Anyone flip houses? Or, ranting about a job part 2

kazoospec wrote: Seems like a tough way to make a living. In the somewhat likely event you end up sitting on a house that doesn't sell quickly, it might get difficult to put food on the table.

This is definitely an issue. The market can change at any minute. However, considering that I usually make around 40k a year (haven't been working for a while, but that's my usual) selling two houses a year making $20k each means that I'm equalling my current pay but would still have plenty of time for a part-time or full-time job.

My buddy in Atlanta gave me some averages from his experiences and what he does. (cut and paste from his email:)

200K sales price *.94 (6% realtor fees) -5K closing costs paid on behalf of buyer by seller (could be less but this is what gets asked for) 183K Net to seller I want to make 30K (or have room for that much in case something happens) The property needs 40K in work (assuming roof, windows, carpet, paint, water heater, maybe HVAC) My max purchase price averages 113K.

Those are his averages, and he does 1-2 houses per year, but his regular job is a mortgage lender, so he has access to loan funds pretty easily. I will have about $30k capital to start, so my initial endeavors will be much smaller than his, but his math seems to check out. I just need to learn where to find properties, what fees there are, etc.

He also mentioned that renting is an option sometimes. In his case, he has a loan to pay, so if it doesn't sell in a few months after completion, he just rents it out until the market needs that house. And sometimes having a tenant can make a house more marketable for people who want an "income" property. In my case I won't be as pressured since its a cash deal. I will have taxes and utilities, but not a $1500 mortgage payment.

This would be supplemental income to start. If I find out I'm good at it and it looks like a potential way to make good money, my regular job can kiss my pucker.

chrispy wrote: In 80% of foreclosure/tax/Sheriff sales I work on, there are underlying title issues (unpaid liens/taxes/assessments/etc) that must be resolved before you can sell the property to a 3rd party. That alone could eat up several thousand dollars.

I do need to be realistic about stuff like that. On the surface, that is all straightforward paperwork and its all disclosed prior to sale, but we also know how government works. What might be a simple $2000 tax bill could be "well, we don't have the death certificate from the last owner and this record is older than 10 years so you need to file for a hearing with the district court...." I've been there before with cars, I can imagine it might be even worse with houses.

What could your Atlanta buddy do with your $30k investment?
Do you trust him enough to send some working capital his way for a cut of the action?

In reply to JohnRW1621:

I thought about that, which is one of the reasons I contacted him. I trust him implicitly. I am sorta fishing by asking his advice, but since I'm a complete newb I didn't want to invite myself into his 6-figure business. At least it doesn't seem like $30k would do him much good since he has access to big money loans.

I feel like a 5-year old offering to pay for lunch with two dimes and a quarter. If he wants it, he is welcome to ask for it, but I can't see that my money would be of any help. But... I would move to Atlanta in a heartbeat if he offered for me to join either as a partner or as paid help.

There is the other aspect that its possible that my investment would go to a project that ended up losing money. It wouldn't be his fault or mine, it just sometimes happens. At least if I do it myself and lose money, its my fault and there is no chance for money coming between friends.

Why not just ask for the job if you're between work, would move in a heartbeat, and seem like you've got the skills to do it once you get some experience?

Curtis, if you end up making this happen, I'd be real interested to read about it. Do you have a blog or someplace to post it?

Curtis:

You've got mail.

There are a lot of deals in ATL. There is also a lot of junk.

Your friend's primary value and asset is not his access to money. His biggest asset is access to information about the deals coming up, knowledge of the market, and understanding of the process and legal issues.

I'm not a big fan of the $15/40 concept.

While I respect your desire to avoid debt and start small, a $40K house is a piece of E36 M3 in virtually any market. There is a reason for this.

It's a bad neighborhood, poorly constructed area, close to a toxic waste dump, frequent drive-bus, or something. The VAST majority of problems that keep a house in this price range is stuff you can't fix.

That makes it undesirable for most buyers, often including investors.

The likelihood of a small quantity of potential buyers is really high. It is also much more likely to have a problem sale.

You are better using your $15k for a down payment in a house that will sell for &150k. You may pay a little interest, but have a similar return with fewer headaches and more potential buyers and/or renters.

If you don't want to borrow, consider a couple of partners. You can probably find a few here.

I used to live in PA.

Many communities require COs to be issued every time you change residents.

That could impact your bottom line. If you go to sell it and are required to do an inspection that reveals a problem, you loose money.

curtis73 wrote:

chrispy wrote: In 80% of foreclosure/tax/Sheriff sales I work on, there are underlying title issues (unpaid liens/taxes/assessments/etc) that must be resolved before you can sell the property to a 3rd party. That alone could eat up several thousand dollars.

I do need to be realistic about stuff like that. On the surface, that is all straightforward paperwork and its all disclosed prior to sale, but we also know how government works. What might be a simple $2000 tax bill could be "well, we don't have the death certificate from the last owner and this record is older than 10 years so you need to file for a hearing with the district court...." I've been there before with cars, I can imagine it might be even worse with houses.

When you buy property on the courthouse steps, you take ownership subject to all title defects (i.e. encroachments, lack of legal access), unpaid liens (i.e. federal and state tax liens, mechanic liens, and any other money judgement that may attach to the realty), taxes (i.e. state and local property), assessments (i.e. HOA, municiple), etc. This is spelled out in the legal notice of sale. You buy the property as is, where is. These defects are, generally, not disclosed by the person conducting the sale, nor are they required to do so. All the foreclosing party cares about is getting a portion of their money back from the sale of collateral they have an interest in. Since the party conducting the sale doesn't care about the marketability of the title (sale is granted by judicial decree through a hearing process), that becomes your responsibility, along with making the dwelling habitable and saleable.

Most of the issues I encounter are related to liens.

^Yep^. What he said.

Clear title is not delivered on the courthouse steps.

So for sheriffs sale it is:

Find house up for sheriffs sale. Find out what opening bid is. Call records office for copy of title. Determine if title is held by bank or by owner. Call tax office to determine back taxes on property. Assess property for potential costs/damages. Determine if property is worth the effort.

Missing anything?

Does not matter if you buy from an owner who is good with the bank or bad with the bank, it's the same game.

You essentially made or lost your money the day you bought the place. If it was not undervalued, you wont make any fast money. You need to clean it up and do a better marketing job than the guy that you bought it from. Only put money into a house that you could have re-sold for more without putting money into.

Take a long hard look at your cost to buy and sell: Legal Real/estate or advertizing; figure 12k on a 300k house for realtor. Taxes Maintenance while fixing up; lawns don't mow themselves Insurance Utilities Cost of tools to fix all the E36 M3; you need lots of these things! Carrying cost of the mortgage: recall that early payments are all interest and hence lost money when you sell since you still owe full principal on the house

Keep in mind that Banks do not have the disclosure obligations that homeowners do. The house could be made of toxic waste and be liened to the hilt, and they don't have to disclose.

Can you make money doing this? Yeah sure, but it is hard work, requires an investment and involves risk. Just like any other business you can name.

One place to find bargains is from aspiring flippers who suddenly realize they are in way over their heads and need to get out before the next bank payment. It's like buying project cars. Great deal if what they were doing is good work and the house was worth it in the first place.

PHeller wrote: So for sheriffs sale it is: Find house up for sheriffs sale. Find out what opening bid is. Call records office for copy of title. Determine if title is held by bank or by owner. Call tax office to determine back taxes on property. Assess property for potential costs/damages. Determine if property is worth the effort. Missing anything?

Yeah, this is the kind of info I need. If I can find some auctions, I want to make some "dummy" runs; investigate these kinds of things you mention, come up with a number I would pay, show up at the auction, and see how it goes without actually bidding.

SVreX wrote: I'm not a big fan of the $15/40 concept. While I respect your desire to avoid debt and start small, a $40K house is a piece of E36 M3 in virtually any market. There is a reason for this. It's a bad neighborhood, poorly constructed area, close to a toxic waste dump, frequent drive-bus, or something. The VAST majority of problems that keep a house in this price range is stuff you can't fix.

I don't disagree, I'm just saying that I don't have access to the cash it takes to start out buying a 100k house in a 200k neighborhood. I have the cash to buy a $20k house in a 40k neighborhood. Regardless of the reasons why its a E36 M3 neighborhood, the fact remains that its proportional.

Even if I only make $2000, that is a lot more than I would make in the stock market, or working minimum wage for the same time period. It is also cash that can go back into the account. Maybe in a few years I will be buying 40k houses in an 80k neighborhood.

I know you know way more about this than I do, I just know it is a viable business model and I'm trying to extract enough information to maybe get started. That way, when I move to ATL we can make millions

NOHOME wrote: You essentially made or lost your money the day you bought the place. If it was not undervalued, you wont make any fast money. You need to clean it up and do a better marketing job than the guy that you bought it from. Only put money into a house that you could have re-sold for more without putting money into.

That makes a lot of sense. Around here (from what I've gleaned) there are very few foreclosure buyers. The guy I was talking to said that many of the auctions he attends have anywhere from zero to 3 or 4 other bidders. He said there have been several where he had a max bid in mind and ended up being the only bidder and got it for the opening bid. The chances for bargains decreases as the number of bidders increase, and that is one of the attractive things about this area - so few people in the flipping business.

I do understand the house part of the equation - how to assess damage, lead paint, asbestos, foundations, electrical, plumbing, etc. I can estimate the home repairs and execute all but a few (I'm not a very good roofer and I've never done carpet or sheet flooring) so I'm not as worried about disclosures. What I lack is the buying experience and the ins and outs of the legal part.

curtis73 wrote:

NOHOME wrote: You essentially made or lost your money the day you bought the place. If it was not undervalued, you wont make any fast money. You need to clean it up and do a better marketing job than the guy that you bought it from. Only put money into a house that you could have re-sold for more without putting money into.

That makes a lot of sense. Around here (from what I've gleaned) there are very few foreclosure buyers. The guy I was talking to said that many of the auctions he attends have anywhere from zero to 3 or 4 other bidders. He said there have been several where he had a max bid in mind and ended up being the only bidder and got it for the opening bid. The chances for bargains decreases as the number of bidders increase, and that is one of the attractive things about this area - so few people in the flipping business. I do understand the house part of the equation - how to assess damage, lead paint, asbestos, foundations, electrical, plumbing, etc. I can estimate the home repairs and execute all but a few (I'm not a very good roofer and I've never done carpet or sheet flooring) so I'm not as worried about disclosures. What I lack is the buying experience and the ins and outs of the legal part.

Do keep in mind that the number of bidders at the auction is going to be reflective of the number of buyers when you sell. The bidders are lacking for a reason.

Only buy if you are convinced that you could have another auction on the untouched house a week later and realize a better outcome. You buy these properties because you believe you are a better sales/business person and can spot/realize value better than the current operator, NOT because you want to do a bunch of work on a house.

for a good analog, go to the build threads and look up the thread where the Prius is being prepped for a flip. I am not convinced that a a real profit is going to be realized when you consider the hours spent.

If you want to do this as a business, then by all means go ahead. But a solid pan has contingencies and you have to factor in one where you make 50% less than you expect, and still walk away to do it again with a better education. If 50% less than expected means that you lose in your personal life, then don't do it.

why would you want to flip a house. Houses have roofs on top and floors on bottom, upside down they no work so good.

hhehehee

PHeller wrote: So for sheriffs sale it is: Find house up for sheriffs sale. Find out what opening bid is. Call records office for copy of title. Determine if title is held by bank or by owner. Call tax office to determine back taxes on property. Assess property for potential costs/damages. Determine if property is worth the effort. Missing anything?

That is a great strategy for buying a car, but buying realty is quite a bit more involved. The concrete stuff is basically as you said, drive by the property and attempt to assess the conditon while not being caught trespassing. The "title" is a whole different matter because there isn't a concrete title document; it's a legal opinion. A deed doesn't necessarily mean clean and clear title. Most county offices, while nice, will tell you they don't have time for the research so you either have to do it yourself or hire someone. Most of the info is available online so that cuts down on the travel.

Our folks basically follow this formula: ID property from legal notice, look up tax and GIS info to determine current owner, get copy of deed (all online) and whatever document is being foreclosed on (trip to courthouse and quick search for additional civil actions). Attempt to find opening bid, which is hit or miss (contact foreclosing office). Drive by to determine if it's worth persuing. Contact us to determine condition of title if all else looks good, though they usually do this after placing an inital bid while waiting for the 10 day upset bid period to run out.