Hakrjak Finishes His Most Recent Flip....

[Russ H]

Lots of appraisers are using Zillow-like computer modelers to determine value right now.

We had a "tear down"-quality house just sell a few weeks ago in our neighborhood. It sold for about 40% less than FMV, since it was in such rough shape and HAD to be restored, couldn't be torn down since it's a historic district.

Over the next week, Zillow decreased the prop values on every house on our block by at least 100,000 EACH. One of ours (we own 3 on this block) was decreased by 350,000!!!

Staggering.

-Russ

 

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[hakrjak]

I'm with ya, Phlgirl.

In my neck o' the woods, any prop that takes longer than 3-5 months to turn around we call a REHAB.
-Russ H.

Just to clear things up -- the property had been a cash flowing rental for 3 years, so it's not like it was sitting around. When we start work on a property, we're usually in and out in 3-5 weeks. This one took exactly 4 I believe.

Cheers,

- Hakrjak

 

[Russ H]

So just to clarify:

1. You by a house REO

2. Over the next 3-4 weeks, you replace:

-roof
-kitchen and laundry appliances
-bath fixtures (pedestal sink, toilet)
-carpeting
-tile in parts
-landscaping

3. Then you rent it out for the next three years.

4. Then you sell it.

You call this a "flip".

I'm not trying to give you a hard time, hakrjak.

I'm just trying to get a handle on the vernacular.

Out here in CA, we call what you did buying a rental, making a few cosmetic improvements and replacing the roof, and selling it after a few years.

Out here, the term "flip" is typically reserved for a prop that is purchased for the express purpose of a quick re-sale, often before the first mortgage payments are due (e.g., if you get 60 days before you make your first payment, this is 8 weeks, more than enough time to do what you did, and re-sell it in a hot market).

You say "to-may-to",
I say to-mah-to.

etc. etc.

-Russ H.

 

[hakrjak]

Not exactly. We bought it as an REO -- Rented it in it's current condition (Was already pretty nice shape) for 3 years with good cashflow... Then decided we wanted to collect our profits from equity, and the best way to maximize the selling price was to gut it and flip it, which we accomplished in 4 weeks.

My personal definition of a flip is to walk into any "Dump" and convert it to a new custom home in a short period of time, regardless of the properties history or how long I've owned it. Just my 2 cents there, no biggy either way -- Not like the money is any less beautiful dependent on nomenclature

The plan B on it will be to continue renting it out, but for a much higher rent given the "newness" of the place. Just wish the FHA guy would hurry up with his appraisal so I can make that call sooner than later.

Cheers,

- Hakrjak

 

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[Bilgefisher]

I had an appraiser come out to my house for a possible refinance a few months back (personal residence), and I was very dissapointed in the results. I shouldnt have worried so much about it, but I spent a few hours making the place look its BEST (just for curb/interior appeal), and the guy walked through the house so casually (and so FAST) it didnt even look like he was paying attention. He didnt go inside ANY room except the ones he walked through on his way through the house (no more then a glance into the bedrooms, bathroom, etc.. He jotted down guestimated dimensions of the rooms on a peice of SCRAP PAPER (no legal pad, no forms, no files, nothing), and took a quick measure of the exterior sides of the house with a tape measurer. He didnt go inside the garage, into the basement, even glance at the large backyard, etc. He was probably at my property for no more then 5-6 minutes (no joke). At one point he commented on my friends car that was in the driveway so I moved on that trying to strike up a conversation with him (you know, build a little rapport ), but he wasnt biting at all. When the appraisal came in a few days later, it came in at about 20k less then we were hoping, and for the exact amount I OWE on the property (which means = NO refinance). I was pretty bummed out.

Good luck Hakrjak, i have enjoyed reading about your progress and learning from your posts so I wish you the best outcome! Keep us posted.

I think I would be getting a 2nd appraisal and a letter to the original appraiser. Thats a very expensive 5-6 minutes he cost you.
Sorry to sidetrack your post Hakrjak.

 

[Russ H]

My personal definition of a flip is to walk into any "Dump" and convert it to a new custom home in a short period of time, regardless of the properties history or how long I've owned it.

We bought it as an REO -- Rented it in it's current condition for 3 years with good cashflow...

So . . . ya bought it REO, rented the "Dump" (your words) for a few years and "turned it into a new custom home" a few years later.

Amazing.

Sorry, I'm still learning the lingo.

Be patient with me. Sometimes I can be a bit dense. :smx4:

-Russ H.

 

[I85]

Not exactly. We bought it as an REO -- Rented it in it's current condition (Was already pretty nice shape) for 3 years with good cashflow... Then decided we wanted to collect our profits from equity, and the best way to maximize the selling price was to gut it and flip it, which we accomplished in 4 weeks.

My personal definition of a flip is to walk into any "Dump" and convert it to a new custom home in a short period of time, regardless of the properties history or how long I've owned it. Just my 2 cents there, no biggy either way -- Not like the money is any less beautiful dependent on nomenclature

The plan B on it will be to continue renting it out, but for a much higher rent given the "newness" of the place. Just wish the FHA guy would hurry up with his appraisal so I can make that call sooner than later.

Cheers,

- Hakrjak

Back to the tomato . I see your point in flipping it from a rental. I see the others point as well.

One question though, if you had just purchased this home 2 months ago...your FHA buyer would not have been able to get financed for the home(being that you would have bought it less than 90 days ago), no matter what the appraisal was...is that correct? (sorry to go off topic)

 

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[hakrjak]

So . . . ya bought it REO, rented the "Dump" (your words) for a few years and "turned it into a new custom home" a few years later.

Amazing.

Sorry, I'm still learning the lingo.

Be patient with me. Sometimes I can be a bit dense. :smx4:

-Russ H.

No problem... Maybe I'm not speaking English here

The place was actually in great shape when I bought it... The bank had put in new carpets, appliances, paint, etc... Over the course of renting it for 3 yrs, my renters turned it into an absolute dump, which has been pretty much the norm for me on that end of town. Every other renter could be classified as the "destroyer of worlds"

- Hakrjak

 

[hakrjak]

One question though, if you had just purchased this home 2 months ago...your FHA buyer would not have been able to get financed for the home(being that you would have bought it less than 90 days ago), no matter what the appraisal was...is that correct? (sorry to go off topic)

That is correct... So "Flipping" my way, definitely takes "seasoning" into account.... By holding the properties longer before I flip them, I open up my list of potential buyers a bit wider by catering to more types of financing...

And when you're dealing with houses in the not so hot areas -- Being able to provide a buyer with something they can qualify for with FHA can be very valuable at times!

Cheers,

- Hakrjak

 

[Bilgefisher]

No problem... Maybe I'm not speaking English here

The place was actually in great shape when I bought it... The bank had put in new carpets, appliances, paint, etc... Over the course of renting it for 3 yrs, my renters turned it into an absolute dump, which has been pretty much the norm for me on that end of town. Every other renter could be classified as the "destroyer of worlds"

- Hakrjak

Curiosity question here. I know you wait the 2-3 years for tax reasons, but does the home appreciation, rent and tax savings cover that added fixup cost at the end?

 

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[rcardin]

One question though, if you had just purchased this home 2 months ago...your FHA buyer would not have been able to get financed for the home(being that you would have bought it less than 90 days ago), no matter what the appraisal was...is that correct? (sorry to go off topic)

Depends on the lender. My broker has lenders that only want one month title seasoning. The buyer would probably pay more in interest and points. When we bought the house we live in now we needed 90 days seasoning. My dad bought it a s part of a package deal of homes and we bought it from him. All depends on the lender.

 

[Russ H]

The place was actually in great shape when I bought it... The bank had put in new carpets, appliances, paint, etc... Over the course of renting it for 3 yrs, my renters turned it into an absolute DUMP, which has been pretty much the norm for me on that end of town.

Ah . . . so, to use words from my end:

You bought a bank REO in good shape 3 years ago and used it as a rental.

After 3 years, the tenants had turned it into a dump, so you repaired and upgraded it back to "as new" condition. So new, in fact, that it could be mistaken for a brand new custom home.

Then, you put it up for sale.

Right?

You may think I'm being facetious here, or ridiculing you, but I'm not.

Using the same words to describe different things can lead to misunderstandings.

I'm just attempting to clarify.

-Russ H

 

[mtnman]

Ah . . . so, to use words from my end:

You bought a bank REO in good shape 3 years ago and used it as a rental.

After 3 years, the tenants had turned it into a dump, so you repaired and upgraded it back to "as new" condition. So new, in fact, that it could be mistaken for a brand new custom home.

Then, you put it up for sale.

Right?

You may think I'm being facetious here, or ridiculing you, but I'm not.

Using the same words to describe different things can lead to misunderstandings.

I'm just attempting to clarify.

-Russ H

OCD? Nah!

 

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[AroundTheWorld]

I think I would be getting a 2nd appraisal and a letter to the original appraiser. Thats a very expensive 5-6 minutes he cost you.
Sorry to sidetrack your post Hakrjak.

In my area, this is standard operating proceedure.

They actually (all of them) have a little chart w/ price per square foot. and two basic grades..... lower and higher. Even the higher level does not account for custom homes - - - the very best upgrades, etc.

We have had SFR's appraised and the appraiser never even set foot inside. All they care about is location and SF.

Russ,

Interesting story about Zillow. We don't have it here... too rural I guess. Could be a blessing. LOL

 

[Bilgefisher]

In my area, this is standard operating proceedure.

They actually (all of them) have a little chart w/ price per square foot. and two basic grades..... lower and higher. Even the higher level does not account for custom homes - - - the very best upgrades, etc.

We have had SFR's appraised and the appraiser never even set foot inside. All they care about is location and SF.

Russ,

Interesting story about Zillow. We don't have it here... too rural I guess. Could be a blessing. LOL

Amazing. Guess I still have a lot to learn. Appraisal costs aren't exactly like buying a pop in the machine though. I guess I figured you would get a more thorough inspection for that money. My experience is limited to two appraisals though.

 

[Russ H]

OCD? Nah!

You betcha!
:smash::smash::smash::smash::smash:

-Russ H>

 

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[andviv]

Russ? OCD? No way.
He's got CDO (the same thing, but actually in the right alphabetical order, right Russ?).

 

[Russ H]

this CDO?

or this one?

-Russ H.

 

[hakrjak]

Curiosity question here. I know you wait the 2-3 years for tax reasons, but does the home appreciation, rent and tax savings cover that added fixup cost at the end?

Well, if I had flipped it right away, I would have had the same cost -- but without the appreciation, I would have had a sale price probably of $100-105k instead of $120k. Waiting a couple of years enabled me to get some positive cashflow in the meantime, and ultimately flip out when the profits could be maximized. The catalyst for me was seeing another flipper active in the neighborhood, and watching the neighborhood start to "come up" around me. That's when I knew I could flip out for a good profit.

- Hakrjak

 

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[hakrjak]

Depends on the lender. My broker has lenders that only want one month title seasoning. The buyer would probably pay more in interest and points. When we bought the house we live in now we needed 90 days seasoning. My dad bought it a s part of a package deal of homes and we bought it from him. All depends on the lender.

Absolutely. And certain buyers can not qualify for certain lenders. In the area where these flips are located, 90% of buyers purchase on an FHA loan which requires the most seasoning out of any loan on the market that I'm aware of.

It's always good to take seasoning into account if you're buying into a neighborhood that is going to have more low income, first time home buyers. If you're flipping $500k+ giant McMansions, then I wouldn't worry about it much at all...

Cheers,

- Hakrjak

 

[hakrjak]

Ah . . . so, to use words from my end:

You bought a bank REO in good shape 3 years ago and used it as a rental.

After 3 years, the tenants had turned it into a dump, so you repaired and upgraded it back to "as new" condition. So new, in fact, that it could be mistaken for a brand new custom home.

Then, you put it up for sale.

Right?

You may think I'm being facetious here, or ridiculing you, but I'm not.

Using the same words to describe different things can lead to misunderstandings.

I'm just attempting to clarify.

-Russ H

You're pretty close here. Only correction I'd make is that when I rehabbed it, I made it much better than the original condition, and much better than even 99% of the homes in the neighborhood. Now it's got ceramic tile, stainmaster carpet, central AC, new stainless appliances, new front loading washer/dryer, etc etc -- Which were all unheard of features in this neighborhood until my buddy & I started flipping in this 'hood.

Cheers,

- Hakrjak

 

[hakrjak]

Update: I just signed an ammend/extend agreement to the 16th of this month to give the new Appraisor time to work his magic. Apparently the underwriter talked to him, and informed him exactly what we need from him to get this deal done, and he said he could do it.

I provided a list of improvements (Just in case he needed more ammo), along with the retail costs associated with each and I came up with $27.5k in improvements. Hopefully that will be enough -- Will keep everyone posted on my struggle here

- Hakrjak:fastlane:

 

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[AroundTheWorld]

Has this (low appraisal) spooked the buyers at all?

Not sure if you saw this question. If I were the buyer, I can't say I would proceed w/ the purchase.

 

[hakrjak]

Not sure if you saw this question. If I were the buyer, I can't say I would proceed w/ the purchase.

Nah, they are absolutely in love with the house. They want to find a way to buy it even if their FHA doesn't get approved... That's the crazy thing -- You won't find a home in town this new, and this luxurious in this price range... They also know they got a sweet deal, because I came off of a $124.9k asking price to $120k, and I'm paying $5k of closing costs, etc...

Also the last sales in the neighborhood were all $125k+, although they were mostly beyond 6 months ago (Like 8-12 months) - So it doesn't make sense that the guy wouldn't give it the correct value. I'm hoping that we just got a bad cookie, and the next appraisor will be better.

One of the caveats about working in a market where houses sell 90% in the summer time is that when you get to Summer, it's very hard to come up with 6 month old or less comps. Nobody buys houses here in the winter time.

Cheers,

- Hakrjak

 

[tbsells]

Lots of appraisers are using Zillow-like computer modelers to determine value right now.

We had a "tear down"-quality house just sell a few weeks ago in our neighborhood. It sold for about 40% less than FMV, since it was in such rough shape and HAD to be restored, couldn't be torn down since it's a historic district.

Over the next week, Zillow decreased the prop values on every house on our block by at least 100,000 EACH. One of ours (we own 3 on this block) was decreased by 350,000!!!

Staggering.

-Russ

Unbelievable! I mean I believe it, I just don't want to. Scary stuff. Maybe you should contact the tax assessor and see if he's willing to reconsider values based on Zillow. The scary thing is that people actually use this service. Be very careful folks when using Zillow. Its rarely more accurate than + or - 30%. If you can't do better than that on your own, you are playing the wrong game.

I guess this is kind of a thread hijack. But I hate to see people get mislead. I've seen people post on here "according to Zillow its worth xxxx." Your plumber, electrician, even the guy at Taco bell have a better handle on real estate prices in your town than Zillow.
My rant is now over. Please return to your thread.

 

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[Adam K]

That is correct... So "Flipping" my way, definitely takes "seasoning" into account.... By holding the properties longer before I flip them, I open up my list of potential buyers a bit wider by catering to more types of financing...

And when you're dealing with houses in the not so hot areas -- Being able to provide a buyer with something they can qualify for with FHA can be very valuable at times!

Cheers,

- Hakrjak

Does that also means being your holding it over 2 years that your capitol gains tax is less than if you were to buy it fix it and sell it?

Adam

 

[hakrjak]

Yep, I pay long term only which is 15%

 

[AroundTheWorld]

The use of language - - - especially in modes such as the internet sure can make some interesting situations! Emerging slang words probably don't help the situation either.... we have seen words like geek and flip get us into trouble here!

This thread about went on for a long time before some people figured out we better define just what "flipping" means. As it turns out, it means very different things to different people!

I can see how a lot of miss communications and misinterpretations could happen through forums and emails.... many times without the knowledge of the parties involved!

Hijack over - - - just thought it was interesting. The whole feel for what Hakrjak does changed for me once I learned his definition of flip.

 

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[lightning]

Yep, I pay long term only which is 15%

Hey Hakrjak, would you care to enlighten me a little on capital gains in Real estate? I tried searching the web for some capital gains basics in NJ, but have not been able to come up with an easy FAQ on the subject. Is it 20% on your "profits" if you hold a property for less then a year, and 15% on your "profits" if you hold it for more then a year? Does this vary from state to state? Im just curious about what kind of hit I can expect to take in NJ if I were to sell my rental at say, a 50k profit in 2-3 years. If the tax percentage drops the longer you hold the property, it may be worth me holding onto it longer.

Anyone who can elaborate or point me in the right direction (ie ACTUAL percentages on what I have to look forward to or the "basics", lol) would be appreciated!

 

[hakrjak]

I'm clearly no tax expert -- I pay someone for that.... But, The way I understand it -- you pay your normal tax bracket rate on the income if you sell it in less than a year, and if you hold for over a year you pay a flat 15%. It's only on your profits (So save receipts for all of your improvements, etc).

So if you're in a 30% tax bracket, or the income will push you into that bracket -- it can be definitely worth your while to sit on it for a year. (But remember that the higher tax bracket is only effective on the portion of income that goes into that bracket, not ALL of your income -- so it's still not a huge deal....)

I don't worry about taxes too much on these properties where I make a measely $10,20, or 30k... If I was in a state where I could make $100k on a flip, I might be a little more concerned with the taxes

Cheers,

- Hakrjak