Not sure Which Way to Go....Should First Deal be a Rehab? - Posted by rocka fella

Real Estate Investing
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Posted by JPiper on July 05, 2000 at 11:05:42:

The basic rule revolves around your “intent” for the property. Basically you would need to show that your intent was to rent the property and hold. And by the way, you would need to 1031 into another investment property.

This all presents a problem in the scenario of the rehab and sell strategy…especially if you’re doing them on any type of frequency.

But if you did rent, my CPA feels that a 2 year hold is the conservative time period to use. One year might fly…but again keep in mind that the IRS will examine your “intent”…of which holding period would only be one element.

JPiper

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Not sure Which Way to Go…Should First Deal be a Rehab? - Posted by rocka fella

Posted by rocka fella on July 03, 2000 at 15:08:27:

Hi!..

I am not sure which to focus on with the RE thing. Since I am a novice should I be looking at Rehabs? Or go for something already livable that I can purchase low and resell at market value. Or sould I simply try and get control of property with no down deals? If I have 5 to 10k cash do I have an advantage over many or does that not really matter? I also have perfect credit. Am I in a good position to do any type of deal? How about Mobile homes…a good move?

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1031exchange / Other Ramblings - Posted by KennS

Posted by KennS on July 04, 2000 at 12:47:29:

I got your email concerning your situation and you mentioned you needed more info on the 1031.

1031 Exchange-
It is the last great investment tool that the IRS offers us. It allows us to sell investment properties (after a rehab or a flip) and not pay any taxes on the profit. You will basically transfer your equity over to a different property. It is essential in building wealth via real estate. For all the details (must be done right) goto http://www.realtyexchangers.com/index.shtml
They have a 1031 manual online.

As far as your situation, just make sure you find a property with a lot of room for mistakes or miscalculations. You may want to entertain the idea of partnering with a friend on your first one. This will spread your risk and lower your “out of pocket”. Also, you can pick someone who has special skills or knowledge that would be helpful in the project. You could chalk it up as a learning experience and you will get that dreaded first deal behind you. I wouldn’t limit myslef to a “rehab” or a “flip”, etc. Instead I would be looking for that motivated seller or situation in which you have lots of room to work with.

My humble opinion, is that many RE Investors get hung up on “no money down” and forget they need to have that instant equity. I have a close friend who went bankrupt by not paying attention to equity (but he got all his properties no money down!). If there is no equity, I wouldn’t own it. There are methods of “controlling” the property, but I would leave that for the seasoned pros if I were you.

  • Kenn Swanson
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How about doing this… - Posted by KennS

Posted by KennS on July 03, 2000 at 18:38:48:

Do you rent your place now? If so, one thing you might look at is buying a property with intentions of living in it yourself. If you own your home and have lived there for two years, you can sell your home and pay no taxes on the capitol gains (limits apply).
On your first one, I would look for something “deep in the money” (well below FMV). If you are a handy person, this could be a fix-up in which you put sweat equity into as you live there. If you are not handy, you could find one that does not need too much work. Stay away from war zones and look for a neighborhood that you are willing to live in yourself. Structure the deal as close to zero out of pocket as possible. You should intend to stay at least a year. Also, educate yourself on the 1031 exchange if you haven’t already.
You can always continue looking for more good deals while you live there.
This is just one man’s opinion, but it is how I started.

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Jus to add to - Posted by Terry (Houston)

Posted by Terry (Houston) on July 03, 2000 at 18:37:30:

Steve’s post.

As a newbie, going on three years, it took me forever to take the advice of all of the people of this board. The Jim Pipers, Ed Garcia, David Alexanders, HR, Jackie Lange and others. I was so stuck on analyisis paralisis that I could not dig my way out. The basic bottom line is just do it.

I am struck by Piper’s post below that states that each bit of advice should be placed into your own situation, it’s advice but no one else but you is in the conversation or position you are in. You have to make the decision.

After getting a private e mail from Ed Garcia saying to get off my can and do something I did.
It was a rehab. I could have flipped it for quite a bit of money because I did buy right.

After looking at all of the different options and discussing them with a mentor the decision was made to do the rehab. It did not cost as much to rehab as I thought and I stand to make a lot of money on the deal.

I have since relocated and had to list it with a realtor. Again that is my situation. Some would say always market it yourself, some would say to always let a realtor do it. Each case is different in my opinion.

Bottom line is as Steve says learn to get the house for as little out of pocket as you can. I did a hard money loan, again some say do some say don’t, but still had to pay for the rehab.

Rehabbing a house may not be the best thing for a newbie…
But then again it may be the best way to learn.

Since then I have talked to numerous sellers and have found 2 that are also motivated. Both are ‘subject to’ deals. Again no money but have to pay for other things like rehab and back payments (if the buyers don’t do it for me. Listen to the buyers and find out what they want to do.

I talked to a good friend from the board, though we don’t know each other from Adam outside of here,(and thats a shame), but he spent 3 hours talking to a seller and finaly found out what the seller was looking for. This was a dead deal but he made it work. Would I have given up? probably but not any more.

I wouldn’t trade the advice and perceptions of everyone on this board, but you still have to make the botton line decision.
JUST GET OUT AND DO IT

Hope this helps.
Terry

…there is no chance, no destiny, no fate
that cancircumvent or hinder or control the firm resolve of a determined soul…
Ella Wheller Wilcox

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Re: Not sure Which Way to Go…Should First Deal be a Rehab? - Posted by SCook85

Posted by SCook85 on July 03, 2000 at 15:20:07:

There really is no right or wrong way for you to go. It is entirely up to you. However I do recommend putting the money you have to side for the first deal or two and learn how to do a deal with no money. $5-10k won’t go that far and you will have to do deals with no money down anyway.

Lately I have been recommending the following to new investors.

First of all, try to stay away from a rehab on your first deal. If you can wholesale flip a home do that, and if you are fortunate enough to pick one up in good shape and retail it that is even better. But the first thing you want to learn is how to get the deal done. You will have plenty of chances to rehab homes in the years to come- they in themselves will be a learning experience. I don’t see the need to learn how to get the deal done, rehab the home and sell it all in your first lesson.

I hope this helps.

Happy Investing!

Steve Cook

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Re: 1031exchange / Other Ramblings - Posted by JPiper

Posted by JPiper on July 05, 2000 at 09:22:32:

Just to clarify…a 1031 exchange cannot be used for rehabs and flips…strictly for properties held for investment.

JPiper

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Re: How about doing this… - Posted by Nate

Posted by Nate on July 03, 2000 at 21:53:49:

Just a side note, it is a good thing to learn about 1031 exchange for future reference, but it cannot be used on your personal residence, only on investment property.

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Re: 1031exchange - Posted by KennS

Posted by KennS on July 05, 2000 at 10:15:42:

JPiper,

What do you feel the rule of thumb is when a rehab is an investment? Holding it for more than one year ?

  • Kenn
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Re: How about doing this… - Posted by Leland

Posted by Leland on July 04, 2000 at 07:31:39:

I, too, am a novice investor. I have made several offers but no deals yet but my confidence is high.

Question?? what is the 1031 exchange? Never heard of it.

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Yes - thanks for clarifying ! - Posted by KennS

Posted by KennS on July 04, 2000 at 02:50:23:

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