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Old 12-19-2012, 12:35 PM   #1
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Anyone wound up filling time with a profiteering hobby from DIYing?

I wound up on this site because I picked up a hammer a couple months ago and built a floor. I bought a house and now I'm working on framing out a wall and a pantry in the kitchen, redoing the floor in tile (on Ditra, which I've never used), installing an additional counter with utility (water and power, and vacuum), running hardwood everywhere, running vacuum everywhere, and fixing a poorly routed water line (and searching for the root cause of rapid loss of flow as I go downstream).

The area I live in has a LOT of houses going cheap, run down, blighted, and such. They're 1200sqft plus unfinished basement (1800 total) town homes. Sale price is between $10k and $85k here normally--my house went for $113k five years ago but $50k now.

As it stands, I've found the work needed to straighten out any of these dilapidated heaps quite cheap and easy. The worst case scenario* in most of these places would be leveling a floor, but I know how to do that--my house had that exact problem, and was fixed by sistering the beams, and I've taken a look at that and extrapolated backwards on how it's done. Any problems I run into will provide experience anyway.

Does it make sense to turn a hobby of this into a business? Not necessarily for livelihood, but just to support itself. I have a large amount of disposable income--I just bought a house, I have a car loan, and credit card debt, and I'll be out of debt in 3 years, and I started with about $500 back in August--so I can handle an expense of this magnitude. Still, it's ... expensive.

Let's say I purchased, oh... the short sale on Violet Ave. $25k, a short sale would take 4-6 months to go through and I'd probably sink $1000 into a lawyer (not even) (have a lawyer when you do short sales). $2500 down payment, $1500 for all the other stuff, $5000 to get into it--$2500 of which is my own equity. To furnish it with high-end appliances (about $6000), redo the kitchen, run tile kitchen/bathroom and hardwood floors everywhere, granite counter top, and run central vacuum, about $12k. (I'm probably over-estimating--the counter top isn't that big, $3000 ... probably more like $2000).

I'd need a year to get together the capital. It'd be a weekend task--I can build a floor in 3 days with Hardibacker, give me two with Ditra if it works out the way they say it does. Piece by piece, as I get the money for each individual task. If I did it in under a year, I'd pay 30% income. If I take it longer than a year, it's a long-term investment and I file it as capital gains.

$25k, $20k, $80k, gives $35k, drop $750 in property taxes, pay 15% capital gains, about $29k of profit. In the end, the $20k of materials I put into it would come back, so I'd end with $49k in the bank--enough to snag another one, bring the materials right in, and get to work.

It's a matter of doing things. You do things, they get done, you stand back and see it got done. I don't do anything. I have a job working with computers; everything I do is procedural and about as substantial as footprints on the beach--nobody notices or cares, you never look back when you're done, you never see much at once, and they start eroding immediately. My inherent physical ability is destructive; I need balance, I need to create something.

This would be ... interesting. I could build up the community around me, make it better. This place rots. It's too expensive for contractors--the labor costs are higher than the resale value of the homes, something like $200,000 to have my house rebuilt even though I can do it in around $40k, maybe $30k with nothing fancy (granite, high-end appliances, tile, hardwood... expensive fancy stuff). When houses go vacant and are no longer livable, they stay vacant. The impact on the community is terrible.

I can fix that.

Good plan? Bad plan? Stupid?

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Old 12-19-2012, 02:05 PM   #2
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You are assuming someone will buy it when you are done.

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Old 12-19-2012, 02:29 PM   #3
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Well, good on you for trying to improve a community. Don't take the following as if I'm defecating on your idea, I'm just trying to inject a little reality.

Lenders are tight with loans now, heck we got the 3rd degree when we bought our current house but hadn't quite put the old house on the market yet. We had to sign a paper promising we would personally reside in the new house within 60 days or they'd break our kneecaps and take our first-born son away.

Seriously though, you might talk to some loan officers and see how amiable they will be to loaning you money for a house that will not be your own personal residence (in the business, I think they'd call you a "flipper").

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You are assuming someone will buy it when you are done.
... and at a price that makes you profit. Buy for $25K, spend $12K, if you can only sell it for $37K you wasted your time.

The question you need to ask is -- and maybe you need to ask some realtors -- how much will a refurbished $25K house sell for? Then you can decide if it's worth your time or not.

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It's too expensive for contractors--the labor costs
So what I hear you saying is, you're willing to work for less than what you'd get if you went to work for a contractor.

Again, not trying to rain on your parade. I realize it's hard to hear my tone of voice across the internet but please don't take offense. Maybe your idea will make the world a better place and make you a small pile of money, I'm just saying iron out some details first before diving in.
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Old 12-19-2012, 02:58 PM   #4
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Lenders are tight with loans now
This is not a problem for me, as I can come up with 10% or 20% down payments in short months.


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... and at a price that makes you profit. Buy for $25K, spend $12K, if you can only sell it for $37K you wasted your time.
The area is going to face urban renewal in about 5 years' time. A residential district about half a mile further north is going to be razed and built out from scratch. The surrounding commercial districts will be bid out for rezoning, adding more stores. 100 liquor licenses are getting revoked, on the lip-service that "liquor stores draw crime". Roads are getting redone. Parks are being planned. Lighter residential and parks are going to appear, under the lip service that "criminals hate open spaces."

If they won't sell, I can always rent. More hassle.


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So what I hear you saying is, you're willing to work for less than what you'd get if you went to work for a contractor.
Well, less than the contractor is going to bill. I'm not willing to take it on as a second job or become a contractor as a primary job. The jobs aren't interesting anyway--the contractors do the cheapest, shoddiest work they can, they skimp on materials, they take shortcuts.

In the apartment building I live in, the entire run of plumbing has been repaired several times; in the past 2 years they've been in the floor in my bathroom 4 times, and the plumbing developed a leak into the apartment below that destroyed the bathroom floor after the most recent work done.

They paint and a day later the paint is already starting to bubble and peel.

The landlord didn't supply a refrigerator socket, so the contractor came in and used a chisle to gouge a diagonal gash to another socket, ran a wire, then slapped putty onto it and smoothed it out (that can't be to code). Didn't even tack it in, or cut out a section of the wall and then patch it back up.


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Originally Posted by tylernt View Post
Again, not trying to rain on your parade. I realize it's hard to hear my tone of voice across the internet but please don't take offense. Maybe your idea will make the world a better place and make you a small pile of money, I'm just saying iron out some details first before diving in.
Oh, trust me, I'm aware there's no such thing as a get rich quick scheme. Part of nailing a price point is timing, market fluctuations, hell if interest rates go up there's trouble with resale value. Gotta pick a house on the right block, that looks nice enough--a better flagstone porch instead of a cheap, ugly front porch with a shoddy railing is going to say "home" to more people. I'd be most advantaged getting into this before the urban renewal projects go through; I'd be significantly disadvantaged if the renewal projects were abandoned; and if I sell for my price target, I may turn around and find I could have made two or three times the profit by holding for 3-5 years and watching values tick up to $130k or so instead of $75k-$85k.

It's playing the stock market, but with hammers. I made 1% per day for a while (by intent) on the stock market--it was a lot of stress, so I stopped doing that. Not impossible, just you'll have a neural breakdown. Plus, have to file a lot of taxes (one entry per trade!).

Real estate has conversion: you can convert your not-profitable stuff into rentals or rent-to-own, and convert your price risk into tenant behavioral risk (occupancy, occupant failing to pay, occupant damaging the premises, occupant filing lawsuit against you for some stupidity, suing occupant who has no money anyway and so you'll never collect your judgment, etc.). Also you still have to pick up a hammer occasionally, or answer the phone, or deal with idiots.

So yes, it's risky and it's work.


EDIT: Oh, and I already examined the market. The appraisers and the realtors ran through the market for me, gave some comparisons. I got access to some recent sales, recent appraisals, and I've used public information like Zillow to see what things are selling for. As well, there's planning documents that the City makes freely available for predicting future market trends. So yeah, I at least get the concept that I won't magically get $80k for a random house just 'cause I made it a nice house; but by the same token, I can influence the market by making a particular house a really nice house, so if they're selling for $50-$80k I can realistically aim higher. Whether it'll cost me $10k to move the price $5k or not is of course a completely different issue.


Hmmm... my realtor used to be an investor... he's been thinking about getting back into it. Maybe I should ask him his opinions; bonus is he really likes working and talking with me, so the conversation's rather casual.
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Last edited by bluefoxicy; 12-19-2012 at 03:04 PM.
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Old 12-19-2012, 10:33 PM   #5
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Remember- if you don't live in the house for more than a year you will be taxed on the sale as income, capital gains tax I believe they call it. Around here anyways.
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Old 12-19-2012, 10:38 PM   #6
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Remember- if you don't live in the house for more than a year you will be taxed on the sale as income, capital gains tax I believe they call it. Around here anyways.
Yep. But capital gains is lower than straight income tax rate, and only applies to the gain--your expenses (repairs, purchase price, loan interest) are subtracted from the gain. So if you spend $50,000 and sell for $80,000, you pay 15% on $30,000. Unless Obama extends his changes to the cap gains tax past Jan 1 2013, in which case I'd pay 0% and people making over $200,000 would pay $80%.
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Old 12-19-2012, 10:41 PM   #7
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I've been thinking about doing the same thing at some point- All about finding the right place at the right time in the right area, I would think. Not over investing, and making sure the place isn't a total money pit.

Oh, and having the cash flow on hand to pay for it all of course...But seems like some people have success with it.
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Old 12-20-2012, 07:15 AM   #8
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Make sure it is legal to do your own work when flipping houses. I'm building my own house in SC, and I can do all of the work myself, but had to sign a paper that I wouldn't sell the house for two years after completion. There might be similar rules about fixing and flipping houses. Also be careful if you take on handyman work without a license. Here in FL, they just arrested 10 handymen for not having a license. They actually set up a sting operation!
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Old 12-20-2012, 08:23 AM   #9
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Ahhh, that's true. A friend of mine is a career home improvement specialist, solo work, roofing, floors, plumbing, drywall, everything. He has to announce that he's not licensed and not bonded to all potential clients.

I think I'd have to pay inspectors to check my work--plumbing, electrical, structural--before I could sell the house. That would cost some, yeah...

I'd have to find a code book, too.
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Old 12-20-2012, 07:49 PM   #10
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This worked great for a lot of people when the market was booming, the question now is if it's realistic to get it sold and make a profit.

I would probably consider turning something like this into a rental property instead, provided you have a market for that in your area.

You really need to do some research on what's going on in your local real estate market in order to come up with a plan that makes sense.

Edit: just read some more of your posts, I see you already did consider renting and that you have done some research, so I realize my answer was a little lame.

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Old 12-20-2012, 07:59 PM   #11
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http://portal.hud.gov/hudportal/HUD?.../203k/203kabou

What's saved more then one realitor in my area is doing rent to own on unsold houses.
The contract gave them one year to decide if they wanted to buy it and come up with the financing.
At the end of the year they had to do one of two things, Buy it or get out.
If they bought it part of the money they paid went toward toward the purchase price. If they moved out the owner keeps the money.
They tended to take better care of the place.
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Old 12-20-2012, 08:00 PM   #12
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This worked great for a lot of people when the market was booming, the question now is if it's realistic to get it sold and make a profit.

I would probably consider turning something like this into a rental property instead, provided you have a market for that in your area.

You really need to do some research on what's going on in your local real estate market in order to come up with a plan that makes sense.
The home I bought I'll pay off in 3 years at $1000/mo mortgage payment.

They rent for $1200/mo around here.

The market is down now. That's how the market works: bubbles burst and the market goes down. See how expensive gold is? That will collapse one day. The housing market is barely being supported--artificially--by QE, which is fancy talk for the Federal Treasury keeping interest rates unsustainably low (an economic disaster). Once interest rates increase--and they absolutely must increase--home values will... well, stay the same. The difference is a $400,000 house that you take a $320,000 loan on and pay a total of $525,000 now becomes a $200,000 house that you take a $160,000 loan on and still pay $525,000, but more of that $525,000 goes to the government and about as much (give or take, depending on market pressure for lower interest loans) goes to the bank. The consumer says: "MY HOME EQUITY WENT DOWN!" "Houses have become cheap!" and so on. The first is true for current owners; the second is not, for anyone.


Buying into the housing market now is a big risk. It could turn around. It could continue to spiral down when interest rates increase.

You're right. I need a real rental plan, not "oh well if it doesn't work out I'll rent." I need to know what I'm getting into because that could be a real thing--and could be better. Besides, flipping could be a jump-off point... I could do that to raise capital for a couple iterations, then snag up a handful of houses and make those my rental properties. It's a lot faster than working an honest job trying to save petty cash.

The most important part of renting is going to be disclaiming all my liability ... insurance policies, management companies, the like. There should be tenant insurance or something, something I can claim against to cover my maintenance, and if tenants destroy the place they go after them and sue for damages and I don't need to retain lawyers or risk the tenant never being able to pay the judgment. Yes that has a cost and lowers income; it also lowers work and risk.
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Old 12-20-2012, 08:08 PM   #13
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http://portal.hud.gov/hudportal/HUD?.../203k/203kabou

What's saved more then one realitor in my area is doing rent to own on unsold houses.
The contract gave them one year to decide if they wanted to buy it and come up with the financing.
At the end of the year they had to do one of two things, Buy it or get out.
If they bought it part of the money they paid went toward toward the purchase price. If they moved out the owner keeps the money.
They tended to take better care of the place.
RTO in that manner sounds like a power imbalance. Like if I try to sell you a house for $250k, you are going to argue with me and haggle it to $200k. Now if you come to rent that house, I'm sure I can make you sign an RTO agreement stipulating $250k... that's a risk on my end if prices go up, but in reality I've just sold the house for $250k. On the other hand, it makes higher rental prices look appealing because people believe they're buying equity even when it's entirely likely they'll be moving out and giving all that up.

In other words, RTO is a good deal for an investor looking to sell real estate. Bad deal for someone looking to form a solid rental business. If your plan for your rental business is to purchase new properties in the upcoming down market, and you start selling your houses for what you believe is an inflated price in a bubble market, you are investing--you are shorting your own properties, selling them with the promise (to yourself) to buy back the same number of equivalent properties in the hopes that said properties will be cheaper and you will have additional capital. In a climbing market, an RTO just means you lose a rental property, and now with the money if you want to expand your rental business you must buy additional properties that are even more expensive--unless you want to wind your rental business down and cash out.
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Old 12-20-2012, 08:26 PM   #14
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Here's the way it work here.
We had homes that had sat empty for up to 3 years because of the economy and the banks only willing to lend money to people that did not really need the money.
The owners were still paying the taxes, utilitys, higher insuance because of it being empty.
Do a RTO and now there's positive income, the houses sold for the asking price. Do it a couple of times and you can pay cash for the next house.
I have one I payed $56,000 for, spent $10,000 lived in it for a year, had a RTO for another year and just sold it for $108,000.
Everyone thought I'd lost my mind buying a 1, bedroom, 1 bathroom house and never thought I'd sell it.
Now I can move on to at least a 2 bedroom with a good down payment.
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Old 12-20-2012, 08:42 PM   #15
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http://portal.hud.gov/hudportal/HUD?.../203k/203kabou

What's saved more then one realitor in my area is doing rent to own on unsold houses.
Realtor Joe. We are Realtor's ...real-tor Not real-i-tor or real-a-tor

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Thank-you... carry on

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