Author Topic: Flipping houses, a different way  (Read 2641 times)

Bearded Man

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Flipping houses, a different way
« on: November 18, 2015, 01:03:58 PM »
I was watching real estate investor TV on youtube some months ago and the guy had an interesting strategy. He only holds houses for a few years, trading them up to buy more real estate. So as one goes up in value, he uses it to buy two. As two go up in value, he uses it to buy four, etc.

One thing he mentioned that I thought was rather clever, is not to hold the properties too long. If you do, major capital expenses will come up, such as furnace, water heater, roof, KITCHEN remodel, MULTIPLE BATHROOM remodels per house, etc.

Seems like a a good idea, only thing I see wrong with it is if you buy at a peak and then there is a downturn, you are stuck. I guess a lot of these new real estate investment gurus that have popped up since the crash have not been around long enough to see how timing can cause their plan to eventually fail.

OkieStache

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Re: Flipping houses, a different way
« Reply #1 on: November 18, 2015, 03:39:40 PM »
Are they going up in value due to market conditions or because of paying down principal/remodel/rehab?  Big difference.

Leverage works both ways; buying right is the only remedy to getting caught with your pants down when the "value" disappears.

lthenderson

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Re: Flipping houses, a different way
« Reply #2 on: November 18, 2015, 04:10:38 PM »
Part of me is fascinated with shows like this along with their cousins where they fix them up before flipping. I like to work on houses and could see myself doing it. They only thing that stops me is location. Most of these shows are in large urban centers with essentially an unlimited pool of houses for sale. I live in a rural area where the pool is very finite and most on the market are overprices which is why they sit there for years. Housing is cheap in our area so people aren't inclined to lower prices since they don't have much capital invested in it. Those that are reasonable priced barely make it onto the MLS system before being sold. I would have to have an inside track to get a deal just to turn around and flip.

Bearded Man

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Re: Flipping houses, a different way
« Reply #3 on: November 18, 2015, 06:04:05 PM »
Part of me is fascinated with shows like this along with their cousins where they fix them up before flipping. I like to work on houses and could see myself doing it. They only thing that stops me is location. Most of these shows are in large urban centers with essentially an unlimited pool of houses for sale. I live in a rural area where the pool is very finite and most on the market are overprices which is why they sit there for years. Housing is cheap in our area so people aren't inclined to lower prices since they don't have much capital invested in it. Those that are reasonable priced barely make it onto the MLS system before being sold. I would have to have an inside track to get a deal just to turn around and flip.

In my area, I'm actually surprised at how little profit there is in a flip, at least from what I can tell. Example: house sells for 100K, needs 30K worth of work. Guy puts it up for sale for 150K. After transaction costs, there isn't much profit in it. At least not in THIS market.

On a side note, I saw a listing the other day that was really sad. Owner bought house in 2000. Sold 15 years later (this year) and after adjusting for inflation and transaction costs, not to mention repairs and upkeep, they LOST money. Makes me wonder where I'll be sitting in 10 more years. Hopefully up by a lot, and not losing money.

Jeremy E.

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Re: Flipping houses, a different way
« Reply #4 on: November 18, 2015, 06:24:44 PM »
I think there is a tax break where if you sell a house and use the money to buy another house, you don't have to pay taxes. I think it goes over it in one of mad fientists podcasts or articles.

Bearded Man

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Re: Flipping houses, a different way
« Reply #5 on: November 18, 2015, 06:40:06 PM »
I think there is a tax break where if you sell a house and use the money to buy another house, you don't have to pay taxes. I think it goes over it in one of mad fientists podcasts or articles.

It's called a 10-31 exchange. It's not a tax break, it's a deferral. When you actually pocket the money for the house when eventually selling it, you will have to pay taxes on it. The like kind exchange works largely because you don't ever get the proceeds, a broker does, so it's like you are just trading one piece of real estate for another rather than actually selling.

Fishindude

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Re: Flipping houses, a different way
« Reply #6 on: November 19, 2015, 08:42:47 AM »
In my part of the world, the money is just not there.
Houses aren't appreciating much, and there is a good supply of economical homes available.