific property, then you can do a 1031 tax-deferred/tax-free exchange into some other property, which you will hold forever.

3–This is a personal decision and probably depends upon the market where you are. Also, it depends upon the leverage–the amount of loan against the property.

I advise looking at the real estate portfolio as a whole also. Suppose you have a high cash flow in a property. You may have a very high equity level in the property. It might pay to put a new loan against the property, pull out investment money to buy other properties and get positive cash flow from them. They might make up for the reduced cash flow from the original investment property. Also, there might be more property appreciating and more more tax write-offs. So, just the dollars per month from a single property is not necessarily the number you want to be considering. Consider all three of the financial benefits of owning real estate: C A T.

4–It depends upon your purpose to do the calculation. Are you considering buying or are you considering selling? Any sellers and any buyers are going to have the same trouble valuing the property as you are. So you set down a value that you think is right–one that is of most benefit to you if that is used as the selling price–and go from there. Negotiation is the name of the game.

There is the possibllity of considering the rental income or portential rental income also. Use the income method of determining value. While not generally recommended for single family houses, it may provide a useful number.

You can use properties at a distance for your comps, they don’t need to be close by. You might use a ratio: value of 1/1 compared to 3/2 in different neighborhoods, then apply that to the value of the 3/2 in the subject neighborhood to value the 1/1 there. Remember, the other party has trouble figuring value also. He who fights the fiercest for his value wins.

Good InvestingRon Starr*

Re: The RIGHT things WRONG in maryland? - Posted by Brent_IL

Posted by Brent_IL on August 11, 2003 at 12:16:07:

1 - Don’t know.

2 - Capital gains is 15%, so I don’t understand the half of gross profit. An accurate answer to your question depends upon what you’re going to do with the proceeds. There was an epic debate between Jim Piper and Ed Garcia about the pros-and-cons of turnover v. exchanging that might be insightful. I don’t know the URL, but it will turn up in an archive search.

3 - Depends on rental rates and acquisition and rehab costs.

4 - If it’s a rehab, can you add a room and bath economically?