I’m looking into cheap ghetto foreclosures where the crackheads have stolen the copper. Banks won’t lend against properties that don’t have working plumbing, SO, what’s wrong with taking title, replacing the copper with KITEC II pex-al-pex, cleaning up the joint, and sticking it right back on the market. OR, renting it section 8 and selling the “Cashflow” rental thing to an investor.
I’ve bought my first flip in the Price Hill section of the westside of Cincinnati for $19,900. It’s a three story brick house that if it were on the Eastside in Oakley or Norwood would be worth $150,000 UNFIXED up! There is nothing wrong with this house besides where it is (and the plumbing of course). Three bedroom apartment upstairs with a one-bedroom downstairs.
So here’s the question: What’s the most profitable thing to do:
1. Fix just the plumbing and clean up and immediately resell.
2. Fix up completely, get Section 8 renters, and sell to an investor.
3. Fix up, rent the upstairs, and sell the house to a young guy who can live in the downstairs while the renters pay his mortgage.
4. Fix up, rent out, suck all the equity out, and invest the money in another flip?
Which type of remodeling sequence is the most profitable, especially with the subprime mortgage market going to crap.
BTW, paid cash for the property, but fixed up, the house will be worth $80,000 by comps on the street.
Replies
I don't know Cincinnati. If anyone knows the area, they could advise you better.
As a sometimes landlord, I would ask the following:
1. Do you want the hassle of catering to tenants? Look up some of the many threads on rentals, here.
2. Long term, short term, flipper - there are all kinds here and each has the grit for that particular part of the business.
Tax bracket? Do you need write-offs or income?
What kind of investor are you? I found out I was not made for slum-lording. I do other things now.
Quality repairs for your home.
AaronR Construction
Vancouver, Canada
You missed two (at least) possibilities:
5. Broom clean. Sell as is for $25 -$30K
6. Can't sell for profit in any circumstance. Find out it takes three of these units to break even after meeting HUD requirements of recordkeeping and maintenance. . .
Become a reluctant landlord and discover that you're a nice guy who can't evict a young mother with two kids until she's 6 months behind. . .
Become a reluctant landlord and discover the court won't let you evict a smart tenant until they're 6 months behind and they trash the place before they leave and it takes you another two months rent to repair.
Search for posts containing ANY of the words "flip" and Landlord" FROM "Mooney."
SamT
Thanks for the sobering truth. Having a few shady, mafia-style thugs around to insure payment of the rent might make it easier....maybe being a "slum-lord" is preferable to thinking one can "help" scumbag tenents into a better life.
I thought Section 8 meant the government paid you every month no matter what? Why wouldn't you always rent to the government?
I thought Section 8 meant the government paid you every month no matter what? Why wouldn't you always rent to the government?
It's common here for landlords to refuse Section 8 applicants. Problem is the type of tenant and experienced extreme maintenance cost. So those inclined to put up with high maintenance go for student tenants where they can charge much higher rental.
Not unusual to see folks advertising that they're Section 8 qualified but can't find a willing landlord.PAHS Designer/Builder- Bury it!
I have had friends that were afraid to go to the property to try and collect rent. Things are generally worth what they cost. Didn't cost much did it?
Bill
I met a guy who lives (and is a landlord) in one of the other corners of Ohio. Instead of buying houses that need work, he buys houses in reasonable condition, in neighborhoods that don't sell easily.
As a result, he gets the houses at fairly good prices, and they are in move-in condition.
And he immediately rents them out, as is. No dividing them up, no remodeling, no significant repairs.
He told me that, in general, he rents them for about the same amount that a mortgage with escrow would be. So although he has little or no positive cash flow, he is building equity. And with the depreciation deduction, he gets his money at the end of the year.
Also note -- if you decide to flip -- at the time of your purchase, you will have already decided the maximum amount that you can make on the flip. And you won't collect any of it until you're done and sell it.
Politics is the antithesis of problem solving.
Food for thought:
The subprime market sucks so you may have a problem moving this to a low income, first time homebuyer. Section 8 requires inspections and will make you repair stuff. These people are usually renter friendly. Nothing wrong with that but if you are playing this financially close to your vest it may be an issue. What type of renter will you get in that neighborhood? IF you put a renter in there and want to sell down the road, what rules will you have to follow to protect the renter.
You could live in the thing for 2 years and do some remodeling. The real estate market is not moving very well now in my area ( I don't know about your area - consult a local realtor). If you rent, flip etc you will be subject to 15% cap gains tax if you held > one year plus any applicable state tax. Living in it, or using it as your principal address, for 2 years avoids the pesky tax issue. You will be gambling that you can move the house quicker in two years than now and that values will accelerate but hey isn't that why we do these things?
A typical buyer is going to need financing. Lenders are weary about lending on flip houses as it is risky. Too many guys are there doing illegitimate flips and defrauding the lender. Also their is a tightening of lending standards going on right now.
A lender is going to require the property to be in renovated condition in order for you to sell it at a large increase. Typical urban renovations I see include some or all of the following renovations:
(1) New roof
(2) New windows
(3) Repaired and/or updated mechanicals
(4) Fresh paint
(5) New (rental grade) flooring
(6) Remodeled Kitchen - 6' - 8' base run with sink and wall cabinets above
(7) Remodeled Baths - New (cheap) fixtures, vinyl flooring.
Cooper -- I used to be in the business - sold 1400 of them in 7 years. Had an investor who was a Harvard educated lawyer that was the nicest guy in the world, real down to earth, and you liked him from the start --- there was no holding back on doing what you could to help this guy -- his game plan was to buy a few in DC, fix them up, and give others a chance, move in, establish a payment history, and after 2 years or so he would sell to his tenants - his loan was assumable and it was a good plan until someone shot him while he was collecting rent off East Capitol.
You think $19,000 is a good deal, I had some in Baltimore that were selling in the very low twenties that could have sold for 20 times that in DC. I had row houses that we weeere trying to sell below $2,000 and could not sell -- some because of perpetual ground rents, we were selling for $100 and I was paying a $300 sales commission. I left the field and handled a bunch of these in other cities - Detroit, Cleveland, Houston and a bunch of other places -- there is risk and you have to be able to sleep at night.
WOw! I'm am so sorry for your friend! When I was young, I never understood the saying "No good deed goes unpunishied"--having worked in remodeling, I do now!The saddest thing in the world is to be an idealist when you're young, thinking you can be the one that "saves the world". Then, after trying to help some people "come up" and then getting kicked in the teeth====then realizing, that people would rather skin a sheep once than shear him many times...so sorry to hear about your friend.I like to think that there are good people in bad situations who need help, but when you attempt to help some of them out of their situation, they see a quick ripoff as being more profitable than being true to somone trying to help them get out of the ghetto. Once all the liberals are burnt up, then you get the cold-hearted conservatives who have no compassion for even those who are in genuine need.Anyway, I'd love to find a system that would help provide clean, safe apartments, for low=income families, who just need a hand up; what it seems lie will happen is that I'll invest in improving the property for people who DO NOT CARE about the property they live in and just #### all over everything.I feel like the last bit of compassion in me is about to be extinguished.....My greatest fear is losing my passion for remodeling, since none of these properties merit using even medium quality materials. (the idea of using linoleum versus tile alone makes me believe I'm wasting my time when I thought I'd figured out my niche in this crashing market.)Sorry to be pessimistic, but I'm drunk and seeing others dissolution with low-end remodeling....
Cooper -- what you are starting, I have done for over 40 years - rehab and asset mgt.
If you go the route of buying, clean it up and make it sound as inexpensively as possible tile is ok in bathrooms, kitchens sheet good or 12x12 self-adhesive. And pick tenants very wisely its better to charge less and hold vacant until the right package comes along. Part of the tenant processing is educating on what you expect a tenant to be responsible for and how often they need to do what needs to be done. Inspect the place a time or two and let them know how pleased you are that they have not called you and that the place is squared away.
I never raised the rent on a couple of places because the tenants knew they had a good thing just as I did -- sold it to them each time.
So, find something is sound to start with, cosmetic needs, and pick the right tenant.