Buy Fix Resell Houses (Retailing)

Rehabbing fix and flip or retailing, you’re basically doing the same thing

You can make a lot of mistakes and lose money rehabbing, i have done myself some large projects and you need to pee careful or you can lose money on the transaction

Understanding what an exit strategy is in real estate investing…

Before you even buy a property you should know what you’re going to do after you buy it, because “time is money” and you can’t afford to wait.

Many successful real estate investors already have buyers in place before they buy the property so that they can sell it fast.

What’s important in real estate is having your capital not tied up. So it’s always good to not use your own money in real estate investing.

We call that OPM or other people’s money.

You can also use OPC which is other people’s credit

and I’ve done both.

I’ll talk about OPM and OPC now.

OPM means other people’s money.

What does that mean? Well that means partnering up with people.

You can do a JV partnership or

use private lender money or

use hard money.

I’ve used all three.

Other people’s credit is really not used very much but I always try to see what the seller can do and use their credit to fix any kind of problem.

Let’s say there’s an expired listing at free and clear house and the person needs money right away.

This happened when I had an absentee owner living in another state trying to build a house in another state.

He had an out of state free and clear house that he were trying to sell with an agent and it didn’t sell.

A really good question to ask a seller is

“well you have this beautiful free and clear house that you’re trying to sell and it didn’t sell with the agent, is there any money pressure that you have right now, do you need money right away?”

With this particular seller said “

yeah I need to be able to build a house in another state and I don’t have the money, i have the land but i need to pay for the building materials and to pay the builder.”

Well the negotiation happened to go along the lines of,

“well if I could help you get the money you need to build the house would you be open to doing a creative sale with your free and clear house that’s in the other state?”

This is called a “what if” statement to open up the door to talking about a creative solution .

it’s so important to be able to negotiate with sellers and see if they’re open to doing something that’s “outside the box”.

So what happened is the seller got a new first mortgage (refinance) but not a big loan, about 60% loan to value LTV of a $200,000 house so they got about $140,000 cash and use that money to build the house. And THAT is tax free because it is a loan.

Once the house was refinanced, i took over that loan sub 2 and made those payments to the previous owner and the home builder.

I gave him a note for the balance of the equity

then i advertised the property for sale and seller financed the house and made $30,000 on the house.

This is called other people’s credit (seller refinancing) and it’s important to find a motivated seller and see if you can help him solve his problem and also make some money for yourself

So getting back two exit strategies,,,,

so let’s say that you’re retailing/rehabbing a house and you needed to explore all of your choices.

You want to be able to make a decision what you want to do with the property. If you’re going to build it and resell it then

you could sell it to another investor, or

you could fix it up and retail it to a home buyer with an FHA mortgage or

you could refinance the property to get your cash back out of it.

It’s important that you talk to your CPA accountant and make sure that you don’t pay a lot of taxes on the proceeds of the fix and flip….

A 1031 exchange might be a good idea to be able to watch your taxation because you can get taxed on the profit at a high level.

Now if you’re working right now (W-2) and you don’t need to spend the profit of a rehab renovation, you can use your IRA money to buy and fix which is smart.

The IRA money can buy and fix the property, and then on the proceeds and the profits will be put back into the IRA in order to do that you need to be able to do a self-directed IRA with a custodian that’s approved by the IRS.

The other thing on an exit strategy is you need to be able to figure out what does the seller need.

If the seller needs a new car or needs to pay off some bills or whatever sometimes that you can find a way where you can negotiate …maybe he seller buys with his credit the car and I’ll make the payments on the car or he has a hospital bill that needs to be paid…well I’ll call the hospital and see if I can’t negotiate a settlement on that and I get 100 cents on the dollar for the hospital bill,

so there’s all sorts of ways to be able to negotiate with the seller and solve the sellers problem.

A word about where the property is.

We call it “a b c d” properties

“a” being the best property and

“d” being the worst.

You don’t want to be doing rehabs in “c and d” areas.

You want to do rehabs in “a and b” areas it

It just doesn’t make sense to put your time and your money in a war zone or a combat zone.