NoFeeBoards.com!

No Fees! No Ads! No Spam!

Log in Register FAQ Memberlist Search NoFeeBoards.com! Forum Index

Fix n'Flip Retirement Scheme

 
Post new topic   Reply to topic    NoFeeBoards.com! Forum Index » FIRE Board
View previous topic :: View next topic  
Author Message
TRyan
* Rookie


Joined: 17 Dec 2002
Posts: 40

PostPosted: Thu May 13, 2004 4:39 am    Post subject: Fix n'Flip Retirement Scheme Reply with quote

I am toying with an alternative retirement scheme involving “fix n’ flip” real estate. I would appreciate any comment/criticism from the board.

The over all idea is to purchase one property and sell one property per year where:

·I would sell as a unmotivated seller (i.e. to a first time buyer) reaping a large gain.
·Skim 40-50k off the sale to supplement living expenses
·Then purchase from a motivated seller: REO, estate sale, handy man special …. Ideally a 1031 exchange would be executed to defer taxes on a large gain.
·Work/play rehabbing the purchase; rent it for 1 year minimum to obtain long term capitol gain status on the 40-50k which will be skimmed when this one is sold..

I envision a pipeline/queue where the ideal selling strategy is last in, last out. My current single families would give me about a 5 year run before the first "new" purchase would be sold. In an up market this 5 years will help ensure a profit. However, if the market turns down the selling strategy would switch to FIFO to mitigate the risk of having to sell at a lost in 5 years (thus turning a quick profit from: instant equity from the motivated seller and sweat equity from the rehab).

I realize this will sound like “work” to most people (and I’ve always said managing rentals is work) … but for me it’s the “fix-it” part that appealing (and I need to be active).



_________________
"Buy Low Sell High"
Back to top
View user's profile Send private message
BenSolar
*** Veteran


Joined: 25 Nov 2002
Posts: 242
Location: Western NC

PostPosted: Thu May 13, 2004 4:56 am    Post subject: Reply with quote

TRyan wrote:
I am toying with an alternative retirement scheme involving “fix n’ flip” real estate. I would appreciate any comment/criticism from the board.


I like it! I'm hoping to do a bit of the same. At some point in the not-to-distant future, I would like to quit my square job and live a semi-FIRE lifestyle in which I manage my rentals, do an occasional flipper, maybe make a little dough with my software skills, and another bit of income here and there. It is quite satisfying fixing up a house. Smile

My first and only experience trying to flip a house was a bit of a failure - lots of work no gain. Sad But it was a learning experience. Great! My mistake was taking too long on the renovation, buying a partner out for a too high price, and then being a motivated seller. I could have salvaged the deal by renting it out for a year or two, thus making myself an unmotivated seller, and letting the market rise a little bit. Oh well.

I think the renting it out for a year to get into the long term gains, and to make you an unmotivated seller, is a very good idea.

Regards,



_________________
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
Back to top
View user's profile Send private message
TRyan
* Rookie


Joined: 17 Dec 2002
Posts: 40

PostPosted: Thu May 13, 2004 6:56 am    Post subject: Reply with quote

Ben,

Thanx for the scrub! Lord knows I've made a few mistakes of my own (many upside down units in the early 1990's) ... but what's important is what was learned (to not repeat).

The experience has me feeling pretty "seasoned" at this point. In fact I just had an offer on an REO accepted by a bank at 80% of asking. Plan is to stack the queue with one more before the square job expires in 2005.

What's a little bit interesting is that the plan allows for a 0% withdrawl rate from the stock/bond portfolio for as long as the queue is fed.

Should be fun!



_________________
"Buy Low Sell High"
Back to top
View user's profile Send private message
BenSolar
*** Veteran


Joined: 25 Nov 2002
Posts: 242
Location: Western NC

PostPosted: Thu May 13, 2004 10:39 am    Post subject: Reply with quote

TRyan wrote:
What's a little bit interesting is that the plan allows for a 0% withdrawl rate from the stock/bond portfolio for as long as the queue is fed.


Yes, indeed. My amorphous plans for semi-FIRE will not include drawing down my stock or bond portfolio at all for decades to come. I will likely avoid touching dividends/bond yield also, instead letting them compound. I'm still a ways away though, and haven't run a lot of detailed scenarios.

I bought my first rental in '95, so I'm kind of partly seasoned. Very Happy

Regards,



_________________
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
Back to top
View user's profile Send private message
wanderer
*** Veteran


Joined: 26 Nov 2002
Posts: 363
Location: anytown, usa

PostPosted: Thu May 13, 2004 2:55 pm    Post subject: Reply with quote

Hi Tryan. Always enjoy your take.

We have thought about this. It is work. And the same sort of production line approach and LTCG.

Dunno about the 1031s. Can be costly and tricky tax wise. Why not just sell and your capital gain should be in the 5% area (with $45k+- of income in retirement) with none of the legal/tax hassle?

OTOH, I thought you had done pretty well on the equity front. Wouldn't that be easier (it wouldn't for me, I lack your touch on the fund picking front)?



_________________
regards,

wanderer

The field has eyes / the wood has ears / I will see / be silent and hear
Back to top
View user's profile Send private message
raysk
* Rookie


Joined: 20 Dec 2002
Posts: 5
Location: Lagrange,OH

PostPosted: Fri May 14, 2004 2:36 am    Post subject: Reply with quote

this may or may not be the best of times for flipping.Houses are still at a 20 to 25% premium over actual value.

When the bubble breaks,and it will,housing prices will tumle.Just like in Houstin Tx.in the late 70's.

Rates have started creeping up so there a lot of johnny come lately's trying to buy thier American dream while they still can.Most will find themselves upside down in equity.

As I see it,higher interest rates and a bit of inflation are the best of both worlds for the residential rental investor.

New houses are still going up like crazy in my area,but all of a sudden 1 year later they have for sale by owner signs in thier front yards.


Back to top
View user's profile Send private message
TRyan
* Rookie


Joined: 17 Dec 2002
Posts: 40

PostPosted: Fri May 14, 2004 4:44 am    Post subject: Reply with quote

Hi Wanderer,

Quote:
Dunno about the 1031s. Can be costly and tricky tax wise. Why not just sell and your capital gain should be in the 5% area (with $45k+- of income in retirement) with none of the legal/tax hassle?

OTOH, I thought you had done pretty well on the equity front. Wouldn't that be easier (it wouldn't for me, I lack your touch on the fund picking front)?


The last exchange I did was $615 on each side (sell and buy) or $1230. This was a bargin if you consider selling a free n clear SF for ~$150k and paying 15% federal plus 5% MA state and 5% realtors commision (literally loosing a quarter of it!). Also learned "reverse exchanges" (buy then sell) can be had for $6500; no bargin but still dramatically less than $30K in taxes.

Brinker has done well for me on the equity front but I am in the "secular bear" camp (as is Brinker). Frankly I have less confidence in the stock market looking forward than I do in my ability to negotiate a bargin with a bank.

Raysk, Thanx for the scrub!

Quote:
this may or may not be the best of times for flipping.Houses are still at a 20 to 25% premium over actual value.

When the bubble breaks,and it will,housing prices will tumle.Just like in Houstin Tx.in the late 70's.


The housing crash scenario is my worst nightmare (as I was nearly bankrupted in the early 1990's when the Boston housing market collapsed to the tune of 40-50%!). My mitigation plan would be to own for cash. This ensures a positive cashflow on all property. Renting - not selling - is always the fall back plan (never sell at a lost).

But I would/could always flip the last purchase immediately after the fix. Owning for only 5-6 months - vice 5 years. Or if I can't sell and skim a few bucks for my sweat/blood/tear, then rent long term for the monthly positive cash flow (tapping reserves to supplement annual expenses). I am considering a 2 or 3 year CD ladder for the reserve fund but I just can't stomatch the lousy rate of return.

Point being - there would never be a "forced" sale ... if I can't make a profit flipping , stay in the rental bussiness (where I've been the last 15 years).

Thanx again!



_________________
"Buy Low Sell High"
Back to top
View user's profile Send private message
raysk
* Rookie


Joined: 20 Dec 2002
Posts: 5
Location: Lagrange,OH

PostPosted: Sat May 15, 2004 3:13 am    Post subject: Reply with quote

TRyan:
well,in my neck of the woods rentals still suck,highest vacancy rate in history.The lack of qualified tenants is very scary.Those that could buy,bought.Now we are left with not the bottom of the barrel,but whats stuck to the bottom of the bottom.

Even sect.8 dried up.The feds are building townhouses with all the amenities including swimming pools,small time landlords can't compete with that.

Feb 29th I was down to three vacancies,by march15th it was up to 11 vacancies.Today I'm sitting on 5.The few calls coming in are for the most part deadbeats.In desperation,I and many other landlords here in N.Oh have even started taking on a few deadbeats just to get a few months rent and security out of them as well as not having to pay to heat the homes in cold weather ourselves.The avg.tenancy on these people has been appx.4 mths each.Fortunatly,our eveiction process is very fast,avg.37 days.We just make sure the properties are not being trashed by doing bi-weekly inspections.

After having over a decade of fantastic returns on the rentals the last 2 1/2 years have been a baptism of fire.Just glad I always believed in carrying a very large reserve.All of my properties are circa 1978,in the last 3 years I've reroofed 16 roofs.thats how my reserve saved me.I don't believe in borrowing,can't stand sharing with a bank and am now at the point where all will be free and clear within 5 years or so.

Also pay extra on the existing notes,that hurts cash flow.Insurances and taxes are increasing every year,yet the avg rents in this area have dropped up to 20%.granted,the cheaper rents reflect units that are not as cared for,but the potential tenants here don't care.

Apt.complexes are still offering up to 3mths free rent,free water and heat and to top things off are offering free 36 inch tvs.

We are at the point that there are too many units for not enoegh people,yet builders are still building.When the cruch hits,our county will be devistated.That is one more reason I'm glad I have the amount of equity in my units as I have.The ones that are paid off help carry the ones still leveraged.

You know it's bad when some competing landlords knock on every door on the street to try to steal tenants.

Ray


Back to top
View user's profile Send private message
TRyan
* Rookie


Joined: 17 Dec 2002
Posts: 40

PostPosted: Sat May 15, 2004 6:09 am    Post subject: Reply with quote

raysk,

Quote:
We are at the point that there are too many units for not enoegh people,yet builders are still building


This is exactly what happened to us before the crash in the early 1990's. I am sorry to say that the worst is yet to come. High vacancy rates and over building will be followed by foreclosures which in turn floods the market with motivated sellers. Driving sale prices - and therefore rents - into the tiolet. This cycle took about 5 years to complete (north of Boston). However, current liquidity conditions (cash is cheap) may delay the inevitable.

Good news is where there's chaos there's opportunity. Bought my best stuff at HUD auctions. Next best deals were negotiated bank REO's. Honestly, I am looking forward to another period of great opportunity. My area is probably 5-6 years away from chaos ... too many restrictions on new building. Not enough vacant land. Of course everyone in the business (realtors, appraisers, banks ...) says this times "different" ... and predict soft landings.

I suggest a healthy stash of cash (and a crash helmet) to be positioned for opportunity. Banks will be licking there wounds (not willing to lend). Cash will be king. It could be fun!



_________________
"Buy Low Sell High"
Back to top
View user's profile Send private message
wanderer
*** Veteran


Joined: 26 Nov 2002
Posts: 363
Location: anytown, usa

PostPosted: Sat May 15, 2004 2:18 pm    Post subject: Reply with quote

I suggest a healthy stash of cash (and a crash helmet) to be positioned for opportunity. Banks will be licking there wounds (not willing to lend). Cash will be king. It could be fun!

From your lips to God's ears. Wink



_________________
regards,

wanderer

The field has eyes / the wood has ears / I will see / be silent and hear
Back to top
View user's profile Send private message
raysk
* Rookie


Joined: 20 Dec 2002
Posts: 5
Location: Lagrange,OH

PostPosted: Sun May 16, 2004 9:45 am    Post subject: Reply with quote

Tryan;That you are dead right on.

If I were 20 years younger I'd aggresivly persue deals.But at my age I'm satisfied with what I have.Sooner or later the rental market will be good once again and money will be made.

I've even slowed down my dog show vending sideline to a degree.After working on rentals all week,I just don't have the energy to drive,set up my 30 x 20 booth at shows,tear down and drive home again.

Fortunatly my only nut is med.ins.and we live a very conservative lifestyle.

I will try to sell my rentals toward the end of this decade,then we just get in the motorhome and travel the country.

Ray


Back to top
View user's profile Send private message
ElSupremo
Admin Board Member


Joined: 21 Nov 2002
Posts: 343
Location: Cincinnati, Ohio

PostPosted: Sun May 16, 2004 1:06 pm    Post subject: Reply with quote

Greetings raysk Smile
Quote:
then we just get in the motorhome and travel the country.


Do you think you will make it as far as Cincy? Cool



_________________
"The best things in life are FREE!"

www.nofeeboards.com
Back to top
View user's profile Send private message Send e-mail
raysk
* Rookie


Joined: 20 Dec 2002
Posts: 5
Location: Lagrange,OH

PostPosted: Mon May 17, 2004 2:34 am    Post subject: Reply with quote

ES:
I stop there a few times a year.One of my competitors in the dog show business is also my supplier of dog shampoos.It's more cost effective for me to drive down there and get my supplies than what shipping would be.

Our plan is to spend summers in the northern states,and not worry about sweaters in the winter.

Ray


Back to top
View user's profile Send private message
BenSolar
*** Veteran


Joined: 25 Nov 2002
Posts: 242
Location: Western NC

PostPosted: Wed May 19, 2004 4:41 am    Post subject: Reply with quote

ElSupremo wrote:
Do you think you will make it as far as Cincy? Cool


Hi ES,

I was up in your neck of the woods last weekend for a wedding in Canton, OH. First time I did more than drive through the state. We also ran up to Cleveland for some lunch and sightseeing. Fun trip. Ohio has some very pretty parts. I loved some of the farms I saw in the southeastern part of the state.

Funny, I had always had the idea in my head that Ohio was further west, but Canton is actually east of Asheville. Confused I guess that sounds pretty stupid, but to me Ohio = midwest, which vaguely meant it was west of me. Never had a reason to examine it more closely.

Anywho, thought I'd say hello and mention the visit. Great!



_________________
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
Back to top
View user's profile Send private message
ElSupremo
Admin Board Member


Joined: 21 Nov 2002
Posts: 343
Location: Cincinnati, Ohio

PostPosted: Wed May 19, 2004 5:03 am    Post subject: Reply with quote

Greetings Ben Smile

Yes I guess we are kind of east-midwest. Confused So Nevada would be west-midwest. Got to draw that line somewhere. Wink



_________________
"The best things in life are FREE!"

www.nofeeboards.com
Back to top
View user's profile Send private message Send e-mail
Display posts from previous:   
Post new topic   Reply to topic    NoFeeBoards.com! Forum Index » FIRE Board All times are GMT - 9 Hours
Page 1 of 1

 
Jump to:  
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum


Powered by phpBB © 2001- 2004 phpBB Group
Designed for Trushkin.net | Styles Database