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Old 02-24-2021, 04:32 PM
 
13,266 posts, read 15,876,945 times
Reputation: 20198

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Quote:
Originally Posted by tommy64 View Post
There are a lot of expenses behind these deals. Hard money is short term @ around 10%, short-term capital gains can be as high as 37%, listing agents take a cut etc. Plus labor/materials have skyrocketed since the Covid.

It's hard to know what it costs to get a flip done and closed, but it seems inefficient and risky. What would these properties be worth in 5-10 years with steady cashflow throughout? Not to mention a fix-up to rent is less cost than trying to hit the top of the market with expensive finishes/upgrades. Plus a property that is kept longer can be tax deferred via 1031.
no income taxes immediately due if you do a 1031 exchange...........lots of extras can get buried in those remodeling costs.


Not a lot of houses are ideal rentals. How do rentals work out when the government forbids evictions and you have deadbeat tenants? I'd flip all day long vs. long term rentals.
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Old 02-24-2021, 05:42 PM
 
Location: Scottsdale
2,657 posts, read 2,059,500 times
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A 1031 is only eligible when the property is held for "income producing". Anything bought for future re-sale is not.

1031's also have 45 days (to nominate a property for the forward exchange) and 180 days (to close on that nomination) which puts a burdensome deadline on things, even if they were eligible.

OTOH, rental properties are ideal for a 1031 exchange as the cost basis steps up and starts over from zero.

https://www.expert1031.com/articles/...-flip-property

The lure of fast cash is tempting to any would be flipper, but becomes very expensive later.

A buy-and-hold rental has less upfront expense, is super tax-efficient, and will be a cash cow for as long as it's competently managed.

The Tortise beats the Hare. Flipping houses looks good at first glance, but is very inefficient!

Last edited by tommy64; 02-24-2021 at 06:30 PM..
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Old 02-24-2021, 07:14 PM
 
49 posts, read 35,787 times
Reputation: 191
Landlords get calls at three in the morning that water is pouring out of the ceiling; flippers don't.

Next question?
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Old 02-24-2021, 07:36 PM
 
Location: Scottsdale
2,657 posts, read 2,059,500 times
Reputation: 5038
Quote:
Originally Posted by robocall View Post
Landlords get calls at three in the morning that water is pouring out of the ceiling; flippers don't.

Next question?
...and it always happens on a holiday weekend!
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Old 02-24-2021, 10:38 PM
 
4,652 posts, read 1,310,289 times
Reputation: 6511
Quote:
Originally Posted by tommy64 View Post
A 1031 is only eligible when the property is held for "income producing". Anything bought for future re-sale is not.

1031's also have 45 days (to nominate a property for the forward exchange) and 180 days (to close on that nomination) which puts a burdensome deadline on things, even if they were eligible.

OTOH, rental properties are ideal for a 1031 exchange as the cost basis steps up and starts over from zero.

https://www.expert1031.com/articles/...-flip-property

The lure of fast cash is tempting to any would be flipper, but becomes very expensive later.

A buy-and-hold rental has less upfront expense, is super tax-efficient, and will be a cash cow for as long as it's competently managed.

The Tortise beats the Hare. Flipping houses looks good at first glance, but is very inefficient!
Well...you do you! Why are you so bugged about what others do?


Why not take advantage of those stupid flippers and buy their houses for your rentals?




FWIW I've always thought fix three, keep the fourth was a good strategy until the Gov stepped in and is trying to bankrupt landlords.
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Old 02-25-2021, 07:24 AM
 
11,961 posts, read 9,639,595 times
Reputation: 10908
Quote:
Originally Posted by tommy64 View Post
Why would someone buy a house to fix up and sell for a quick buck when they could keep it as a rental and take a slower but steady income, plus any equity capture as any loan principal pays down and values notch up?

The acquisition costs, fix-up costs, closing costs, capital gains tax and risk if anything falls through looks like a short-sighted way to make (in many cases) no more than a General Contractor.

Real wealth is built over time as assets appreciate in value. Rents almost always increase. Real estate is easy to borrow against because of the self-collateralization. How much better does it get? Why would anyone let something so valuable go for a quick hit of cash?

Any thoughts from the flipper crowd?
How long would it take for the net rental income to be enough to pay off the contractors? The firm is out the money in most cases, though some contractors get an equity share when the property's sold. Have you also looked at some of the cash buy houses web sites? Some of the houses take a long time to sell.

You have to sell. It would take at least 5 years to make back the $ 25,000 we paid to the handyman. Even if you do some of the work yourself, you still have to pay the contractors who laid the concrete patio and driveway, the carpenters who built the deck, the roofers, and any others I've left out from the last job. Even general contractors don't do all the work themselves.
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Old 02-25-2021, 07:37 AM
 
Location: Formerly Pleasanton Ca, now in Marietta Ga
8,498 posts, read 5,999,842 times
Reputation: 12383
Quote:
Originally Posted by robocall View Post
Landlords get calls at three in the morning that water is pouring out of the ceiling; flippers don't.

Next question?
Stupid statement that just parrots a stereotype. Why don’t you speak of something you actually know about.
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Old 02-25-2021, 07:57 AM
 
Location: Formerly Pleasanton Ca, now in Marietta Ga
8,498 posts, read 5,999,842 times
Reputation: 12383
Quote:
Originally Posted by bigfatdude View Post
It's much easier to be a landlord if you happen to be in a landlord-friendly state, have a portfolio of multiple properties so you have cash flow even when dealing with a deadbeat or two and know a persuasive guy with fists the size of a watermelon. If you only have a single property in an extremely tenant-biased city like Boston or NYC a single deadbeat you can't even screen out because you're not allowed to ask anything can easily wipe you out.
Well of course it is. But most people start with one property. I did.
My first property was in the San Francisco Bay Area in California, an area known to be very tenant friendly.
Sure there’s some bumps, but overall it did pretty well.
Once you gain some skill you are not limited to owning rentals locally where you live if you decide they numbers don’t t work for you.
Several people know my story with rentals here on cd. I rolled two properties in California into 7 in the Midwest. Within 5 years I accumulated more and no longer work a job. I have a manager handle everything so I spend maybe a few hours a month doing my own book keeping although they generate some pretty decent monthly reports for me.
I have a few friends that also are in the same situation and retired in less than 5 years investing in rentals while they worked a full time job. All in their 30s and just travel the world. One doesn’t own a personal house as he hasn’t been back to the United States for more than a week. When he comes back he stays with friends and then is off again.
While many poo poo how horrible it is or repeat old stereotypes without any experience, for me and my friends it has meant the ability to retire early and well.
It’s allowed me to buy a 5000 sq ft home, drive very nice luxury cars and exotics, and travel when the covid thing dies down. Ymmv, but for people that spend time working it instead of complaining about it, it can be a life changer.
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Old 02-25-2021, 08:35 AM
 
Location: Texas
1,282 posts, read 334,176 times
Reputation: 1874
Quote:
Originally Posted by tommy64 View Post
A 1031 is only eligible when the property is held for "income producing". Anything bought for future re-sale is not.

1031's also have 45 days (to nominate a property for the forward exchange) and 180 days (to close on that nomination) which puts a burdensome deadline on things, even if they were eligible.

OTOH, rental properties are ideal for a 1031 exchange as the cost basis steps up and starts over from zero.

https://www.expert1031.com/articles/...-flip-property

The lure of fast cash is tempting to any would be flipper, but becomes very expensive later.

A buy-and-hold rental has less upfront expense, is super tax-efficient, and will be a cash cow for as long as it's competently managed.

The Tortise beats the Hare. Flipping houses looks good at first glance, but is very inefficient!
I’m curious what your idea of a cash cow is, I think you said earlier your margins are 10% after costs, what does that equate to in real dollars for your current holdings?
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Old 02-25-2021, 08:47 AM
 
Location: Scottsdale
2,657 posts, read 2,059,500 times
Reputation: 5038
Quote:
Originally Posted by lchoro View Post
How long would it take for the net rental income to be enough to pay off the contractors? The firm is out the money in most cases, though some contractors get an equity share when the property's sold. Have you also looked at some of the cash buy houses web sites? Some of the houses take a long time to sell.

You have to sell. It would take at least 5 years to make back the $ 25,000 we paid to the handyman. Even if you do some of the work yourself, you still have to pay the contractors who laid the concrete patio and driveway, the carpenters who built the deck, the roofers, and any others I've left out from the last job. Even general contractors don't do all the work themselves.
It depends on the deal.

In basic terms, how much would you make in a longer game when equity rises, rents rise and your mortgage principal shrinks? The longer you keep the cash-flow machine the more income it kicks out and more equity is captured. Eventually you can borrow against it to buy even more properties (if the numbers work of course).

You also have 27.5 years of depreciation on the tax value of the dwelling to write off against any income. And when that expires you can 1031 into another property and start with a brand new basis.

It's entirely possible to buy a rental property once, meaning a one-time acquisition cost, do some clean-up/fix and let it kick out income until your great grandkids die. (Unless they're stupid and sell the house).

Flips are great for cash, but buy & hold is unbeatable for building wealth.

Over the years, I don't remember talking to any competent landlord (experienced/successful) who said they lost money on a rental property deal long term, but I've gotten many flippers to (reluctantly) admit they went backwards.

Last edited by tommy64; 02-25-2021 at 08:57 AM..
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