flipping houses?

[chiver78]

who was it on the old WIRR board that spent a lot of time flipping houses? I've been kicking the idea around for a little bit, and had a few questions.

[muttleynfelix]

My DH and his brother did it up until DH and I got married. They did it on the long term - fixed the home up over a couple of years while they lived in it. They typically searched for the just the perfect forclosure at just the right price. The last home they did sold 2 years ago and they made $70k on it. That one took a lot longer than their typical fixers because DH and I met and got married. BIL ended up being in the house for 7 years before it was all said and done. OTher than that general information, I don't know whole lot.

[chiver78]

hmm...I'm not planning to live in whatever I'm working on, I'm pretty comfortable where I am (the asshole next door aside...). of course, if I get going with a full head of steam, that may change....

your DH may be able to answer some of my questions though, what I'm kicking around is a partnership with my parents. Dad does construction for a living, and Mom should seriously charge for her painting skills. I'm curious how difficult it is to do that, where say I put up more cash, they pitch in more elbow grease, etc. and we evenly split profits? I know you can draw up contracts for anything and everything under the sun. this should be no different, I would think...?

this idea all came about because I've found myself looking at the real estate listings again recently. I have zero interest in packing up all my stuff right now, and I'm actually becoming quite comfy where I am. shocking, because the almost-5 years I've been in this place has been the longest I've lived anywhere since my parents house before college. I had a stretch of 3 years where I moved 5 times! so, I'm getting those feelings of restlessness, and I start poking around. I'm finding a lot of listings that are far lower than I ever imagined, and many of them look like they are very sturdy construction with 60s and 70s decor all around. I don't think it would take much of a monetary investment to turn some of these houses around. from the pictures I've been seeing, the worst work would be to rip the wood paneling off the walls (of the whole house, in some cases!) and clean it all up.

obviously, this isn't going to happen tomorrow - I'm still in the red - but I'd like to figure out if it's even feasible to bother thinking about it more. it's even worth thinking about maybe hanging onto one or more of these as rentals. like I said, just thinking aloud at this point. input of any kind is totally welcome and appreciated

[Deleted]

It is certainly a great time to buy... but I don't think this is the guaranteed money maker it once was.

[muttleynfelix]

I'm pretty sure my DH and his brother didn't have any contract any time they did a house. Of course both of their names were on the mortgage. They just had a verbal agreement. The last house once DH moved out, BIL agreed to take our portion of the mortgage payments when the home sold. Also, he ended up doing some of the end work on his own. So in exchange, of the $70k profit on the home, we got $20k and he got $50k. I think you need to be very careful if one party is going to be doing more of the work than the other party. You have to be up front about what is expected and the time line, which for my DH and his brother was never really a big deal since they both lived there, but it made things a little tense with DH and I once we got married because we had an interest in a house that wasn't done and my BIL wasn't in a hurry to get rid of.

Anyway, they did this for about 20 years, sometimes together, sometimes BIL by himself. In good housing markets and bad housing markets and always made enough that BIL never really had to work (BIL also has no bills as he drives a 20+ yr old vehicle and has no dependents). I think the key to their success was patience. They never got anxious for another home and they never got in a hurry for the one they had.

ETA: Right now though financing for homes is a lot harder than what it was. Since my BIL doesn't have a job, the next home he does, he is buying with cash. DH's other brother is going to live with him and pay a decent amount in rent and pay for utilities.

[zibazinski]

I did it for years after my divorce and that's how my kids got college, vacations, cars, and a nicer lifestyle than a teacher could afford. Did things make up for the divorce, no, but it made me feel better that they didn't lose EVERYTHING in the divorce that they would have gotten if we had still been married.

[zibazinski]

I wouldn't do it now unless I could "steal" a house because there are not enough buyers for the homes that are on the market. By steal I mean half of it's value. I know how to do a lot of stuff myself, cosmetic stuff. Plumbing and electrical I leave to the experts but I can tile and lay laminate flooring and refinish cabinets and countertops.

[chiver78]

Jan 21, 2011 9:43:33 GMT -5 zibazinski said:

I wouldn't do it now unless I could "steal" a house because there are not enough buyers for the homes that are on the market. By steal I mean half of it's value. I know how to do a lot of stuff myself, cosmetic stuff. Plumbing and electrical I leave to the experts but I can tile and lay laminate flooring and refinish cabinets and countertops.

that's kind of what I'm thinking. I'm seeing sturdy capes and ranches around $110k, which is unheard of around here. and really, it looks like all they need is updating and refreshing the cosmetics. you know, like when you find the deal where an elderly person moves to a home and you walk into the time-warp house? that's what I'm finding in the listings right now, it just looks so tempting! I've got a good friend that's an electrician, and the rest of the stuff my parents and I can do (and have done in my own places)

[mercee]

There's a house a few miles from my current house that I have my eye on...and from the few pictures online & from the outside, it appears as though very little work would need to be done. The house is also under $60k, 3bed/2bath, 2 car detached garage, 1500 sq ft. Assessed at $135.6k - appears to be owned by a mtg company.

I'm toying with buying it & renting it out until DH & I are ready to move out of our current house (5-7 yrs from now). It's in a good location for us to be at until DD5 is done with school. I'm just not sure if we'd get the financing for it or if we could afford the payments (though I do have an inheritance tucked away that could tie us over & part of which would probably be used as down payment).

[phil5185]

what I'm kicking around is a partnership with my parents. Dad does construction for a living, and Mom should seriously charge for her painting skills.
that's what I'm finding in the listings right now, it just looks so tempting! I've got a good friend that's an electrician, and the rest of the stuff my parents and I can do (and have done in my own places)

A friend does this - buys $125k houses. Replaces the carpet, floors, puts in new ss appliances, granite counters, paints in & out, and does the landscape. Plus any repairs - often a foreclosure has missing ceiling fans, garage openers, door knobs, light fixtures, light bulbs - people steal a lot of stuff ion their way out. He typically spends $25k to $30k, then sells for about $200k. Costs about $12k to sell, and about $8k for cap gains tax on the profit. He nets $10,000 to $20,000 on a house.
His subs upgrade them in a few days, he prices them for a fast sale, doesn't want to own one for more than 6 weeks (4 weeks is better). Then he takes that $150k block and repeats - tries to get 8 'turns' per yr from one $150k block of money, ie about $100k net.
And he does this with more than one $150k block of money.

But I would certainly caution you against 'mom & dad' and 'your friend the electrician' - you need arms length formal contracts with strangers to be successful. You family plan is doomed from the start (just my opinion based on many yrs of landlording).

[chiver78]

thanks, phil. that's the sort of thing I had in mind - spending no more than $100k on the house, putting some cash and elbow grease into it, then either selling right away or putting a tenant into it if I can't sell within a couple months. if the house is that cheap to purchase, whatever I'd get in rent in this area would definitely cover a mortgage payment if I needed it to.

as far as Mom & Dad, this is really just kicking the ideas around in my head to see if it's feasible. Dad's just getting back to regular work (in construction) after having been laid off for a long time. he's not the sort to just sit around either, if there is a project going on he'll jump at it. Mom's been getting increasingly annoyed with the changes at her job over the past few years, and has hinted that this is something she wanted to do anyway. I had thought about it a few years ago myself, but then work had me traveling all over hell and creation. not exactly good if you're planning to do the property management yourself. upcoming changes at my job are indicating that my travel will be minimal at most, so I'm taking another look at this now. honestly, if I can finish digging out of my own debt in the next few months, I should be able to float the cash all on my own for this and not have to involve anyone else's $$. that is the ideal anyway.

the electrician friend is a master electrician, who I have paid to do work in my own home and have recommended to many co-workers and other friends. we've already established that we can do the professional relationship thing quite well already.

[zibazinski]

Get mom to get a real estate license so you can keep that money in the family, too.

[chiver78]

Jan 22, 2011 16:07:47 GMT -5 zibazinski said:

Get mom to get a real estate license so you can keep that money in the family, too.

hah, I was thinking of doing that myself, actually.

[zibazinski]

Whatever works but keeping that extra cash adds up plus in a tough market, you can alway show your house first. Don't buy it in your name, set ip a trust.

[debtheaven]

We have several rentals. We never set out to "flip" any of them but for various reasons, we did ended up "flipping" one. We did very well out of it. Now we are selling a second rental, seven years after purchasing it. I wouldn't call seven years later a "flip" but if all goes well we should do very well on that one too. (The fat lady has NOT sung on that one yet. I'm in France and closing takes a minimum of three months here, we're now into month four.)

I'm not handy, DH is relatively handy but he can't install plumbing or electrics or replace a roof. With your family's skill set, I think you can do very well. Although I understand Phil's caution about working with family, sometimes families are close and trustworthy and work very well together. It sounds like that's the case for you. However, I would put everything down on paper so it's clear to everybody. From your posts my only fear would be that both you and your mom want to do the same part of it. Obviously that wouldn't work.

After seven years I still consider myself a "neophyte". My best advice is to buy a sound place at a great price. Personally I think it's a great way to build wealth, but it is definitely not without its potential headaches. On some level you get what you pay for. Since we can't afford higher-end places, we may have spent less money, but we have had to spend more time. This has been my "second job" for seven years now. If you and your family can do most or all of the work yourselves, you're ahead of the game.

There are several recent threads about this on the new Proboards YM. Several posters there besides Phil have rentals, and some (like 2kids10horses) are active "flippers".

Another thought, if you do this successfully, you could eventually decide to keep some homes long-term, as rentals.

Good luck Chiver!

PS Are you thinking of DeepInTheRed?

[dianartemis]

My back hurts now. Don't flip houses, you get hurt!

Bad me. Bad me. Bad, bad, bad me. (In all honesty, I couldn't resist. I took a peek at EE).

[chiver78]

haha, I didn't mean literally flip. silly... sounds like you need some wine to loosen up those muscles. if you've been to EE, you have to have seen some of those threads!! lol...

debtheaven, I think it might have been 2kids10horses. it was someone that responded to one of your threads on the old boards about a recent sale, actually, that vehemently disagreed with me about something. I don't remember what it was exactly, but she definitely knew her stuff as far as flipping went.

thanks for your reply, though. you definitely got where I'm coming from. my parents and I may have issues in other areas, but we can absolutely trust each other as far as money, work ethic and "doing what is right" is concerned. I will heed the multiple suggestions to get it all out up front and on paper before I go and do anything, though. oh, and I want to do all of it. Mom and I both think the same way, but I am totally happy to hand her a paint brush while I go find a skill saw and make noise. the way I presented it to them both was that I wanted to use these houses as "practice cases" so I could fine-tune all the handyman stuff that neither one of them ever let my sis and me learn when we were growing up. I've picked up enough to be dangerous, but I'd like to be self-sufficient enough to not need to call them when I want to make a change. there are some things that I want to do here, but don't want to make my house the guinea pig! if I can make some cash in the deal, that's a bonus.

[dianartemis]

chiver, I'm working on something really boring w/o the benefit of a lot of sleep. I don't need booze at this point. I'm too busy giggling at nonsense.

[KaraBoo]

Jan 21, 2011 9:49:32 GMT -5 chiver78 said:

Jan 21, 2011 9:43:33 GMT -5 zibazinski said:

I wouldn't do it now unless I could "steal" a house because there are not enough buyers for the homes that are on the market. By steal I mean half of it's value. I know how to do a lot of stuff myself, cosmetic stuff. Plumbing and electrical I leave to the experts but I can tile and lay laminate flooring and refinish cabinets and countertops.

that's kind of what I'm thinking. I'm seeing sturdy capes and ranches around $110k, which is unheard of around here. and really, it looks like all they need is updating and refreshing the cosmetics. you know, like when you find the deal where an elderly person moves to a home and you walk into the time-warp house? that's what I'm finding in the listings right now, it just looks so tempting! I've got a good friend that's an electrician, and the rest of the stuff my parents and I can do (and have done in my own places)

I would only add this caution: My brother and I were thinking about doing this exact same thing about 2 years ago. Never did get the idea off the ground for various reasons. Now he's got a GF and they've moved into a house exactly like what you're describing - elderly couple went to retirement home, son sold house for cheap and my brother THOUGHT he was getting a move-in-ready house minus the cosmetic changes.

Brother found out from the neighbors that the couple only did repairs to the house that HAD to be done and never fixed anything until it became a problem. They've (Brother and GF) have now found extensive termite damage that was not easily visible (obvious spots were hidden by strategic placement of furniture during inspection - inspector did mention termite treatment, but no active infestation). One whole bedroom is suppected of needing to be gutted and GF fell through the master bedroom shower wall when she leaned on it during a shower one night (she's okay, but we laughed about the @ss sized hole she talked about leaving).

The house is turning into a bigger problem than either of them suspected when they bought it. If you've never flipped houses before, double or triple your original estimate on costs...just in case and until you become familiar with the process and actual time-lines and expenses.

[chiver78]

hmm...how's this for a wrench? local headlines the past few days have indicated that my company will be sold within the week. this morning's headline is that my mom's company is looking to be acquired as well. she said they were all told this morning, and they have a meeting at 10AM. looks like I'll be putting this one on the back burner for now, at least until we know what the hell is going on with our jobs.

[dianartemis]

<<hugs>>

[donnafreedman]

Somewhat OT: A co-worker of mine used to flip cars! He and his friend the mechanic would go to the "repo depot" and look at cars going up for auction. They'd split the cost of the best one they could find, mechanic man would give it a going-over and my co-worker would detail the vehicle. He was very fastidious and he liked super-cleaning the inside. Then they'd sell the vehicle at a decent price and share the proceeds.
It's a little easier to afford a car that won't sell than a house, of course, and a house is likely to turn up all sorts of interesting surprises when you pull up the carpet or take down a wall.

[MittenKitten]

Look at everything when you are looking at homes. Especially location. Make sure it is somewhere people want to live. The best bet is to get the crappiest home in the best area you can afford.

Get it inspected and yes double or triple what you THINK it will cost to fix and the time to repair.

I actually acquired most of my wealth (such as it is) by this exact thing. I both bought, fixed up and lived in them and bought rented then sold. I currently am renting one home and honestly while it hasn't been a bad investment it has been an albatross. It faces a freeway which is going to make it next to impossible to sell. It is also in the city in a neighborhood that is declining which again is not going to help to sell it. I am renting to public housing since then I am guaranteed to be paid. So overall I am making a little bit on it.

I would look into more rentals but can't afford the income (long story) but I may look into fixing up some homes. I believe we are at the bottom or close to the bottom of the housing market and there are some GREAT deals on homes now. I wish I were still able to fix them up and live in them but with 4 kids and settled in our home this is NOT going to happen.

[debtheaven]

Congrats on the new purchase PatStab! I love reading your RE posts.

[2kids10horses]

Well,

I'm a male, so I don't know if I'm supposed to be posting here, but I DO flip houses (as well as rent them), so I do know something about this topic.

I do pretty much as Phil described in post number 9.

Snerdly, there are some ugly ducklings out there, that have been passed over for some reason or other and haven't sold. I target foreclosures in homogenious neighborhoods, where other houses are selling. This helps when it comes time to sell after I've fixed it up to give good comps. But, you are right, when I buy a home for half price, it KILLS the comps. So, I take pains to document what the house looked like when I bought it, so I can show what all I've done to it to "justify" the increase in value.

One difference between me and Phil's friend, I don't try to race the deal thru. I have found that FHA requires that I own the property for at least 90 days before I sell it, or else they won't lend on it. I think this rule was put in place to squelch true "flipping" where there were a series of flips from one investor to another in rapid succession where no improvements were done, just trying to increase the basis.

I don't do this. I buy 'em, upgrade 'em, then sell 'em at a price more comparable to the neighborhood, but at a higher quality. I do a fair amount of the labor myself. I am able to buy closeouts on plumbing fixtures, lighting fixtures and appliances. (I buy 'em whenever I see good deals, and store them until I have a house to put them in.) I have a guy in Dalton to get closeouts on carpet. I get roofing from the salvage place. I'm able to get most stuff from Lowe's at a 22% discount.

So, the combination of 1) being able to get the house cheap (most important!), 2) my labor, 3) I can buy better quality component for less than "builder grade" allows me to be able to market a less expensive, higher quality home to the end customer.

Oh, and I am a REALTOR, so that saves me on commissions, too.

I try to turn about 4 a year. I generally make about $50K per house.

[debtheaven]

I'm a male, so I don't know if I'm supposed to be posting here

Of course you are always more than welcome here 2kids! And rest assured, you are not the only male poster here LOL!

[chiver78]

Mar 1, 2011 22:30:42 GMT -5 2kids10horses said:

Well,

I'm a male, so I don't know if I'm supposed to be posting here, but I DO flip houses (as well as rent them), so I do know something about this topic.

haha, you were actually the poster I had in mind from the old boards. I didn't realize you were a guy though, sorry! thanks for piping up. I'm putting this project idea on hold for the time being, work has had flashes of serious instability lately.....not really the best time to put a bunch of cash out there, IMHO.

[Clever Username]

In trying to work all of your friends and family into this your deal... let me share a truism:

You can't be everything to everyone.

If Dad wants to be a handyman, let him pass out cards to the realtors you meet. For every investor turning their well oiled machine, there is a young naive couple getting in over their heads. Dad can sell his services to those many buyers.

[gawgagranny]

So true, cleverusername! I know personally of a young, relatively naive couple in my own extended family that got caught in this trap....just about the time of the early 2008 real estate crash in their area. They are still feeling the $$ pinch, even though the house did get rented (just not sold)

[2kids10horses]

I have sucessfully sold several of my rental houses to my tenants.

When I buy houses to rent, I fix them up pretty nice. Usually put in hardwood floors in the main part of the house, get everything nice and clean and in good working order. (I usually buy foreclosures... usually fixers.)

Anyway, renters usually don't take care of a house as well as a homeowner would... a generalization, i know... but I generally get a lot of appreciation in 5 years, and if I held on too much longer, I'd have to start replacing water heaters, carpets(again!), etc. So, I offer my tenants the opportunity to buy it. Since they're in it, I sell it AS-IS. No more fix up.

One advantage is it turns the gain into a long term capital gain (lower taxes) or I can 1031 exchange it, and not pay taxes at all, and buy a new rental. Or two.