Hakrjak Finishes His Most Recent Flip....

[I85]

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!

http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States
and
google.com

It depends on your tax bracket, and holding longer may or may not help. Since capital gains will be going up in 2 years, there would be no advantage in holding it for than 2-3 years instead of one year(at least no advantage from capital gains).

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[andviv]

Since capital gains will be going up in 2 years

This is an assumption. Please don't state it as a fact, as many things could happen. Plan accordingly (what would you do if the capital gain tax remains as 15%? 20%? 35%?).

 

[hakrjak]

Depending on who is the next president, I've even heard theories it might be phased out completely. You never know...

Cheers,

- Hakrjak

 

[I85]

This is an assumption. Please don't state it as a fact, as many things could happen. Plan accordingly (what would you do if the capital gain tax remains as 15%? 20%? 35%?).

Reading>me :smx4:, my apologies. Thanks for the correction.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[andviv]

No need to apologize. And it may end up being me the one that is wrong.
I've been working myself on making sure the information I am using to make decisions is really a fact or just an assumption. It is important to understand the difference and to identify which is which.
That way, if your plan is mostly based on facts then there is no need to modify it that much. If it is based more on assumptions then your plan needs to be more flexible and probably you need not only a plan B but a plan C and D.

 

[hakrjak]

Update: The new appraisor passed it with the correct valuation, and now the loan has been in underwriting for about a week. When will this end? LOL.... Loans are 10X the trouble they were just 12 months ago. Talk about a PITA...

Cheers,

- Hakrjak

 

[tbsells]

Hak,
It sounds like you've jumped through most of the hurdles twice now. Thats what they want to see. You'll probably get it closed in a week. Congrats.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[hakrjak]

Hak,
It sounds like you've jumped through most of the hurdles twice now. Thats what they want to see. You'll probably get it closed in a week. Congrats.

Thanks LOL -- it better hurry up and close, because Flip #2 is almost completed and is ready to hit the market shortly. My target date for listing it is June 30th or sooner -- just waiting on the appliances to be delivered after Monday.

Cheers,

- Hakrjak

 

[Russ H]

Hey hakrjak, how long have you owned Flip #2? Less than 10 years?

Still chuckling over our semantic gymnastics . . .

(you say po-tay-toe, I say po-tah-toe . . .)

-Russ H.

 

[hakrjak]

Hey hakrjak, how long have you owned Flip #2? Less than 10 years?

Ha Ha -- Verrrrrry funny

3.5 yrs actually. Just long enough for my 3 yr ARM to expire, and for me to get my renter out.

Cheers,

- Hakrjak

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[hakrjak]

Update -- I heard back from my agent today that the loan is out of underwriting, and we're just waiting on a closing date. I have no idea what takes so long, but now they are officially 24 days behind schedule -- As this was supposed to be closed on 5/30. They said they'd do "Everything possible" to get the loan closed this week (But if they were doing "everything possible", the sucker would have been closed already!!!) -- Grr...

If you are ever considering doing business with a company called "Reality Mortgage" -- You might want to shop around. My realtor has renamed them "Reality F'ing Mortgage" at this point, because we're so disgusted with these guys.

Cheers,

- Hakrjak

 

[hakrjak]

Update: Closing finally happened on Friday... It was tense, when the payment came in $9 over what the guy wanted to pay (I know... give me a freaking break, right!?) -- but we got the deal done, and I walked with my golden paycheck.

Now I've got Flip #2 completely finished, and will be putting it on the market this afternoon.

I'm already shopping for Flip #3 of this year.

Cheers,

- Hakrjak:hl:

 

[andviv]

Congrats on completing this one.
So, in summary, how much time/money/effort did you put it? how much was the profit? Was it worth all that you went through (I know the answer to that one, you said YES before).
It would be nice to get your comments now that everything is complete.
Congrats again.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[hakrjak]

All I'm thinking about now is doing the next one, and the next one, and the next one

I believe it was vacant for about 3 months, and the net profit at the end was just under $20k... So it was worth it, but I'd really like to get into the type of projects where I can make much more. I'd like to get close to making $50k on my next one, if possible.

Cheers,

- Hakrjak

 

[lightning]

All I'm thinking about now is doing the next one, and the next one, and the next one

I believe it was vacant for about 3 months, and the net profit at the end was just under $20k... So it was worth it, but I'd really like to get into the type of projects where I can make much more. I'd like to get close to making $50k on my next one, if possible.

Cheers,

- Hakrjak

Congrats and best of luck on the next one Hakrjak! Looking forward to keeping up with your progress!!! :icon_super:

 

[andviv]

... the net profit at the end was just under $20k... So it was worth it, but I'd really like to get into the type of projects where I can make much more.

Any way to "systemize" (is that even a word???) this process? What if you could replicate this in 4 or 5 rehabs at once? Probably you will be seeing returns of $15k per property instead of $20k, but volume will more than pay off for that.
Of course, easier said than done, especially as I never have done a major rehab/flip, all of mine have been minor and very quick, but I wonder if this is worth exploring (maybe Russ or others that do this constantly can chime in).

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[tbsells]

Any way to "systemize" (is that even a word???) this process? What if you could replicate this in 4 or 5 rehabs at once? Probably you will be seeing returns of $15k per property instead of $20k, but volume will more than pay off for that.
Of course, easier said than done, especially as I never have done a major rehab/flip, all of mine have been minor and very quick, but I wonder if this is worth exploring (maybe Russ or others that do this constantly can chime in).

This is a great question. I've done 3 in a year a couple of times, but usually one at a time. That way its a job, with a good system it could be turned into a business. I'm still stuck in the job mode, so I'm interested to see others responses.

 

[andviv]

Yeah, me too.

I've noticed that the most successful rehabbers are great at paying attention to details.

Maybe the reason why they succeed is because they micro-manage their work so the details are perfect? If this is the case and the secret to succeed then working on multiple properties at once may not produce the same level of results.

I hope this thread does not die yet and others with experience can provide input.

 

[Mrs. BRKb]

Hakrjak, congrats on the closing!


JScott, that's a great list you have there.
Of all the things on it, the tradesmen/
contractor network worry me the most.

When things are slow like now, phone
calls are returned and people are eager
to work. When times are fat for them,
maintaining a skilled workforce becomes
more problematic. (An obvious observation,
but one now firmly etched in my mind.)

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[tbsells]

- Finding deals. This is actually the biggest concern for me. I've set the bar pretty high for the types of deals I would do, and if I felt pressured to keep a pipeline of projects for my project managers and my contractors, I risk lowering my standards. You can't let that happen.

This is also the part that worries me the most. I currently do rehabs/flips on an inconsistent basis. Basically I do the deals I want on my time schedule and I'm the project manager. There is no real pressure. Its basically a side job. I make it fit within my schedule. I have made between $75k and $100k a year the last 3 years "on the side." Its really not that hard to do. I've thought about changing the model from "on the side" to full time business. But, the volume and consistency of work scares me. I would basically be starting a construction company that does rehab instead of new construction. The pressure to have consistent work to meet salaries, overhead and other expenses that I don't currently have would be enormous. It would likely lead to buying marginal properties at marginal prices and it goes downhill from there. Anyone who is any good in this business knows you make your money when you buy. Being under pressure to buy will very likely lead to mistakes. A person in this situation could easily become a highly motivated buyer. I really don't want to be a highly motivated buyer. The best deals are found with a take it or leave it mentality.

 

[tbsells]

JScott,

A few questions about your business plan. Is your PM a full time employee? Do you have a public office staffed during normal business hours? Is this necessary for the management of the business and for professional appearance (credibility?) Would you agressively market yourself as a buyer of distressed properties? I guess where I'm heading with this is- What do you forecast as annual overhead or operating expenses?

Salary plus benefits for a PM and secretary, workmens comp, office rent, utilities, advertising, signage, etc, etc, etc. Off the top of my head I'm thinking it would take at least 4 good deals a year to meet overhead. What are your thoughts?

 

[Mrs. BRKb]

Anyone who is any good in this business knows you make your money when you buy. Being under pressure to buy will very likely lead to mistakes. A person in this situation could easily become a highly motivated buyer. I really don't want to be a highly motivated buyer. The best deals are found with a take it or leave it mentality.

Eloquent. I always try to remember that!!

Neither a motivated seller nor motivated buyer be.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[phlgirl]

I don’t have much experience in the flip arena as, until recently, our focus has been solely on the buy & hold approach. That said, on average, for the past few years, we have bought and rehabbed 2-3 homes a month.

I tend to see our business as being broken down into three key parts:

• Deal Flow
• Management
• Money

We are a three person team and while there is often overlap in our roles, each person is primarily responsible for one of these key parts.

What we have learned about deal flow……..
You want to find a way to get the deals to come to you. In the beginning, we drove the neighborhoods, tracked down owners of abandoned properties, went to courthouse auctions, spent time and money managing mailing campaigns, etc. We soon realized that there had to be a more efficient use of our time. We built a network of solid wholesalers, bankers & REO agents who now bring us the deals. These people have become key players on our team.

What we have learned about management…….
Construction management is Crucial. As many have mentioned before, you need a solid list of contractors and a few back-ups as well. In my opinion, the construction manager needs to have a strong construction background a great ability to manage people. He/she needs to know what needs to be done (and what does not need to be done) and also know how much it should cost to get it done – otherwise, it is extremely likely that they will be taken advantage of in time & dollars. They must have the respect of the subcontractors, be able to set deadlines and reprimand, when needed.
Property management is also crucial. You can do this in-house or via a 3rd party property management company. Up until now, we have kept PM in house; however, we are now strongly considering outsourcing. Do the math. (JScott…..you might want to weigh the options on a full time employee vs. outsourcing – particularly at the 10 house threshold).

What we have learned about Money………
I could write for days on this one. Make sure you have an experienced bookkeeper who does what they say they will do. Select key reports to be tracked and discussed at weekly meetings. Spend time building relationships with multiple bankers.

It is absolutely possible to ‘systemize’ this business. Make sure you spend your time wisely. Don’t waste time doing $10/hour work, which can be better handled by someone else.