You are assuming someone will buy it when you are done.

 

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").

... 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.

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.

 

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%.

 

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.

 

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!

 

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.

 

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.

 

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.

 

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/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.

 

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.