fliprent

So called real estate investment “gurus” offer lots of incredible knowledge at a cost of only $5000…  no wait $4000..just a second… $3000, but for tonight only $2000.  But wait there’s more, they’ll throw in two months of coaching (when there is time), a free CD packed full of “valuable information”, a free website, discounted street signs, and a group of other new investors to bounce all of your questions off of.   This is all valued at $10,000 but for tonight only they’re going to give it all to you for $1000.  But wait there’s more…

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How much do I pay for a property? 

This can be the biggest challenge for new investors.  How do I know how much to pay for a property?  There are so many factors involved that it can feel a little overwhelming.  In fact it scares some investors away from buying their first property.  I’m here to tell you that it’s not rocket science.  A class in using a spreadsheet program such as Microsoft Excel or learning to use a financial calculator might be the most difficult part of the process.   There are several performance measurements commonly used when valuing property.  Three measurements commonly used by investors include CAP Rate, Net Operating Income (NOI), and Return On Investment (ROI).  There are many other ratios and measurements used in real estate finance such as Gross Rent Multiplier, Debt Service Coverage Ratio, Operating Ratio, etc.  This information can be found in many finance books or at finance courses at your local Community College.

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Let’s get straight to the house flipping point…

 House flipping rule # 1 - Buy the smallest or ugliest house in the neighborhood. 

Being a house flipper means that you don’t mind the dirty work; or paying someone else to do it.  The main reason for this rule is based on future appraisal value.  The smallest house on the block has the biggest potential to be raised.  Once the rehab work is completed, it will appraise higher based on the new improvements, and the value of other houses on the block.  Conversely the largest house on the block is already carrying the weight of the market value.  Adding square footage for instance will not bring the same Return On Investment (ROI) as it would for smallest house.

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My contractors are all pretty good, so they don’t need me watching over them all day.  When I’m not flipping houses, I’m usually looking for the next flip or rental to add to the portfolio.  Well, actually I should say when I’m not physically at any of the properties…   Of the houses I saw today, this property looks like a decent deal.  The asking price was $69,900 and has been reduced to $53,900 in just under a month!  The details are as follows:

• Legally zoned for Two Units
• Each unit currently rented for $650/month
• Separate entrances
• Separate meters for Gas and Electric
• Both renters are subsidized by the city
• They are both 2 year tenants
• Needs new roof
• Rat problem
• Possible termite problem
• Needs new flooring
• Needs new deck
• Needs new bathroom fixtures (both units)
• Needs new kitchen sink and fixtures (both units)
• Walls need to be cleaned and painted

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As a real estate investor you need to be well versed in tax laws.  Well at least if you are not well versed, youde better have a good tax accountant.   Tax deductions are available on your rental properties and also for your house flips.  The tax laws are fairly straight forward when renting property.  Typically maintenance and depreciation are the main deductions.   What about those of you that own second homes for vacation getaways or just another place to go fishing on the weekends?  This is where the tax laws get a little trickier.  The IRS classifies additional homes as either Investment property or Personal property. 

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Well the guys only worked about half of a day today on the Hopkins house because Home Depot decided not to leave the delivery like they normally do.  Actually my contractor should have been there but that’s another story.  He says they delivered at 6:30AM…   Flipping houses is fun when everything goes well but when it doesn’t …. well you get the picture.    They say they made some good progress today anyway (I don’t know because I didn’t make it to that site today).     The days are a little longer now, so that’s a plus.    I’ll surely be checking up on them in the AM.

I consider myself to be a nice guy in this game of house flipping.    Almost every other investor/flipper I know is aggressive and, well… not so nice.    I guess it’s something that comes with too many years in the game.     Just dealing with tenants and contractors alone can drive a sane man crazy.    I ran into an investor friend today that is one of the worst.  This guy is a cross between Vince Vaughn and your cranky old granddad .    I can’t take too much of him in such a short period of time, so I made up an excuse and kept it moving.    I had too much on my plate today anyway and now I need to get back to work.    It’s 5:47pm and the second half is just getting started.   

Toilets

Installing a water-saver flush kit in your toilet can save you thousands of liters of water per year. Replacing large-volume toilets with 6-litre-per-flush models saves at least 70 percent of the water used.

Showers

An energy-efficient shower head or flow controller conserves energy without affecting water pressure. A low-flow shower head saves as much as 60 percent of the water used by a conventional fixture.  Dripping taps can waste 9000 liters of hot water each year. Replace leaky washers and save the hot water for when you really need it!

I know it’s been a few days since my last post but I promise I have some really good tips coming soon including this one.  Considering my “negligence”, I’ll let you guys in on a secret that only the pros know about.  When I say pros I mean remodelers, rehabbers, developers, house flippers, investors and others who buy building materials frequently.  It’s called the home depot pro bid room. 

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Good subcontractors are happy to give you the names of other contractors.  It’s a great way for them to get referrals.  If you find one that you can trust, he usually knows of others that he likes to work with.  Just today, my plumber gave me another framer and concrete guy that he often does work for.  Contractors run in the same circles and prefer working with someone they have experience with.  Flipping or rehabbing houses requires that plumbers, heating contractors and electricians communicate. Things like trunk lines, ductwork, and pathways need to be planned especially without a architectural diagram.  It can make your job a lot easier just finding one good contractor that will give you the names of others.If you’ve established a relationship with a subcontractor, you can often get the inside scoop about the others as well.  Things like who’s having financial difficulties, dissolving partnerships, going through a divorce, kids in college, a bad drinking habit, and the list goes on.  All of these little things will make a difference on the job that he/she will do for you.  In most cases, I only need to ask a simple question  “What’s his deal?”.  Before you know it, you’ve got the guys life history.  This information is valuable when it comes to negotiating a contract as well.  If you know the guy is trustworthy but needs work, you are in a good position to get a decent price.  Be careful not to go too low.  Even the most honorable person will resort to drastic measures to pay the bills.  If the situation is really bad stay far away no matter how good he is.

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Real estate investing books often imply there is no need to worry about funding your deals.  Just get out there. Start making your calls, start setting appointments, start writing contracts, and the money part will be easy.  I agree that finding the good deals are the hardest part but finding financing for your deal can be equally as challenging.  For beginners, there are so many options that it becomes overwhelming.  There are money partners, private investors, hard money loans, bank loans, home equity lines of credit, credit lines, credit cards, downsizing, subject to, owner carry backs and wholesale flipping all to choose from.  Every author you read has a preferred method for financing deals.  Luckily, when it comes to flipping houses, things are a little simpler.  Read the rest of this entry »