Real estate guys, start flipping ,or continue to do rentals?

[fastfredracing]

I am at a point in my side biz, where I am ready to get a little more brave. Being a landlord can be a total pia nightmare, but we've been at it for a while, and I am kind of getting used to it. If nothing else, it has made me really good at looking at a beat up old place, and having a pretty good grasp on how much work , and how much coin it will take to make it shine again. I don't really watch the housing market as much as I should, but I am going to start. My partner, however is pretty shrewd with this end of the biz, I just have to hold his hand through the rebab part .
We basically have the money, a decent pool of Labor , and the infastructure and tools are already there.
Still, makes me nervous, I know of a few smart real estate guys , who have lost their shirts flipping. They were all check writers though. I plan on putting them back together with my own two hands, and sort of enjoy scrounging for deals on building supplies, and saving money where I can .
I figure , it is more or less like flipping cars on a bigger scale, but with more risk, comes more reward. Once we sell it, no tenants to deal with, clogged pipes, calls at 10 pm on Friday nights, no more evictions ....
I think I'm ready, any advice ? Any of you do any good at it?

[look 171]

I've said this before, we are in a very different market out here compare to PA. Its part time for me too, but working on doing more then two a year. Our problem is finding and getting them. You make your money on the buy. I buy them after a 10 min. visit and note all the sags on the floor and make an educated guest if its the foundation or just sagging lumber. I have a little advantage over most people because I rip apart other people's homes for a living. Our first flip was done exactly like you said, find good deals and buy used items to reduce the cost on the build. When I did my second one, I bought everything brand new. Call my vendors and that was it. No Craig's list, driving around making deals. At the end of the day, its all tax write offs. IMO, we save more overall by buying new because my time was better spend working on other projects or spending it with my family. From our experience, buyers like a clean, new, kitchen and bath with new appliances. There's nothing like walking into a house with a new kitchen and see small grease spots someone missed when cleaning.

[look 171]

This was one of our flips.



Pic of before, during (notice my workman) and after.

[porsche4life]

Well child labor certainly makes it cheaper!


I would say flips would take care of tenant issues. Hard to say which you will make more doing, there are guys making good money at both. Maybe try a few flips before you get rid of the rentals?

[Cajundaddy]

Like any investment, I think it really depends on your personality. Some guys love the thrill of the flip but I am more of a long term guy. High occupancy rate and good payers brings me peace of mind.

[sc_rufctr]

Wait for the market to peak and then sell. Invest any profit and sit for a while... Never be in a hurry to do anything in Real Estate. Never let an agent push you into selling or buying.

For me it's a process. Think about selling and then mull it over. If you don't "feel" the buy or sell then don't. Listen to your instincts. And most of all take your time. And again don't let anyone push you (including partners)
(leaving the money in the bank and getting basic interest feels good)


Meanwhile consider having your properties "managed" by a Real Estate firm. For the small percentage they charge it really is worth it IMO.

I tend to follow the trends. That is sell when it's a "sellers" market and buy when it's a "buyers" market.

Although I have no idea about the US market.

[look 171]

Originally Posted by Cajundaddy

Like any investment, I think it really depends on your personality. Some guys love the thrill of the flip but I am more of a long term guy. High occupancy rate and good payers brings me peace of mind.

I agree with you. Nothing like having someone buy you a house at the end. All you ever paid was down payment. Don't forget the benefit of deprecation. That can be huge.

In terms of money, I think they are both equal. Sell a flip, make some money. Turn around and do it again and make more. With a rental, all you are in for is the down payment, so the cashing in will be at the end. One trick I really like to time it for the 1031 exchange, but the way the market is out here, that makes it impossible.

[look 171]

Originally Posted by porsche4life

Well child labor certainly makes it cheaper!


I would say flips would take care of tenant issues. Hard to say which you will make more doing, there are guys making good money at both. Maybe try a few flips before you get rid of the rentals?

Damn, I am busted. He's a great worker, doesn't complain about long hours. A little milk goes a long way.

[aigel]

The good thing is that you already are a landlord. So if the flip isn't panning out money wise, you can always rent it. So, the key will be that you don't borrow 100% but own a good chunk of it where you can rent it for a profit.

Your area's real estate is probably very different from ours. Here in CA it is useless to buy single family homes to rent out. A $650k home will rent out for about $2.5k, maybe $3k / month. Makes not a lot of sense. I lived in the South and there we are talking about people getting twice that in relationship to the purchase price. I.e. I rented a $100k home for $1k /month. Or worse, a $25k home for $400 / month! (Don't ask! Haha!)

G

[speeder]

When everyone is selling, buy. When everyone is buying, sell.

That's my investment advice. No wait, that's Warren Buffett's. And every other billionaire who is smarter than you and me.

[sc_rufctr]

Originally Posted by speeder

When everyone is selling, buy. When everyone is buying, sell.

That's my investment advice. No wait, that's Warren Buffett's. And every other billionaire who is smarter than you and me.

This needs quoting...

Originally Posted by sc_rufctr

Wait for the market to peak and then sell. Invest any profit and sit for a while... Never be in a hurry to do anything in Real Estate. Never let an agent push you into selling or buying.

For me it's a process. Think about selling and then mull it over. If you don't "feel" the buy or sell then don't. Listen to your instincts. And most of all take your time. And again don't let anyone push you (including partners)
(leaving the money in the bank and getting basic interest feels good)


Meanwhile consider having your properties "managed" by a Real Estate firm. For the small percentage they charge it really is worth it IMO.

I tend to follow the trends. That is sell when it's a "sellers" market and buy when it's a "buyers" market.

Although I have no idea about the US market.

And again... Never let yourself be pushed. EDIT: I learnt this the hard way.

[KFC911]

Originally Posted by Cajundaddy

Like any investment, I think it really depends on your personality. Some guys love the thrill of the flip but I am more of a long term guy. High occupancy rate and good payers brings me peace of mind.

^^^^ THIS is where I'm at. Didn't want to get into the LL biz over ten years ago, but my SFH rentals were purchased with cash, paid off, and cluck out "golden eggs" every month. If I had wanted a bigger "golden egg", I would have never voluntarily walked away from a lucrative corporate gig 7 years ago. Depends upon your personality type and what stage of life you're at imo (mid-50s here). I want "passive" investments now....YMMV. Lots of ways to "skin a dawg" that can all work...good luck Fred!!!

[Scuba Steve]

What about taxes though? If a rental appreciated by for example, $200K while you owned it and then you sell wouldn't the $200K count towards your income?

[911SauCy]

Originally Posted by Cajundaddy

Like any investment, I think it really depends on your personality. Some guys love the thrill of the flip but I am more of a long term guy. High occupancy rate and good payers brings me peace of mind.

HA! My dad bought a trashed 2-family, made it all up nice and rented it. He could have turned a 100k profit within 9 months...he decided to jump in for the long haul. Combined, 1 rent covers mortgage, other one is monthly income...

I'd have flipped it, walked away with a full pocket, and started the next one.

Different strokes.

[bpu699]

I have been doing rentals and rehabs as a sideline for 15 years... Residential to commercial. Some words of wisdom:

1) Make sure it cashflows well. Period.
2) Assume 10% vacancy or repairs off the top for rentals
3) Credit screen every tenant. We go through 20 to get 1 good one
4) If the tenants doesn't stay at least 4-5 years, you will lose money. Moving out every year is very expensive, and bad for your bottom line
5) Being a landlord s*cks bigtime. If you can accept that, you will succeed.
6) A management company will never get the same returns you will, not even close
7) At some point you and your lawyer/accountant/plumber/handyman/electrician/and roofer, will be on a first name basis and you will have all of their personal cell phone numbers and emails.
You will know the names of their kids, and all of their dreams and aspirations.
8) After awhile, you will realize that the judicial system isn't your freind
9) You will also learn, that going to court is a waste of time, as tenants never pay the judgement
10) You will also learn that most tenants like to communicate bad news somewhere around 9-11pm.
11) NEVER buy comercial building in my opinion. They are either cashflowing like crazy or bleeding you dry. The ROI is worse than residential, taxes s*ck, and tenants go out of business 80% of the time before the lease is up. If I had avoided commercial building, my nethwroth would be double. These things can go vacant for years at a time, and then they don't cashflow at the beginning of a lease due to concessions... Perhaps with national tenants this is different.

On the plus side:

1) The buildings pay themselves off pretty fast on 10 year loans (assuming you put the cashflow back in)
2) The tax writeoffs are awesome, and a nice perk
3) Eventually they are paid off, and you have the money stream for the rest of your life

In terms of rehabs:

1) Great way to make huge money if you know what you are doing
2) If you pay retail for labor, you will lose
3) Its all about cosmetics. No one wants to pay anything for the new roof, electrical, plumbing, etc. People are VERY superficial in what they look for
4) Buy cheap
5) Buy 3 bedrooms, 1.5 baths. Anything smaller takes forever to sell. People want SIZE.
6) The tax man wants 1/2 your profit if you do this often enough

Honestly, if I had to do it all over I would just put all my money in the stock market. And realestate has been very good to me. Its just key to understand that its a lot of work. If you have a high paying primary career, you may be better off just working more hours from a sanity point of view.

Good luck.

Bo

[KFC911]

Originally Posted by Scuba Steve

What about taxes though? If a rental appreciated by for example, $200K while you owned it and then you sell wouldn't the $200K count towards your income?

My best friends' mom has easily made a few million "tax free" due to LEGAL ways around this (living in them for a couple of years prior to sale, etc.) in FL, CA, and AZ over the years. It's still "hard work", and I wouldn't take 5 million for the stress she went through when the bottom fell out (as it SURELY will again imo). Yep...different strokes

[bpu699]

Originally Posted by sc_rufctr

Wait for the market to peak and then sell. Invest any profit and sit for a while... Never be in a hurry to do anything in Real Estate. Never let an agent push you into selling or buying.

For me it's a process. Think about selling and then mull it over. If you don't "feel" the buy or sell then don't. Listen to your instincts. And most of all take your time. And again don't let anyone push you (including partners)
(leaving the money in the bank and getting basic interest feels good)


Meanwhile consider having your properties "managed" by a Real Estate firm. For the small percentage they charge it really is worth it IMO.

I tend to follow the trends. That is sell when it's a "sellers" market and buy when it's a "buyers" market.

Although I have no idea about the US market.

I wish I had good luck with mangement firms... but just haven't...

When I list a property for rent, I usually get 10-20 calls per week. Tenants want to see it NOW. Managament company tells folks they will show it next week, from 9-10am. That elimnates 90% of the prospects. Vacancy rates are much higher...

Everytime something is "broken," the management company just calls the plumber/electrician/etc. Thats a nice BIG bill.

If a tenant is late, I call and find out why. Management comany send a letter. 30 days later I find out they haven't paid.

For this, I get the priveledge of paying 5-10% of the gross...

[bpu699]

Originally Posted by KC911

My best friends' mom has easily made a few million "tax free" due to LEGAL ways around this (living in them for a couple of years prior to sale, etc.) in FL, CA, and AZ over the years. It's still "hard work", and I wouldn't take 5 million for the stress she went through when the bottom fell out (as it SURELY will again imo). Yep...different strokes

If you live in it for 2 years you can cash out the first 500k tax free on a primary residence.

If you sell a property sooner, it counts as regular income.

You can do starker exchanges, but its a pain.

[911_Dude]

Im in the market for another flip right now. It will be my third. Ive made really good money on the last two. My MO is to buy in desirable neighborhoods, upper mid class, in the "old" part of my town. 80-100 year old homes are back in style here. I look for what I call Grandma homes. It is a home is a prime 'hood that has great comps around it, has been generally maintained, but not updated since 1960's. I do the floors, kitchen and baths, and I hire out the rest. I dont see how guys make money when they pay for it all to be done by someone else. Ive got half way decent plumbing and electrical skills for all the dozens of little things that pop up.

The first two I did with FSBO. I ended up renting them both after sitting too long (bad timing. I kept finishing in the winter) and 18 months later selling to the renters. This saved me the short term cap gains. The next one Im going to price in the real estate agent and hopefully get a quicker sale. Sell or rent short term works for me. I try to get a 15 year loan and the renters pay for my construction loan interest while it was being renovated with their rent. I usually dont make much on the month to month income, but they are paying down huge amounts of principal with their rent checks.

Now if I could just stop buying toys with the profits, I hope to self finance in one or two more houses.

[KFC911]

Originally Posted by bpu699

.....Honestly, if I had to do it all over I would just put all my money in the stock market. And realestate has been very good to me. Its just key to understand that its a lot of work. If you have a high paying primary career, you may be better off just working more hours from a sanity point of view.
....

Great post Bo...just highlighted the last part though as that's where I'm at too...