Repairs

Apache is functioning normally

Last Updated on February 25, 2022 by Mark Ferguson

Rental properties are a great investment, but they take work to manage, especially if you do not use a property manager. I own more than 20 rental properties and I managed my rentals myself until I had 7 and realized it was taking way too much time. My rental properties are single-family, mixed-use, and commercial properties. Managing rentals is not extremely difficult but it takes time, you have to pay attention to details, and be firm with tenants to successfully manage rental properties yourself. You can’t be easy on your tenants and you can’t ignore problems, because that is when rental properties can change from a great investment to a poor investment.

Self-management

Whether you chose to manage your rentals on your own or hire a property manager you need to know how to manage the properties. If you are hiring a property manager you need to know if they are doing what they are supposed to be doing. It can help top manage rentals yourself to get an idea of what is involved to see if the management company is any good or not! A lot of this is also common sense and you don’t have to manage properties first if that is not your thing.

Here are some tips on how to manage rentals the right way. You will notice that there is a lot that needs to be done and it may not be as easy as you thought.

How to figure market rent rates

Determining market rent should be done well before you are ready to rent a house and one of the first things you do as a real estate investor. You should have an idea of what a house will rent for before you even buy a rental property so that you know it is a good investment. It is tricky to tell people exactly how to determine market rental rates because each market uses different techniques to rent homes. Some markets primarily use the MLS to rent homes, while other markets (like my market) use Facebook, Craigslist, or Zillow as the primary method to rent a home.

You need to check the prices of other rentals in the area to see what market rents are. You cannot simply choose the highest rent you can find and assume that is what you will get. You can also check with property management companies or real estate agents to see what they think properties will rent for.

When I am trying to determine rental rates, the first thing I do is pull up properties for rent on Facebook. I browse the marketplace to see what is available in the neighborhoods that are most similar to my property. I don’t look at the most expensive rentals, I look for homes in the lower end of the price range (Be careful if you see an incredibly low-priced rental, it may be a fraudulent listing trying to get people to mail money to Nigeria). There also could be some incredibly high rents being asked for executive or short-term rentals that may not compare to your rental.

Looking at prices online is the first step. To see what is actually renting takes a little more work. Print or write down the ads that are the most comparable to your property. Wait three days, and then check to see if the ads are there. If the advertisements are gone, then those houses were probably rented. If they are still up then they probably have not rented. Check again in a week to see which ads are still there and which are gone. If you want to take one more step then call the numbers or email the ads that you first printed and ask if the properties are still available.

I have tried a couple of different methods of pricing my rentals.

  1. Price at the top of the market and try to find a renter who will pay a premium.
  2. Price a little below market and take my pick of great renters.

My experience has been better with taking my pick of great renters. Even though the rent is lower, I usually have a lot less to worry about like late rent or excessive wear and tear. Whenever I price rentals high, I am waiting for a decent to mediocre candidate to send an application in, instead of picking the best tenant from many applications.

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Advertising

Once I have a decent idea of the market rent, I place an ad on Craigslist, put a for rent sign in the yard, and post it on Facebook, Craigslist, and Zillow. I don’t post in my MLS because very few people look for rentals with an agent in my area. Other areas of the country primarily use MLS or another method to advertise rentals. Be sure you research what the most prominent way to advertise rental properties is in your area.

Application

I use an application I found online and altered slightly when I am looking for potential tenants. I used to not charge an application fee or run a credit check but I do now. I charge $50 for an application fee and I use that money to run a credit check and background check. Potential tenants have had no problem paying these application fees, and it helps to make sure all tenants submitting an application fee are serious. A great way to judge a tenant is by talking to them as much as possible and looking at their application.

I want to see an application that is filled out as much as possible with multiple references. If an application is barely filled out, then the potential renters aren’t taking the process seriously or they are trying to hide something. When I talk to a potential renter, I want to learn as much about their previous living situation as possible, I ask about pets, I ask about employment, and who will be living in the property. The longer you talk to a tenant, the more you can learn about them.

When you first talk to a tenant on the phone, take notes so you remember what they said. Then when you meet them in person, ask them some of the same questions to make sure they give you the same answers. If someone is lying to you, it is a very bad sign. If they are late or do not show for an appointment it is an extremely bad sign. To avoid tenant problems, proper screening is vitally important and we now use SmartMove for credit and background checks. SmartMove lets the tenant sign in and pay them directly for background and credit checks so you don’t have to take social security numbers or private information. They also give you a recommendation on whether you should accept the tenant or not.

References

I always call references for all applicants that I am considering. I want to talk to the reference for the applicant’s previous residence and their current employer. I want to know if they paid rent on time, took care of the residence, or were high maintenance. By high maintenance, I mean calling in every week for minor issues, causing plumbing problems because their children like to flush toys down the toilet or any number of other items. I want to see if they had pets and if that information matches up with what they are telling me on their application. I want to ask the employer how long they have worked there. I want to know if they are a good worker and how solid their position is.

I will also ask how much money they make to see if it lines up with what the applicant is telling me. You cannot rely on everything a reference says because they may want the tenant out of their property and will say they are great when they are a nightmare! This is only one piece of the puzzle.

Pets and smoking

Pets can be an extra source of income or destroy your house. I prefer not to allow pets at all, but I may allow one dog with an additional pet deposit or an increase in rent. I usually charge a $200 nonrefundable pet deposit for a small dog. I always want a pet reference as well, meaning they had the pet in their previous residence and the pet did not hurt the property.

I do not allow cats, cats can ruin a house quicker than anything. If you haven’t smelled cat urine in a house, it is not pleasant. At a minimum, you have to remove all carpets and padding and in some cases remove the subfloor as well. I do not allow smoking in my rental properties at any time. If anyone is caught smoking or breaking any of the other rules, the lease says I can fine them $750 per occurrence.

Lease

I am lucky that I have a sister who is a property manager. I was able to use her lease and customize it for myself. Everything needs to be in writing including rent, term, late fees, the date rent is due, and things the tenant can and can’t do. A few things I include in the lease:

  1. No painting without written approval.
  2. Do not hang curtain rods without written approval.
  3. No smoking on the property.
  4. No pets on the property.
  5. Only people on the lease and their children may live in the home.
  6. No overnight visitors for over three straight nights.
  7. No illegal activities on the property.

If any of these rules are broken, the lease says I can fine the tenants $750 per occurrence. If there are any exceptions to these policies, I put them in writing in additional provisions in the lease. I have a section that shows what utilities are paid by tenants, in my case all of them. I have a section that says if the tenants break their lease early, they owe the remainder of the rent due for the entire lease. If I can rent the home again, I can’t charge the previous tenants for rent as well, but I will charge a one-month’s rent lease-break fee. I have many other items in the lease. I am not an attorney and I highly suggest you have an attorney look over any lease you create.

Lead-based paint

With any house built prior to 1978, I have to provide a lead-based paint pamphlet explaining the dangers of lead-based paint. I also have a lead-based paint disclosure signed by the tenants as well.

Deposits

I charge one month’s rent for the deposit, and it must be paid with the first month’s rent before the tenants move in. The only time I split up the rent and deposit is if the tenants want to reserve the home before they move in. They can pay the deposit first and then pay rent when they move in.

Safety

Each state has different laws regarding carbon monoxide detectors and smoke alarms. No matter what your state law is, I would put them in. In Colorado, we have to have carbon monoxide detectors within 15 feet of every bedroom. They are very cheap for the protection they offer, and you can plug them straight into an outlet.

Keep tabs on your tenants

The worst thing a landlord can do, besides rent to bad tenants, is ignore tenants or their properties. If you never talk to your tenants or never send them anything in the mail they will think you don’t care. Once they think you don’t care they will stop caring about the house and stop paying rent. Landlords cannot assume tenants will pay their rent and take care of properties without any oversight.

When I managed my properties, I had a tendency to be very lenient with my tenants. Some tenants paid on time and took care of my rentals and others always paid late and damaged my houses. I learned you have to be tough no matter what the tenant tells you. After learning my lesson I became very strict on rent being in on time and scheduled routine check-ups on the houses.

I learned the more you contact your tenants the better tenants they will be. We have a maintenance person check every house once a quarter. He checks furnace filters, smoke detectors, carbon monoxide alarms and looks for any problems. It is written into the lease that we have someone check the house every quarter and the tenants know they will have to keep the house in relatively good condition.

I said this once already, but it is worth repeating. The worst stories I hear are from landlords who did not check on their houses for years and they were surprised to find the tenants had trashed the house. Not only can tenants trash the house easily without oversight, but they also have a greater tendency to commit illegal acts at the house or create dangerous situations.

A drug house is a landlord’s worst nightmare, especially a meth house. If a property is used as a meth lab, the entire interior may have to be gutted costing tens of thousands of dollars or more. If the tenant knows they will be checked on every couple of months, there is a much better chance they will refrain from illegal activities.

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Late Fees

My leases say that all rents must be received by the 1st of the month and rent is late on the fifth. If we don’t receive rent on the fifth we start charging late fees. I don’t care why the rent is late, we charge late fees. It is not fair to charge late fees to one tenant and not another. If you don’t charge late fees the tenants will think they can continue to pay rent late with no penalties. Pretty soon the tenants are one month behind and it is a struggle for them to ever catch up. Once they get too far behind they may stop paying altogether and then you will have to evict them.

Evictions

I rarely have to evict a tenant, but that doesn’t mean I have not had bad tenants. The reason I avoid evictions is I usually come up with a mutually agreeable move-out plan for the tenant. If you have to evict a tenant it can be a very expensive and a long process. The eviction process varies in every state. In Colorado, it takes about a month to evict a tenant. In other states, it takes longer and in a few states, it is a quicker process. It is not only the time it takes to evict someone that costs money.

To get to the eviction point, the tenant is at least a couple of months behind on rent. People also do not like being evicted and have a tendency to do damage to homes when they are evicted. I have avoided evictions, but that does not mean I have avoided vacancies. I have ended leases early in multiple situations where the tenant could not pay rent or would not for various reasons.

Instead of going through the lengthy eviction process, we were able to work out a deal where the tenant moved out before their lease was up and I did not hold them responsible for the rest of the lease. I could have held them responsible for future rent as well, but that leaves hard feelings and there is a better chance they would damage the home.

By letting them leave early, they get the feeling I am helping them out. In my rental market, I also have no problem renting homes quickly. I would much rather get a bad tenant out right away and get a good tenant in the property. I still try to collect any back owed rent or any damage done to the property above and beyond the security deposit.

We also always use a lawyer when we have to evict because while it costs money it saves time and it is easy to mess up the paperwork!

Behind on rent

Most of my tenants are very good about paying rent on time because they know they will be charged late fees. I had one tenant that was always late and always has a multitude of excuses and pretended he was not late. The funny thing is he had bought a brand new Toyota Sequoia and we got a call from another car dealership because they were trying to buy a second brand new car. Some people do not know how to manage or save money! If I never told this tenant how far he was behind, he would assume he was paying on time. In fact, he would probably stop paying altogether and assume someone else had started paying rent for him.

One thing we do is send an invoice every month to every tenant. This reminds them to pay rent on time, reminds them where to send the rent and they have no excuses for not knowing they were behind. If a tenant gets more than one month behind or stops communicating with us we will post a notice to vacate on their door. When you post this notice you do not have to evict the tenant, but it sure gets their attention and if they don’t contact us, it is the start of the eviction process.

Maintenance

Some landlords are cheap and will not maintain their properties or repair their houses. You are asking for problems from the property and the tenant if you do not maintain the property. A house that shows poorly will attract poor quality tenants and if the tenants are unhappy with the home they will be less likely to pay rent or take care of it.

If the landlord ignores problems like a bad roof, bad electric, or bad plumbing it could cause thousands of dollars in damage or be dangerous. Rental properties do not have to look like a luxury resort, but they should be functional, all the major systems should work and they should look and smell decent. Maintenance items will come up and that is why it is important to have enough money in reserves to pay for repairs.

How long does it take to manage rentals?

There are many tasks associated with managing rentals, but it doesn’t take a lot of time for one property. The most time-consuming part of managing properties is getting them rented. If you only have one rental property you should be able to spend a few hours a month managing it. Many of those hours will come from renting the home and much fewer hours will be from collecting rent, dealing with maintenance, and other issues.

Managing one rental property, two or three rental properties is not too difficult either. Once you start getting four or more rentals it starts taking a significant amount of time to manage your properties. If you don’t have the time to manage them; get help. When you don’t take the time to screen tenants or check up on your properties is when you encounter serious problems.

Hiring a property manager

There is a lot involved in managing rental properties, but not every rental will have issues that require a lot of management. I have had rental houses that never have a problem, are well maintained and the tenants always pay on time. I have had other rentals where the tenants are always having problems, pay late, or stop paying completely. I had one tenant who had a heart attack and could not work anymore.  We came up with a mutually agreed-upon plan where he would move out and try to pay me back for back rent owed. He never paid me, but I rented the house right away for more money than he was supposed to be paying and it worked out okay.

It is worth it for many people to use a property manager, especially if they can’t handle being tough on tenants. Property managers will cut into your profits, but they will save you time as well. Property management fees usually range from 8 to 12 percent of the monthly rents. Some property managers also charge a leasing fee, which could be one-half or one month’s rent. In my area, I can find property managers who charge 8 percent of the monthly rents with no leasing fees. I have thought about starting a property management company, but with fees that low it is hard to make much money.

I have a real estate team that consists of real estate agents, assistants, and myself. When I gave up managing my rental properties, I handed the duties over to my team. Not only does my team help me with selling houses and my fix and flips; they manage my rental properties.

Conclusion

If you want to manage your own rentals, make systems to help you. Create a system to check your houses, make sure rent is on time, and make sure accounting information is logged every month. It was not difficult for me to manage my rental properties, but I also started to let things slide at the end and that is when problems occur. If the tenants don’t think you are paying attention they will be more likely to try and take advantage of the situation. If you are looking to buy rental properties and do not think you can handle managing them, make sure you account for the cost when figuring your cash flow.

Build a Rental Property Empire

Categories Rental Properties

Source: investfourmore.com

Apache is functioning normally

Last Updated on March 29, 2023 by Mark Ferguson

I fix up a lot of houses whether they are my personal house, my rental properties or my fix and flips. When I repair a house I don’t mean I do the work myself; I have a contractor do it for me. The most difficult part about fixing up a home is finding a great contractor and estimating how much the repairs will be. Estimating the costs to repair a house is not easy to do, but this article will give an idea of what repairs will cost. Repair costs will vary based on the quality of products used, how much labor costs are in your area and the contractor you use.

Update on 2021 repair prices!

I wrote this article before Covid hit the world. You might assume that Covid would decrease the prices of repairs but the opposite has happened. Repair costs have skyrocketed. Many manufacturing companies that produced materials shut down or reduced production while at the same time people were staying home and completing remodeling projects! The price of lumber, insulation, windows, doors, etc has gone much higher.

I am hoping that the market corrects itself soon but you can take most of the prices I list here and add 20 to 40 percent thanks to the increase in costs.

Why buy something that needs work?

Almost all the houses I buy need work and some need a lot of work. I would love to buy houses that are in great condition, but I want to buy houses that are a great deal. To get a great deal you usually have to buy houses that need some type of repairs, because there are fewer buyers who will buy those homes. When a house needs a lot of repairs, most buyers may not be able to get a loan on that house. The fewer buyers for a house the better deal you can get. It also takes cash to make repairs on a house, which further reduces the number of people who can buy houses that need work. Many people don’t want to hassle with making repairs or finding a contractor to make the repairs, which further reduces the buyers for homes that need work.

Even if you buy a house that is in great shape it will need work at some point. The fixtures may become outdated, the interior or exterior may need paint and things eventually break.

Below is a video on a house we flipped and how much it cost to fix up:

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How much does it cost to paint?

When I fix up a house I always paint the house and replace the floor coverings, unless those items were just done. The cost to paint a house has increased a lot in the last few years because the cost of paint has increased and labor has increased as well. My costs to paint the interior of a house are about $1.50 to $2.00 a square foot. For a 1,500 square foot house, it costs about $2,200 to paint the interior. That includes painting the trim white and the walls a different color like beige or gray.

The exterior of a house costs more to paint because the paint is more expensive, more prep work is needed and the weather has to be nice. Painting the exterior of a house can run $3.00 a square foot or more depending on the complexity and condition of the house. If a home has peeling paint it will cost much more to scrape and prepare the surface for new paint. If a house has lead-based paint, the costs can be much more due to the preparation and clean up work needed to dispose of the old paint. Your contractor or painter must be certified to remove lead-based paint or they can face huge fines from the government.

How much does flooring cost?

When I replace the flooring I almost always use carpet for the living areas and vinyl or tile for the kitchens and bathrooms. If a house has hardwood I will re-finish the hardwood, but I don’t add or replace hardwood because of the cost. It will cost three times as much as carpet to install hardwood floors. For me to replace the carpet in a 1,500 square foot house it will cost about $3,000 to $3,500 installed. Vinyl or tile will cost another $500 to $1,000 for the kitchen and baths. These costs are for middle of the road materials that look nice and will last, but do not cost a fortune.

If a house already has hardwood I will do my best to re-finish it, because refinishing is cheaper than installing new carpet. I also like the look of hardwood floors and buyers love them. I can re-finish a 1,500 square foot house that is mostly hardwood for about $2,000.

We will also use laminate or vinyl plank flooring now that the quality has improved and it lasts if installed correctly.

How much are light fixtures?

Another great update to a house is replacing the light and plumbing fixtures. A house with brand new lights, door handles, and faucets that all match, can transform a home. I like to use antique bronze, but we have also used brushed nickel. Light fixtures are as cheap as 2 for $20 for a basic bedroom and bathroom lights. A nice chandelier can be bought for under $150 as well as a nice ceiling fan. Door handles are $20 or less depending on the style and faucets run from $35 to $150. For an entire house, you can replace the lights, door handles and faucets for about $1,200 installed.

How much are appliances?

Another way to make a house look great is by adding new appliances. We put stainless steel appliances in our houses; I can get a stove for $500 to $600, a dishwasher for $300 and microwave for $250. I usually do not buy a fridge for my flips and for my rentals I may buy used appliances off Craigslist. Appliances make a huge difference in the look of a kitchen even if the cabinets are dated.

How much are cosmetic repairs?

If you do all the work mentioned above and the rest of your home is in decent shape, it will make a huge difference in the look and feel. I almost always do all the repairs I discussed on every fix and flip. With my rentals, I usually do most of those repairs, but if a house is in decent condition I can get away with less. Here are the total costs for a cosmetic upgrade on a 1,500 square foot house:

New interior paint: $2,200

New floor coverings: $4,500

New fixtures: $1,200

New appliances: $1,300

Total cost: $9,200

When you fix up a home it almost always costs more than you think so be prepared to spend more than what you calculate. It is very rare that I ever spend less than $10,000 on any house that I fix up because there are usually many little things that need to be repaired as well. Drywall holes, outlet covers, landscaping, and many more things will increase the costs. It is also rare that I do not have more major repairs to complete.

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How much are major repairs?

The repairs on my flips and rentals vary from basic cosmetics to a massive remodel. Here are other common repairs we make on houses and the cost.

  • Kitchens: It is not as expensive as you might think to replace a kitchen. I can replace a basic kitchen including cabinets, countertops and sink for $2,500 in materials or less. After adding the labor you can replace a kitchen for well under $5,000.
  • Baths: Baths can be gut jobs or a simple vanity replacement. For a full gut job, I can usually get the job done for less than $3,000. To replace a vanity, toilet and bath surround it can be done for less than $1,000.
  • Roof: I have a great roofer who will replace the roof on a 1,500 square foot house for around $6,000.
  • Electrical: Electric repairs can vary a great deal based on what needs to be done. Minor repairs can be a couple of hundred dollars or major rewiring jobs can be $5,000. It is important to get any electrical concerns checked out to see how serious they are.
  • Plumbing: Plumbing is similar to electrical. A minor job can be very cheap, but to re-plumb, a house can cost $5,000 or more.
  • Sewer: Sewer lines can be very expensive to replace. Luckily I have never had to replace one, but to replace a line can be $3,000 to $10,000.
  • Foundation: Most foundation repairs are not fun to deal with. There are many issues from settling, water leakage, grading issues or structural problems. If you have water problems in the basement or crawl space it could be a major foundation issue that is $10,000 or more or a simple grading issue that some dirt work will fix.
  • Windows: We end up replacing a lot of windows because we buy older houses all the time. For basic vinyl windows, I am usually charged about $300 a window by my contractors for material and install.
  • Doors: We also replace a lot of interior doors. Six-panel white doors make a home look very nice. Doors are usually $100 to $150 per door installed.
  • Stucco and siding: I rarely replace the siding on a home, but I have on occasion.  I am putting brand new stucco on a fix and flip that is costing about $8,500 for a 1,250 square foot house. Replacing wood siding is cheaper, but you then have to paint the wood siding. You can still re-side and paint a house for less than stucco in most cases.
  • Drywall/Sheetrock: With old houses, I see a lot of plaster and bad drywall. Brand new drywall makes an old house look so much better than uneven crumbling plaster. On a recent flip, a drywall specialist charged about $3,000 to do the walls and ceilings in three rooms that totaled about 500 square feet.
  • Furnace/hot water heater: I had a brand new forced air furnace system installed for about $5,000 this year. To replace just the furnace is about $2,500 and a hot water heater about $800.

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How much do I spend when I repair a house?

On my most recent fix and flip that is about to be put up for sale, I spent about $18,000 on the remodel. That included interior and exterior paint, new carpet, new doors, new trim, some electrical work, some new drywall, trash out, landscaping work and many little fixes. On a flip that is about to have the work started, I will spend over $50,000 on the repairs. That house needs new plumbing, new electric, new paint everywhere, siding work, new windows, new doors, new drywall, new baths, new kitchen, new floors, new fixtures, new trim and more.

Where do I buy materials to fix up my houses?

I shop at Home Depot for most materials including fixtures, doors, windows, door handles, kitchens, baths, and all the little stuff. I have a pro account with Home Depot, which gets me huge discounts on the materials we buy for flips and rentals.

Conclusion

Repairing a house does not cost $50,000 or $100,000 for basic cosmetic repairs. I see kitchen remodels on television that cost $50,000 and I can’t believe my eyes and ears! Even if you use high-end materials like granite counters and custom cabinets you should not spend $50,000 on a kitchen unless it is in a million-dollar home. Repairs can add up quickly on remodels and I always expect about $5,000 more in costs that I plan to spend due to unknowns. Find a great contractor, make sure that contractor does their work and shop around for the best prices to keep your costs down. Remember these costs are what I pay to fix up homes in my area. If you live in an expensive town, your costs may be significantly higher.

My book Fix and Flip Your Way to Financial Freedom, goes over exactly how I flip houses! It covers how to find deals, finance properties, what repairs to make, and how to market finished flips! It is available as a paperback and ebook on Amazon.

Build a Rental Property Empire

Categories Fix and Flips

Source: investfourmore.com

Apache is functioning normally

Posted on: October 16, 2018

Veterans have access to the three different types of loans: the purchase loan, the VA cash-out refinance and the VA streamline refinance (IRRRL). When looking to buy a home, only one of these can be used for purchasing.

The VA purchase loan has a lot of different rules, though. Depending on what the veteran is looking for, they can take advantage of some of these benefits, or ignore others entirely.

For the most part, veterans will take advantage of the same benefits offered through the VA loan: 100% financing, low mortgage rates and low credit score requirements, to name a few.

Purchase loans are mostly the same, although little changes can give you a different type of VA loan.

Click to begin the home buying process.

Regular VA purchase loan

By “regular,” this means that it’s a standard VA purchase loan. In addition to the biggest benefits offered by the VA loan, home buyers will also be able to prepay without penalty and avoid paying mortgage insurance, regardless of the size of their downpayment.

There are other requirements to consider, though. The VA has required fees at closing, including the VA funding fee. This fee helps keep the VA program running. Even when including the funding fee in the total costs, though, the VA loan is usually still the best option for home buyers – if they’re eligible.

Also, the home that you choose will have to pass the VA appraisal. The VA has stricter standards than other organizations, and some problems like lead paint can prevent the mortgage from going through entirely. but most available homes (and nearly all new homes) will pass this with ease.

VA renovation loan

Not all homes are up to the VA’s standard, and some have a little work that needs to be done. This is where the VA renovation loan comes in.

The VA renovation loan is still technically a VA purchase loan, only the total size of the mortgage is going to be a little larger. Veterans can use this extra money – up to $35,000 – to make important renovations or repairs to homes.

There is a limit to where the money can be used, though. The extra funding can go toward repairing the roof or floors, improving the energy efficiency of the home and removing lead paint and getting the home repainted, among other uses.

You can learn more about VA renovation loans and their restrictions here.

VA construction loan

Beyond renovating a home, the VA loan can be used to build a new home.

A VA construction loan allows home buyers to become home builders, financing the construction of their future home with a VA loan. This can be an affordable way to build a home, if you have the time to wait until the construction is complete.

The biggest downside to this type of loan is that it can be difficult to find a lender willing to issue one, especially if the veteran is looking for 100% financing. These are rare loans – but the VA guarantees them, and some veterans do manage to find a lender willing to issue them.

Click to get connected to multiple VA lenders.

Native American Direct Loans

Native American Direct Loans (NADL) are VA loans specifically for Native American veterans and their spouses. These have all the same benefits of the VA loan, including the renovation benefits, but with fewer restrictions.

The biggest benefit of this VA loan is that the Native American veteran can use the loan to purchase property on Federal trust land. The regular VA loan cannot be used for this.

Differences when reusing a VA loan

You’re allowed to use VA loans multiple times, although the loan will change slightly after the first purchase.

The VA funding fee increases after you buy you first home with the VA loan. However, it won’t continue to increase if you use the VA loan to buy your third home and on.

As of January 1, 2020, VA-eligible borrowers can get any size loan with no down payment. There are no official limits. But remember, you’ll still have to qualify for the mortgage.

Click to check today’s VA rates.

Source: militaryvaloan.com

Apache is functioning normally

Last Updated on March 29, 2023 by Mark Ferguson

When buying a house, buyers are given a certain amount of time to complete a home inspection. Most people complete some type of inspection when purchasing a home, but is a home inspection always necessary? I have been a Realtor since 2001 and I am also a real estate investor. In my opinion, 95 percent of house buyers should always get a home inspection. There are a few cases when a home inspection is not needed and some cases when not getting a home inspection will actually give you a better chance at getting a great deal on a house. I have not asked for a home inspection for over a year on my own investments.

How does a home inspection work when buying a house?

When buying a home, most buyers are given a chance to get an inspection done on the house before they buy the home. In most states, it is typical for the inspection to occur right after the home goes under contract. Buyers are given a specific amount of time to either inspect the house themselves, have a friend inspect it, a contractor or a professional home inspector check out the home.

Buyers should be allowed to check out everything in a home including the major systems, utilities, and minor cosmetic issues. In some cases like with HUD homes or some REO sellers, the utilities cannot all be turned on. If the pipes on a HUD home do not hold pressure when HUD inspects a house, the buyer will not be allowed to turn on the water for inspections or appraisals (will discuss HUD rules later in the article). In some cases, houses that are in really bad shape may not have the electric or gas turned on if it is not safe to do so. The buyers are usually responsible for ordering and paying for the home inspection and it gives them a chance to ensure the house is in satisfactory condition before they buy the home.

I also made a video on this subject below:

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How much does a home inspection cost?

The cost of a home inspection can vary greatly. Smaller houses are cheaper to inspect and larger houses are more expensive. Costs vary depending on the region of the country you are in and living costs. Different inspectors have different rates as well.

For a rental property, I would buy that is about 2,000 square feet total I can get an inspection done for about $300. On my personal house which is close to 6,000 square feet, the inspection was $600 and the inspector did not even get a chance to look at everything in the home (after 5 hours). I am able to get slightly lower rates because I am a Realtor and there is a chance I might send business to inspectors. As a regular buyer expect to pay a little more than I do.

Besides using an inspector you can also use a contractor to look at home for you. I would be cautious when using contractors because they might tend to underestimate the seriousness of some repairs. If they convince you not to buy a home and they know you will use them to fix it up, they just cost themselves a job. I had a local roofing contractor look at a flip for me last year where there were major structural problems in the roof. He said it looked like an easy fix and not to worry about it. After he got started on the job, the easy fix turned into almost a complete rebuild of the roof!

What happens to the earnest money if a contract is canceled due to a home inspection?

When you write a contract to buy a home or your real estate agent writes a contract for you, you usually include earnest money. A typical amount for earnest money is one percent of the purchase price, but it can vary depending on your location and the seller. The earnest money is a good faith deposit showing the buyer is serious about buying the home. However, that does not mean the earnest money is nonrefundable if the buyer backs out.

Most contracts are written so that the buyer can cancel the contract and get their earnest money back if certain things happen. If a buyer has an inspection contingency written into the contract, they have a certain amount of time to complete an inspection. If the buyers cancel their contract because of the inspection and they notify the seller before their inspection contingency expires, they will receive their earnest money back most of the time (HUD is an exception I will go into more detail later).

If a buyer is not able to get a loan, there is a title problem or another contingency allows the buyers to cancel (title, appraisal, survey, etc.), they can cancel the contract and get their earnest money back as well. You just have to make sure the seller is notified before the dates on the contract expire for those contingencies. It is actually pretty rare that a buyer will lose their earnest money unless their agent misses a date or the buyers decide to cancel the contract very late in the process after their contingencies have passed.

Does a contract automatically get canceled after a failed home inspection?

If you find major problems after a home inspection you do not automatically lose the house. There are many options for the seller and buyer to save the deal. The outcome will depend on how serious the problems are with the house and how motivated the sellers and buyers are. The buyer can ask the seller to renegotiate the contract terms or to cancel the contract. Here are a few ways home inspection issues can be resolved.

  • Buyer agrees to purchase the home as-is. In some case,s the buyer will decide to proceed with the purchase of a home, even if there are major problems. In some case,s the buyer will have no choice because the seller will not make repairs or change the contract (HUD).
  • Seller agrees to make repairs to a home. Many times a seller will agree to make repairs to a house after an inspection is done. The seller may agree to make all the repairs the buyer asks for or negotiate to make some of the repairs.
  • Seller agrees to lower the price or renegotiate other terms. The buyer may ask the seller to lower the price, or the seller may offer to lower the price after the buyer requests repairs to be made. The seller can also agree to lower the price and make some repairs.

The buyers can ask the seller to repair whatever they want or lower the price to whatever they want, but the seller does not have to agree to anything. If the seller and buyer cannot come to an agreement on what to fix or how much to renegotiate, then the contract will fail.

Why would a buyer not want a home inspection?

In most circumstances, it makes sense to get an inspection done. Most homebuyers do not have the expertise to know what problems they may encounter when buying a house. A professional contractor or inspector can discover what problems a house has and how serious they are. A home inspection also gives a buyer the chance to ask for repairs or renegotiate the contract. I recommend almost all buyers get a home inspection done.

Having said that, I have not gotten an inspection or asked for an inspection contingency in a contract on the last ten houses I have bought. When you waive your inspection contingency it makes your offer much more attractive to the seller and gives you a better chance to get your offer accepted. This is a great tactic to use in a very competitive market when there are few deals to be had. It is also a great tactic to use in a multiple offer situation.

Do not waive a home inspection if you are not very experienced in buying homes, knowing what repairs are possible to come up and how much they will cost!

Why do I feel comfortable buying houses without an inspection?

I have been a Realtor since 2001, I have more than 20 rental properties and have flipped over 180 houses. I have a lot of experience with repairs on properties and what to look for. I have repaired an entire flip myself back a few years ago, which did not go as planned, but sure taught me a lot! There are many things that can cause a lot of problems on houses and you have to know what to look out for.

  • Foundations
  • Roofs
  • Plumbing
  • Electrical
  • HVAC (heating and cooling)
  • Mold
  • asbestos
  • Siding
  • Wood rot

These are just some of the things you must be aware of and know what to look for if there is a serious problem. These issues do not include cosmetic items or things you can see are wrong like:

  • Kitchens
  • Baths
  • Fixtures
  • Paint
  • Carpet
  • Doors
  • Windows

Not only do you have to be able to see when there is a problem, but you also have to know how much it will cost to repair these items if there is a problem. When I buy flips or rental properties I am buying them at a huge discount. When I make my cost estimates for repairs on a home, I always budget in extra money for things I may miss or discover during the rehab. I never assume a house only needs the work I can see, which is another reason I feel comfortable buying houses without an inspection.

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Why are HUD inspections different from traditional sale inspections?

HUD homes and some REO sales have many different guidelines than traditional sales. HUD homes are government-owned foreclosures and you can find much more information on them here. For owner-occupants, HUD allows the buyer a 15 day inspection period. The buyer must pay for the utilities to be turned on for the inspection and in some cases, HUD will not allow the water to be turned on. HUD has all of their homes pre-inspected and they do a pressure test on the plumbing system. If the plumbing system does not hold water, HUD will not allow the water to be turned on for the inspection or appraisal.

The inspection HUD does before they list a home provides some information to a buyer, but many times the utilities are not on when that inspection is done. I would never rely on the HUD inspection only; I would get my own inspection on HUD homes as well (if I were a normal buyer). HUD publishes the findings of that inspection (it is called the PCR) on hudhomestore.com under addendums. This is important to know because if HUD lists something that needs to be repaired on the PCR the buyer cannot use that as a reason to get their earnest money back. If the buyer of a HUD home finds an inspection problem and they want to cancel it has to be a new problem that HUD did not find.

HUD will also not make any repairs or lower the price based on the inspection and investors are treated differently than owner-occupants. An investor will not get their earnest money back due to inspection problems period on a HUD home.

Is it safe to waive an inspection if a home is pre-inspected?

HUD homes have an inspection done before they are listed. I have already talked about why you should not trust a HUD inspection and you should have your own done. Some traditional listings will advertise they are pre-inspected. I think it is a good sign that a home is pre-inspected, but again it is best to get your own inspection done. Inspections are relatively cheap compared to the cost of the problems they might find. Even if a house is pre-inspected I would have your own inspection done to confirm nothing was missed.

Is it wise to use an inspection contingency as a negotiating tool?

If you find major problems with a house that you did not know about, it makes sense to ask for repairs to be done or the price to be reduced. Some buyers will make an offer with the intention of asking for a price reduction from the inspection results, no matter how the inspection turns out. I never do this and I find it to be dishonest and unethical. For investors who buy many houses, it can also hurt your chances to get a great deal.

I have seen a few deals fall apart because buyers tried to use this tactic and it made the sellers and real estate agents very unhappy. When investors buy a lot of homes they will make offers to the same agents over and over again. I am a HUD and REO listing broker and list many houses. If I see a buyer who always asks for ridiculous inspections items or price reductions I will let my seller know before they accept their offer. If a buyer or real estate agent gets a reputation for renegotiating every offer on inspections, it will make it harder for them to get offers accepted.

One reason I am able to get so many deals from the MLS, is other agents know I do not play games, I do not renegotiate and if I say I will close, I will close.

How to find a great home inspector

When you use a real estate agent they should have suggestions for inspectors in your area. There are also inspectors you can find online, but I would use the recommendation of a professional in the business. There are many home inspectors and in some states, they need no training or licenses to be a home inspector.

I would interview any inspector before you use them and make sure you are comfortable with their knowledge and services. Some inspectors will nitpick a house over minor issues and some inspectors will not be very thorough and could miss major issues.

I would interview any inspector before you use them, and make sure you are comfortable with their knowledge and services. Some inspectors will nitpick a house over minor issues and some inspectors will not be very thorough and could miss major issues. A good real estate agent can help you choose the right inspector, as well as help you go over the report.

Conclusion

Home inspections are very important for most buyers who are not buying a lot of houses. Even if you buy a lot of homes, you have to be very comfortable judging repair costs and what will need to be repaired if you are thinking of waiving your inspection. If you do waive your inspection, you can get out of a contract but may lose your earnest money in the process. My advice to most is to always get an inspection done.

Build a Rental Property Empire

Categories Real Estate

Source: investfourmore.com

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There’s no easy answer to the question “Should I rent or buy a house?” It depends on so many factors: your age, your finances, your neighborhood, your future plans, the current real estate landscape, and the mortgage market, to name just a few.

Being a landlord requires a lot of responsibility and quite the investment. But it also comes with a great set of benefits, including becoming your own boss and gaining more control over your time — and earning.

If you’ve ever wondered if it would be worth it to become a landlord (and what exactly that entails), keep reading.

Entire books have been written about finding a good rental property. So much text has been dedicated to the topic because of its critical importance. Buy too expensive a place, and you’ll never make money. But trying to snag a bargain can be troublesome too.

Buying a fixer-upper requires that you have the skills, time, tools, and cash to make the necessary repairs and renovations. But here are some of the biggest concerns you should have before embarking on the journey to becoming a landlord:

Do you have enough in savings?

Let’s just say that your tenants can’t make the rent, but they are not going to move out without a fight.

Before you buy a rental, you need to amass an economic cushion amounting to at least six months of housing expenses, plus a few thousand dollars to pay attorneys. That gives you the staying power required to manage most worst-case scenarios. 

Are you handy?

If you’re a handy person who likes doing your own work around the house, light plumbing, perhaps some construction, yard work, and so on, you might be a good candidate for becoming a landlord.

If you’re just starting out, it may be too expensive to handle outside contractors if you expect to turn your rental income into profit. Doing the work yourself saves money.

Are you available for 24-hour responsibility?

Hiring a company to manage your properties is an expense that cuts into your profit. Depending on the location, you may be able to afford this from just your rental income. If that’s the case, work with a professional property management company who will answer the phone at any hour to fix any household problems that arise.

Otherwise, be prepared for calls in the middle of the night. If you’re starting your adventure with rental properties while working at another job, you will find yourself with competing priorities often. Usually, a good idea is to start out small, and see whether being a landlord truly is a good fit for you — before embarking on bigger projects, with many units.

Another question you need to answer is: Are you old enough? You can legally buy a house as young as 18. But bear in mind that, on top of the financial responsibility that comes with a purchase, you will also have to account for the property in the eyes of your renters.

Can you keep tenants happy?

Of all the costs associated with being a landlord, the biggest one is a vacancy.

Every time a tenant moves out, you’re going to spend money, probably quite a bit of it. That means finding and keeping good tenants is the heart of successfully investing long-term in real estate.

Happy tenants are critically important. They’re your customers. And the way you keep them happy is by keeping the property in good shape and treating them with respect.

This means being a landlord also comes with a great deal of hospitality and marketing tasks that you probably haven’t factored in before, but that are crucial to your long-term success.

More helpful tips

6 Smart Home Devices to Keep Your Pets Safe, Well Fed and Entertained While You’re Away
This Is How Real Estate Investors Use Interior Design to Make a Property More Appealing

Source: fancypantshomes.com

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Waking up in a place of your own with the birds chirping right outside your window is a great feeling.

You go outside and enjoy your coffee on the back porch, simply enjoying the quiet that comes with not living in an apartment.

Your neighbors are friendly, the sun is shining, and you know it is going to be another great day of owning a home.

Everything is going great… until the peaceful morning is ruined by the sound of your air conditioner going out.

As romanticized as owning a home has become in America, there are some significant costs associated with buying, owning, and maintaining a place of your own.

The True Cost of Home Ownership

Let’s break down some of the areas on how to value home ownership. There are some obvious costs like your monthly mortgage payment, but hidden costs sneak in there and can break the bank.

Obvious Home Cost: Principal and Interest

For most, the cost and financial benefits of renting versus homeownership are the deciding elements. The traditional logic is that renters are throwing away their money by paying someone else’s mortgage. Though true, this is a simplistic view.

On a $150,000 home purchase with 20% down (so a mortgage loan of $120,000) at 3.5 percent APR, the monthly principle and interest payment is $538.35 per month.

This sounds like a smart deal since most houses increase in value over time, while the monthly payment lowers the principle balance and increases the equity. If you are paying $600 per month in rent, owning your own home for about the same amount sounds like a great deal.

While principal and interest is a big chunk of your monthly costs of owning a home, there are a lot of other costs to consider.

Hidden Home Cost: Property Tax and Insurance

When you speak to a real estate agent about looking at homes, they generally speak of how much a home is going to cost you in a monthly payment. Many agents will focus on quoting you prices based just on the principal and interest because it means they can get you into a more expensive home — pulling you toward that dream home — thus earning a larger commission check on the sale.

Unfortunately, your monthly payment will have other costs associated with it, namely property tax and homeowners insurance. Depending on the area, these costs can increase the payment significantly. Unlike principal and interest, taxes and insurance payments is money that you are not getting back.

You might pay an extra $150 to $450 per month in tax and insurance cost depending on the area you live in, what the tax structure is, and how much insurers charge to protect your home’s area.

Tax and insurance costs are not fixed unlike your principal and interest payments (assuming you get a fixed rate mortgage). Your local municipality can raise taxes over the years, and homeowners insurance companies are constantly changing annual premiums.

Some states have homestead exemptions that lower a homeowner’s tax burden, so check to see if your state allows this.

Obvious Home Cost: Down Payment

When you rent an apartment your costs are an application fee, security deposit, your first month’s rent, and getting renters insurance. With just a few thousand dollars you can be completely moved in and setup in an apartment or rental home.

When you purchase a home of your own you need to save up money for a down payment. Back in the heyday of the housing boom you could buy a property with little or no money down.

Those days are gone. (This is a good thing!)

Home ownership is a serious commitment and requires serious cash to get started. Many lenders want to see you have a 20% down payment in order to be approved for a loan. On a $150,000 home that means you need $30,000 in straight cash sitting in an account waiting to be used once you find a home.

That’s a lot of dough to be sitting on. I highly recommend using one of the top online savings accounts such as Capital One 360 Savings to hold your down payment so you earn interest until you find the home you want.

Still not sure if you should keep renting or buy your first home?  Use this nifty calculator to help you decide:

Hidden Home Cost: Home Maintenance and Upkeep

Owning your own home means you get to decide how your home looks inside and out, including the property’s landscaping. Unless the home is in a designated historic neighborhood, or one with zoning restrictions or homeowners association rules, homeowners are generally free to apply for permits and make changes to a home’s look, structure and more.

It also means you get the “honor” of mowing, trimming, dealing with weeds, and footing the cost of repairs.

Rental properties usually outsource a maintenance crew for maintenance and lawn care so you don’t have to spend time on those items. While a homeowner may have to spring for a new Husqvarna, he or she can landscape as desired. Just remember, it takes time and money to keep up the home and yard.

Most rental management companies will have an itemized checklist of all appliances, flooring quality and states of repair. Often these will be accompanied by photos. Any changes to the rental property outside of normal wear and tear need to be put back to the original state. Renters usually can’t make material changes to the property.  You’ll also have to find affordable renters insurance.

This is not the case for a purchased home property. You can change what you like, but all of the cost comes from your pocket.

How much money should you have on hand for home maintenance? A general rule of thumb is to have at least 1% or 2% set aside for home repairs. If you own a $150,000 home that means having $1,500 or $3,000 set aside for when the roof leaks or the HVAC unit goes out in the middle of summer.

Even that amount of money won’t cover major repairs, but it is better to have a starting point in paying the repair bill than to be starting from scratch.

An easy way to make sure you don’t spend your home repair fund is to use a low risk investment like a certificate of deposit. CDs allow you to earn higher interest and only charge a few month’s worth of interest if you need to pull the funds out before the CD matures. One of the best places to get a CD is online with Discover Bank.

You might create a separate category in your budget to hold maintenance money and a separate category to hold money for landscaping or yard maintenance.

Hidden Home Cost: Higher Utility Bills

Living in a 800 square foot apartment can keep your utility bills down simply because you don’t have much space to heat or cool. There can be some financial shock when you get your first set of utility bills after moving into a much larger home.

If you are used to spending $600 on rent, and $100 on monthly utilities, buying a home with a $600 mortgage payment leaves you with the same amount of money to heat and cool a much larger space. Depending on how old the home is your HVAC unit might be older than the one in your apartment building and thus be less efficient. A less efficient unit combined with a larger square foot area can result in some shocking utility bills.

How much should you anticipate to spend on utilities? Ask the sellers.

Pro Tip: When looking at homes ask the sellers to provide utility bills for the last 12 months and a description of where they kept the temperature set. This can give you a rough idea of what you’ll be spending each month. Even if your exact use of the area isn’t the same — they set it at 73 degrees and you prefer 71 — you’ll at least have a ballpark figure.

Hidden Home Cost: Termite Protection

It’d be nice if we could buy a home and never have to worry about termites ruining the structure. Unfortunately this is one of those hidden costs that many people don’t think of.

You can get a termite bond to protect your home. When you purchase a termite bond (usually a couple hundred of dollars) the termite extermination company comes out to inspect your entire house inside and out for signs of termites. Assuming none is found, they spray a preventative down and right a bond that essentially guarantees against termites.

Each year the company comes back to renew the bond for a smaller fee, does another inspection, and sprays again if necessary.

After the initial cost of the bond it is usually $50 to $100 to renew the termite bond. That doesn’t sound like much, but it is just another hidden cost that you need to prepare for.

Hidden Home Cost: Realtor Fees

Where a home can be the cornerstone for growth for some, it can be an anchor that prevents movement for others. Housing markets fluctuate. The housing values and mortgage rates that make it ideal to purchase a home now may not be there five years from now. When purchasing a house, be prepared to stay with it for at least five year or else plan on losing money.

Selling a home is a giant unknown that you need to consider when first purchasing the home.

  • Can you live here long term?
  • What happens if the housing market tanks around you?
  • Can you afford to pay 6% realtor commissions if you use a real estate agency to sell the home?

The commissions paid to realtors are a hidden cost that reach into the thousands of dollars. A 6% realtor commission (3% for the buying realtor and 3% for the listing agent) is $9,000 on a $150,000 home. That means your home has to go up by at least that much in value if you want to sell it, and that’s assuming home prices are going up in your area.

Anticipating Home Ownership Costs: Use a Budget

Putting together a budget is one of the best things you can do before you even begin to consider purchasing a home of your own. You need to have a solid understanding of where you are currently spending money each month. Having a baseline for your current costs will make it a lot easier to compare to potential home ownership costs than if you are just shooting in the dark.

There is a lot of great personal finance software available. For budgeting we recommend You Need a Budget for your core budgeting needs. You can use other programs like Manilla and Mint to add additional monitoring as needed, but YNAB is a great piece of software.

Is Owning a Home Worth It?

Don’t underestimate the security and stability of a family home. According to a study from the Pew Research Center, housing stability shows the world you are stable, dependable and devoted to the community.

Other studies have shown that children of homeowners tend to be better at math and reading, have fewer behavioral problems, and stay in school longer. This is linked to the safety that a child feels when they have a stable home. Since a house is a long term investment that can have a mortgage of 40 year or beyond, a house becomes very closely linked to a family’s architecture, community standing, stability and more.

A Look at the Future

What will life look like in five years? Ten years? Fifty years? Whether playing the role of savvy investor or new couple thinking about a family, these are the questions that need to be addressed. Of course, without a time machine or a crystal ball, there are no certainties as to what will happen with the housing market in your area.

But those weighing the pros and cons of home ownership must have an idea of how they want to spend their future. The online real estate database, Zillow, recommends having a plan before jumping into the home buying jungle.

If you plan to live in one area for a long time then buying a home is a great decision that provides stability to your family. If you don’t know if you will be in the same area five years from now it usually makes sense to keep renting.

Either way, having an understanding of the true cost of owning a home can help you crunch the numbers to make a housing decision.

Source: goodfinancialcents.com

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Last Updated on October 21, 2022 by Mark Ferguson

Flipping houses can be a very lucrative business, but in most cases, you have to pay a lot of taxes. There are ways to pay fewer taxes flipping, but it takes some sacrifices from the investor and a lot of time. Most flips are taxed at the ordinary income tax rate, but in some cases, you may be able to pay only the long-term capital gain tax rate. I flip many houses a year and to me, it is not worth the time it would take to pay fewer taxes on flips, but for others, it may be worthwhile. I am not an accountant and for specific legal or tax questions please consult an attorney.

What are the tax rates on house flips?

Flipping houses is considered a business by the IRS, not an investment. Rental properties are considered an investment and have much more favorable treatment from the IRS. Rental income itself is considered ordinary income, but you can depreciate rentals, which is a huge tax advantage.

When you sell rental properties, the profit is often considered long-term capital gain and taxed at a much lower rate than ordinary income. If you make $30,000 on a rental property sale you may only pay 15 percent taxes instead of twice that if you are in one of the higher tax brackets. It is possible to flip a house and pay that lower tax rate, but there are many things you have to do to qualify your property.

Can a flip be considered a rental property?

The IRS tax codes are not the clearest things in the world. They tend to be very vague when giving instructions on how to figure taxes. The IRS says a rental property has to be held for a certain amount of time for it to qualify for long-term capital gains. However, they do not specify what that time frame is. Many people assume it is one year, but there are no guarantees with the IRS. Some even argue a property has to be rented, not just held for one year to qualify.

It is argued that you can buy a house you intend to flip, fix it up, rent it for one year, and then only pay long-term capital gains taxes. However, the IRS has many intricacies and you should always consult an accountant when trying to figure out the tax code. The IRS created this code because they felt dealers or professional house flippers should have to pay ordinary income tax on their earnings because it is their profession. Just like a doctor, real estate agent or most anyone has to pay ordinary taxes on their wages. If you are flipping ten houses a year, holding them all for over a year, and then trying to pay only long-term capital gains on the taxes, the IRS may say you are a dealer and you owe ordinary income taxes

Is it worth it to pay fewer taxes on flips?

For me, it is not worth holding properties for over a year to save money on taxes. If I have to rent them for a year it would really not be worth it. I try to sell my flips in six months or less, although that does not always happen. Here are the concerns I would have holding on to a flip longer than I have to.

  • I have a limited amount of money I can spend on flips. It takes almost $50,000 of my own cash to flip a house and I have from four to ten going at one time. If I had to hold them for one year I would not be able to flip as many houses, because I would not have the cash to keep buying them.
  • I have to pay interest and carrying costs when I hold flips. Every month I hold a flip I would have costs piling up that would eat into my profits. My carrying costs can be as much as $1,000 a month and I have cheap financing.
  • My loans are only one year long on my flips. If I held them longer I would have to pay off those loans or refinance them, which would greatly increase my costs.
  • The longer you hold a property the more risks there are the market could change. I buy rentals for cash flow and I am not as concerned about market changes, because I will make money with rent. You make money on flips from buying low and selling high. If you hold a property for over a year, the market could decrease and you could lose money.

All of these factors are assuming I hold a flip for one year, but what if I rented the flip to make up for the costs?

Does it make sense to rent a flip for one year to pay long-term capital gains taxes?

If I were to rent my flips after I fixed them up, I might be able to get away with paying long-term capital gains tax. Again, there are no guarantees because I am a professional flipper. Here are the problems I see with renting a flip.

  • I make a lot of repairs on my flips and I want them to look great when they are listed. If I rented the property I risk the tenants messing up all the new fixtures, paint, flooring, and more. I can’t wait to make repairs, because most of my flips need a lot of work and cannot be rented in the state I buy them in.
  • I would have to refinance the property or pay off my loans if I rented the houses as well.
  • After I repair the house I would have to take time finding tenants, checking references, advertising, and signing leases. Most tenants want a long-term lease, which means I would have to rent the house for a year. It takes time to repair the property and I would want to sell the property after the tenants moved out. I would have to hold the properties well over one year, probably close to 18 months to make renting work.

How much money would I save by holding these properties?

If I go to all this trouble and time to pay fewer taxes, what would I actually save? Assuming the long-term rate stays at 15 percent, I would save about 20 percent on taxes. However, there is a push to increase the long-term capital gain tax rate. I average about $30,000 in profit on each flip, which would equate to $6,000 in tax savings on each flip. That is a lot of money to save, but I am actually getting more money overall?

If I held my properties longer I would have to flip half the houses I do now. If I flip ten houses a year I would make $300,000. If I could only flip 5 houses a year, I would make $150,000 a year, but pay fewer taxes. If I made $300,000 paying 35 percent in taxes I would pay $105,000 to the IRS. If I made $150,000 paying 15 percent in taxes I would pay $22,500 to the IRS. I pay a lot less in taxes, but I don’t care how much I am paying, I care how much I am keeping. In one scenario I keep $195,000 and in the other scenario, I keep $127,500.

Not only would I make much less money holding the properties, but I would also risk the IRS saying sorry you don’t qualify since you are a dealer and I would have to pay the full taxes. I also risk the market changing and I didn’t even consider the refinancing costs or carrying costs, although rent may make up for some of that.

Can corporations lower the tax rate on flips?

New tax laws are constantly being enacted and using a corporation to flip houses may save you money. My accountant suggested I use an S corp and that is what I do. With the deductions corporations get I save money but those tax laws could always change.

Can you use a 1031 exchange on flips?

Some people say you can use a 1031 exchange to flip houses but that is a tricky situation. A 1031 exchange is meant for rental properties and investments, not fips. You most likely have to hold the property a year and rent it out but again please talk to a professional!

Conclusion

I make more money by paying more taxes on my flips because I can flip more houses. There is also less risk with the market and tenants. For some people who only flip one house a year, maybe it makes sense to turn it into a rental before you sell. Always talk to an accountant to make sure you are following the rules in these matters.

Build a Rental Property Empire

Categories Fix and Flips

Source: investfourmore.com

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By the age of 14, Michael Templeman was already smitten with mid-century modern furniture. He loved the sleek elegance. The sensuous biomorphic shapes. Eames, Nelson, Noguchi, and Saarinen were more than furniture makers to him. They were designers—turning post-war materials and technologies into furniture that stacked, flexed, and folded in ways never before possible. The organic-shaped, low-slung furniture seemed to encourage conversation and relaxation and made possible the dream that every American could furnish their home beautifully.

After years of personal collecting, Templeman began to help buyers select pieces that would suit their personalities and enhance their living spaces. He opened Tomorrow’s House, a retro/vintage furnishings store located in the heart of the 9th & 9th neighborhood. Tomorrow’s House features mid-century modern originals while also bringing in fresh, relevant “now” pieces.

Tomorrow’s House 937 East 900 South

But the retail store was just the beginning. Joining forces with Johnny Duncan, operations and marketing specialist, Michael began using the store’s inventory to stage homes. The store allowed for a constant influx of new furnishings, which meant each home could be staged to make the most of its potential and improve its value.

Templeman and Duncan named the staging business “Case Study Staging” after the Case Study Houses built in the 1940s and 50s. The company stages entire homes or just a room or two, always with an eye to how they can customize the treatment to highlight the home’s unique features. Their full-service offerings include:

  • Free initial walk-through and assessment
  • Weekend open house stage
  • Partial stage (living room, dining and kitchen)
  • Full stage (living room, dining, kitchen, master bedroom, master bath and hall bath)

Homie first became aware of Case Study Staging when the team staged a condo in downtown Salt Lake. On the initial walk-through, Templeman and Duncan pointed out a few pre-staging projects to the owner. These projects were the kinds of things an owner stops seeing after living in a house for awhile, but that feel like a poke in the eye to potential buyers. The owner liked the suggestions and readied the house by painting, cleaning, and making a few repairs. Then it was time for staging.

This condo had a gorgeous view of downtown Salt Lake City. Templeman and Duncan knew they needed to draw potential buyers through the home and invite them to slide open those patio doors and step out to enjoy the view. So, they staged the patio for free.

At Homie, we always keep an eye open for professionals who can take extra good care of our customers and were impressed with Case Study Staging. Each home they staged was not simply a process of moving the same furnishings around from house to house. Rather, they constantly accentuated individual home features with new quality pieces, making each house feel unique and fresh.

If you’re considering selling your house on Homie, we encourage you to have Case Study Staging come out for an initial walk-through. These guys will see your home from the inside-out, recognize its strengths and weaknesses, and show you how to bring out its best shining self.

And for Homie customers, Case Study Staging offers a 20% discount, making their services more than affordable for any size home. Find them on Homie’s Provider Marketplace today.

Source: homie.com

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You dutifully filed your taxes by April 15th, and now you’re waiting for Uncle Sam to deposit that extra cash into your account. While it may seem like a license to splurge on that new pair of shoes or a trip to your city’s hottest new restaurant, do yourself a favor and think smart when it comes to your tax return refund.

How Many Americans Are Getting a Tax Refund?

According to The Motley Fool website, about half of all Americans will receive a refund in 2017. The highest percentage of those lucky guys and gals fall into the Millennial category, with 66% of those who filed seeing some cash coming back their way. Approximately half (49%) of the Generation X category of taxpayers will get a refund. Unsurprisingly, as your age category goes up, you’re less likely to see money back from the government: only 34% of Baby Boomers will get a refund.

How Do Most Americans Spend Their Refund?

While you might think a windfall from your return is a cause for most people to splurge, today’s economy says different. Bankrate.com, who’s been studying the tax return spending habits of Americans since 2010, says their research shows only 6% of U.S. adults who are getting some money back from the IRS are planning a vacation or shopping spree. Instead, the highest rate of Americans since the study began are planning on spending it on things they need, such as bills or food. Additionally, 34% plan to save or invest it, while 27% will use it to pay off some of their debt.

What Should I Do With My Tax Refund?

Here’s some unique ideas of what you can do with that tax refund, other than reworking your wardrobe:

  • Start an Emergency Fund. Unexpected car repairs, getting laid off from your job or even medical bills can jump out at any time. Having a cushion can be crucial.
  • Invest in Your Retirement. OK, we know it’s not the sexiest thing you can do with your money, but you’ll appreciate it in the long run.
  • Increase Your Education. Learn more about a hobby you love or more skills for the job you want to move into. Knowledge is power.
  • Donate to a Charity. Give some money to a cause you love. Even a small amount helps.
  • Upgrade Your Apartment. Need more space? How about just giving your current apartment a new look? That return can make that possible.
  • Change the Way You Eat. If you have a pantry full of ramen noodles and stale tortilla chips, now’s your chance to invest in the good stuff. Maybe even take a cooking class?
  • Pay Off Those Credit Cards. Start with the high interest ones and work your way down. Your monthly budget will appreciate it.
  • Take Some Time Off. Take unused vacation days and go somewhere you’ve always wanted to. You’ll be more rested and more productive upon your return.

What are you planning on doing with your tax return? Did you even get one this year? Get chatting below!