House Flipping

FYI- You have to use the home as your residence not just hold it for the two years to get the tax break.

 

I know somebody who did just that.

They bought a house, moved in, renovated it for 2 years, sold it and bought a bigger house. Start cycle over. They've done it 4-5 times now.

This is much less stressful than flipping a house in 6 weeks, you can do all/most of the work yourself with a normal full-time job, mortgaging it is MUCH easier and you don't have to pay capital gains.

 

I wouldn't really consider that "flipping", though.

I've owned rental properties before, and one of my new in-laws owns several rental properties here locally. Mine were out-of-town, so I had hired a guy top manage the properties for a percentage of the rent. That was really hands-off, and it worked well, creating enough money for me to live on for several years.

My in-law manages her properties herself. They're all very near where she lives. She has a full-time job, as well, and doesn't really spent very much time on her rentals. I don't know how much money she makes on it, but she's still working full-time, so I assume it's not enough for her to live on (though she lives a more expensive lifestyle than I did when my rental properties were paying for me).

As for flipping, there was a period where flipping looked easy because prices in some areas were appreciating so quickly that even those who went way over budget and time still made very good profits. That was never the case in Texas where home prices appreciate much more modestly (if at all).

So, it's much more difficult to find the right property with enough of a "discount" to create room for the renovations and a profit. It can certainly happen, but it's more difficult than it might have been in California a couple of years ago (and, I don't think it was ever quite as easy as the TV shows made it look).

 

Yes, they're real for companies who do this. But as far as one man wanting to flip a house or two a year for ~60K profit, I seriously doubt he would put a deadline on himself.

Agree to an extent. It certainly is a huge benefit if you know how to do the repairs yourself, but I wouldn't say it is necessary for him to get into the business. The shows on TV contract 100% IIRC, but usually they'll help the contractors work in order to move the project along farther.

Well, yes I agree. Obviously it wouldn't be smart to go wild on upgrades when it doesn't help the sale price. I think the general rule of thumb is you make repairs as long as for every $1.00 you spend, you get at least a $1.00 in return. I want to learn the formula to figure that out, I suppose that comes from an Appraisers license though.

 

Are you kidding, the individual with the most to lose, is the one with the tightest deadline. I know this for a fact.

Example: I buy a home for $110,000, want to put $20,000 and flip it for $155,000 (these are probably common #s for the Houston area). If I have a profit goal of $25,000, then every month that house sits, unsold, is probably costing me $1,500 (mortgage + utilities + taxes). Waiting 6 months, intead of 3 destroys 20% of my profit. You better believe that $1,500 a month that its costing them matters.

Every single one I've seen on TV show them doing a ton of work themselves, and IMO and IME, this is close to reality for the "individual" flipper looking to make a modest profit.

Getting in appraiser's license in Texas is extremely hard. I think you have to "apprentice" for something like 2 years.

Any experienced realtor is just as good as an appraisers, if not, moreso.

 

Im assuming if your purchasing a home to "flip" it, you would most likely be taking out a loan from the bank. Every month your property sits....the more interest you pay, which cuts into your profits. If your house sits too long, you'll start losing money. What are interest rates on homes right now? My two property loans is around 10% right now

 

Didn't have to fix too much at all (and the property manager guy handled that, as well as collecting the rent). We did have a family that got in and stopped paying after a while. We eventually had to have them legally evicted, which was a long process. And even after the eviction, it was difficult to get them physically out of the house. I remember it taking about a year from the time they stopped paying to the time they were out.

So yeah, it can happen and cause trouble. Everybody else, though, were long-term renters (usually stayed at least three years) who caused no problems.

 

This is what prevents me from renting at this time.

Eviction laws in Texas are complicated. Many believe that as soon as someone stops paying, you can kick them out, and that can't be farther from the truth.

I can imagine that 1 year cost you a ton of money.

 

The concept of flipping houses for a living is perfect example of pie in the sky. In this thread, the people who haven't done it seem to think the concept is very simple and easy. Most of those with any experience in it throw cold water on the high hopes.

Folks, any concept that makes money will be copied, to the point that it won't make money anymore except for the few that do it the best and work the hardest. There are so many people trying to flip houses now it's very hard to succeed.

Keep in mind renting property is different from buying and selling.

 

Fortunately, the particular property was a duplex that we got on the cheap. The other half was rented solidly and that covered the small mortgage, so we didn't have to go out-of-pocket at all to cover the shortfall, but it took away any profit on that combined property for what seemed like forever.

Had it been one of the other properties, it could've been a huge problem.

 

Really? As I understand it Texas is one of the better states for landlords in this regards. Twenty-one (21) days from notice to vacate to the Sheriff/Constable showing up at their door.

 

I just wanted to mention that there are neighborhoods in Austin where I really, really wish I'd purchased a house a couple of years ago, as an investment, because they have gone up a great deal. Austin still has some hot areas. It's just that era of good deals may have passed, for now.

 

Well, I believe this might be true for the general public who jumped into real estate just to get away from stocks. But I guarantee you there were people making money from stocks when everyone else was jumping ship. They were buying up all cheap stocks people were dumping. Similarly, when this housing 'bust' happens there won't be 'good' deals anymore for the general public. But for people in the know they will be making money hand over fist as people bail out.

 

Not in my experience.

Plus, it's not exactly easy to get the Constable to show up in Dallas County. And even if he shows up, he won't forcibly remove the people.

 

I don't have personal experience but I know someone who owns about 1000 units of apartments. He tells me that is how long it takes.
But I guess he has different methods to get what he wants. I'm in your shoes. I wouldn't have the experience to get people out efficiently.

http://www.rentlaw.com/eviction/texaseviction.htm

How long does it take to evict someone?

From start to finish approximately three weeks.

* 3 days from notice to vacate to filing of suit
* 8-10 days to serve the citation- The law requires the defendant have six days notice before the hearing.
* 5 days to appeal the suit following the hearing required by law.
* 2 days- The Constable is required by law to post a 24 hour vacate notice on the Writ of Possession

 

There are people walking around Austin right now with very large bank accounts because they had the foresight and money to buy homes during the real estate bust of the '80's.

 

It's been several years, so there may have been some changes in the law since then, but the process didn't go that quickly for us. We couldn't get a hearing that quickly and the appeal took a couple of months. It was a good six months between the start of the process and the JP allowing the eviction. And then it was almost six months to physically get them out of the premises (the Constable didn't even show up with the eviction papers the first couple of times, though he did charge us the fee. And he outright refused to forcibly remove the tenants no matter what paperwork we had).

Sometimes the law in practice is different than the law in theory. In our experience, it was far different. I don't offer it as the "how it's going to be", but only as an example of how everything can potentially go wrong.

I think if we had more than two units in the entire County, we might have had a little more sway, too.