Becoming a Real Estate Mogul.......Case Study

[2Birds1Stone]

Good, now that I have your attention.......I am looking for some help fellow mustachians. I am looking to transition from corporate wage slave to full time real estate investor. A feat that will require many baby steps and experience to attain. I am going to provide you with some background information and am seeking some beginner advice on how to get started.

My good friend and business partner and I have been talking extensively over the past year about some joint ventures we could get into to maximize our income outside of work. We have a few side hustles going making us some money on top of both having good jobs. We would like to learn as much as possible about the real estate game while we build up capital to start. We project it will take us ~8-10 months to come up with an initial $100k to work with.

Neither of us has debt, we both live bellow our means. We live in a fairly high cost of living area. Neither one of us wants to stay in this area for longer than 2-4 years.

That being said we were looking at the logistics of buying fixer upper houses, rehabbing them, and flipping. His grandfather invested in land and built on it for his entire life before he passed away, his father is a carpenter by trade and fixed and resold houses for 20 years during the last real estate boom. We have a fair amount of connections when it comes to getting quality work done, or having someone to scope out properties.

We are looking at shorter term plays, buy, fix, and resell something in 12-18 months tops.

I am very curious about the best way to get financing, learn about tax law, and any other hurdles and obstacles one would have to get through to do something like this.

Is this a crazy idea?

Anyone out here in this section with experience buying houses, improving them, and reselling in the short term?

Any resources you could recommend?

[sammybiker]

I'd start reading at biggerpockets and would ditch the idea of working with a partner, especially with your income/assets.  No need to split peas and deal with the added stress of having a partner.

[waltworks]

Give it a few (or many) years. Prices are sky high right now and flipping as a noob is not going to be profitable unless you are a professional trades person already.

Also, ditto on the no partner thing. It will only cause you trouble.

-W

[2Birds1Stone]

Thank you for the tips,

I signed up on Deeper pockets last night. Will start to consume the content there regularly.

[NoNonsenseLandlord]

As a contributor at BP myself, be sure to read my articles there.  I went from an IT job, to being FI in 5 years.  I am making more at RE than my regular job.

http://www.biggerpockets.com/renewsblog/author/EricD-2/

[zephyr911]

We live in a fairly high cost of living area. Neither one of us wants to stay in this area for longer than 2-4 years.

Those are both strikes against real estate investment. High cost means higher volatility and higher risk to you, and leaving town could be a disaster if you happen to be stuck with an unsaleable property at the time.

That being said we were looking at the logistics of buying fixer upper houses, rehabbing them, and flipping. His grandfather invested in land and built on it for his entire life before he passed away, his father is a carpenter by trade and fixed and resold houses for 20 years during the last real estate boom. We have a fair amount of connections when it comes to getting quality work done, or having someone to scope out properties.

We are looking at shorter term plays, buy, fix, and resell something in 12-18 months tops.

I am very curious about the best way to get financing, learn about tax law, and any other hurdles and obstacles one would have to get through to do something like this.

The primary thing to know from a tax standpoint is that you'll be paying capital gains tax on all these deals unless you also get into rentals, which would give you some options for deferring gains. I'm working to incorporate some rehab activites into my rental business but strictly to lower the acquisition cost on long-term holds. Holding for over 12 months should at least get you the long-term gains rate, but it's still a drag on your overall growth. Personally I'd rather procure, rehab, lease, and cash out equity via mortgage for the next deal, then ultimately put the whole portfolio under management before leaving town.

My personal $.02 on business partners:
I own two rentals personally and two (hopefully many more soon) inside a 3-member LLC. I don't know if my experience is less common than MMM's nightmare, but it's been a joy, a learning experience, a great motivator to work harder/smarter, and almost 100% positive in all other ways. I know there are horror stories, but there's also an upside, and you can mitigate risk through expectation management and clear consensus on goals.
I'd never put all my eggs in that basket - my stake is only a few % of NW - but it was a great leap forward into professionalizing all my real estate activities because I had to formalize a lot of things I used to just muddle through. They also helped pay for my real estate license so I make commission on our buys, a bonus side job that should top five figures in our second year and six eventually. If it all goes to hell, it's still worth what I've learned, and the loss is minimal in the grand scheme of things.

[thedayisbrave]

Dude, you and I have been on the same wavelength lately.  I used a similar term when talking about my real estate goals to my dad, except I believe the word I used was "baroness" - real estate baroness :) Except I don't flip, I buy & hold.

My words of advice would be... find a flipper who has been doing it for years and see if you can exchange work for knowledge.  Offer to help them out for free for the chance to learn something.  There's nothing like getting your hands dirty to get a feel for the kind of stuff you'd need to be doing.

Living in a HCOL area is probably your biggest obstacle right now.  But if you can find a good deal, it may be worth it.  Those are getting fewer and far between though... nationwide the real estate market is a huge seller's market right now.  I know in my area multi-offer situations and putting in offers significantly above asking price has become the norm.

[SUP]

Most bad stories start with "My friend (brother, guy at work, cousin, whatev) and I partnered together . . ."

Flip can make money. The common factor you'll find in truly wealthy people is they hold.

The best book on flipping was published by biggerpockets. Start there. Ditch the partner. You can share ideas and learn together but just keep it seperate.

[zephyr911]

Most bad stories start with "My friend (brother, guy at work, cousin, whatev) and I partnered together . . ."

Quite true. I think not knowing my partners beforehand worked in our favor. No drama, no assumptions, just a sober discussion of goals and values that led into a decision. With time and success we've become more friendly but the foundation of it all is our continued adherence to bylaws and regular communications to maintain consensus.