real estate investor question: rehab and sell, or rehab and keep? - real estate

Real estate > Real Estate Investor Question: Rehab and Sell, or Rehab and Keep?

Real Estate Investor Question: Rehab and Sell, or Rehab and Keep?

by: Bruce W. Ford

Here's another awesome question I received from my discussion board. The question; Why bother keeping property after it's rehabbed? Why not sell it after the rehab and GET PAID!

Of course, the first questions that you must answer is how emergent is your need for quick cash? You can likely generate the most SHORT TERM cash by selling a freshly rehabbed house. But, you will give much of it away in taxes come next April.

If you keep it, you stand to make more! You will also enjoy some great benefits while you own it such as cash flow, a tax break, and MORE cash with the future appreciation. You can still pull some nice cash a few months after buying it when you refinance (post rehab) the property from your hard money (at 70% loan to value) to long term financing (at 85% or 90% loan to value).

The short answer is an investor is going to make considerably more money by hanging onto a property after it's rehabbed. There is a downside to it. You have to be a landlord, and you have to decide if you want to do that. I don't think it's too bad as long the landlording is done correctly.

Let me illustrate the difference in overall money between rehab and sell, and rehab and rent investing with this example;

Let's say appreciation rates are 5% in your town and the average price of a freshly rehabbed property in the neighborhoods investors buy in is $100,000. Let's also say there is Bill and Fred.

Bill sells his properties after rehabbing and makes $15-18,000 per house. Good boy Bill!

Fred keeps his rehab projects and cash-out refinances, pulling out around $10,000 per house within 3-6 months of ownership. (Fred trades his 70% loan-to-value (LTV) ratio hard money for long term, 30-year mortgages at a lower interest rate with an 85-90% loan to value ratio. He pockets the difference between what it costs to pay off the hard money and the new mortgage less closing costs. This works out to about $10,000 per property.)

Bill (rehab and sell) makes a great living. Ten houses per year is $150,000-$180,000 per year...nice jingle! The downside is that Bill has to keep rehabbing to keep making that living year-after-year and pays taxes on all that money as regular income (ouch!). So his $150,000 per year is in reality somewhat less.

Fred (the rehabber) also makes a great living. Ten houses per year makes him $100,000 or so in tax free, spendable cash. But, Fred controls a million dollars in real estate and it's going up in value year after year. Also, Fred pays no taxes on that money he gets from the cash-out refinances. It's part of a mortgage, so must be paid back, therefore is not income! I love that part!

Let's look at what Fred's doing more closely.

Let's say Fred bought 10 houses valued at $100,000 each, owes $90,000 on each one (after the 90% cash out refinance), so he controls $1,000,000 in property. If he keeps them 5 years (assuming a low appreciation rate...which is pretty conservative):

Purchase year - 10 houses x $100,000 = $1,000,000

Year 1 - Same 10 houses X $105,000 = $1,050,000

Year 2 - Same 10 houses X $110,250 = $1,102,500

Year 3 - Same 10 houses X $115,762 = $1,157,620

Year 4 - Same 10 houses X $121,550 = $1,215,500

Year 5 - Same 10 houses X $127,627 = $1,276,270

Essentially, Fred makes an extra $50,000 per year for keeping 10 properties. After owning them 5 years, if he sells, he puts $276,000 in his pocket.

Remember

- Some parts of the country will appreciate much faster than 5%. Heck some places properties will double in value in 5 years.

- No tax benefits of keeping the property is included here. That equates to thousands of dollars in real income.

- This is ONE ten-house year. Let's say you want to "top out" at owning 30 houses. Well, in just a couple of years your buying will slow down to a trickle and you'll start selling and cashing out of properties. I mean, how many ten-house years to you need to string together before you are set for life?

- What if you hold these houses 10 years? The numbers get pretty exciting.

If you're like me and you don't want to do this for too many years, then holding properties for a few years makes a lot of sense, especially if you don't have much personal money invested in them.

So what of poor old Bill? Chances are, Bill will satisfy his need for short term cash, then start holding property. What do you think?

About The Author

Bruce W. Ford is the editor of Rehab-Real-Estate.com. Get his important Special Report entitled "12 Things Real Estate Investment Gurus Won't Tell You" at http://www.Rehab-Real-Estate.com.

Chicago Real Estate: Is It Overheating?

by: Nick Anderson

Chicago real estate is one of the greatest success stories of the recent boom in property prices. With low, low mortgage rates for Chicago home (http://www.bestchicagomortgage.com/mortgage-calc.html)
mortgage loans, demand for real estate is going through the roof as people rush to snap up great homes on the beautiful Chicago lakefront, as well as in Chicago's many attractive suburbs.

More than eight million people now reside in the Windy City. One of the few Midwest cities in the last decade to increase in population, Chicago may be well on its way to satiation. There are so few homes available that folks who want to buy Chicago real estate are getting in ahead of the crowd by purchasing pre-construction.
Many pre-construction opportunities are available in Chicago real estate.

Chicago Suburbs Real Estate Pre-Construction

In the Chicago suburb of Palos Hills,...

Chicago Real Estate: Is It Overheating?

Real estate > Chicago Real Estate: Is It Overheating?

Multi-Level-Marketing: The Real Estate of the 21st Century

Multi-Level-Marketing: The Real Estate of the 21st Century

by: Sarah King

A single event, or series of events, leads many people to the depressing conclusion that they?re not where they want to be in life.
They?ve been stressed out and tired, their health has suffered, they?ve worked countless hours away from their family, yet they find themselves in mundane jobs with no scope, no recognition, living pay-day to pay-day with no further desire to succeed and no seemingly possible way out.

This realisation often leads to a period of uncertainty, frustration and fear as one searches for an opportunity that will satisfy their goals and desires, free up their time, secure their financial future and make them proud of who they are and where they?re at in life.

This article is geared towards those of you who?ve reached that point and find yourselves at a loss in terms of the next step.
Perhaps you?ve already invested in a few...

Multi-Level-Marketing: The Real Estate of the 21st Century

Real estate > Multi-Level-Marketing: The Real Estate of the 21st Century

Real Estate - Make Home Buying Pleasant

Real Estate - Make Home Buying Pleasant

by: Jay Bauder

Fun and purchasing a home are probably two concepts that cannot be further apart. Instead of being fun, purchasing a home might prove to be nerve-wracking and stressful. This is understandably so since this is an investment that spans a lifetime ? a whole set of generations even.

We can make it less stressful!

Buyers are intimidated by the various dimensions that make purchasing a home troublesome ? the legal aspects, the financial aspects, dealing with brokers, agents, insurance, and others purchase concerns.

But dissecting these roadblocks and adding some spice to you choice of property could make this life-changing decision an enjoyable one.

Step 1: Assess your finances

The question here is can the buyer actually afford payments for a home. The buyer may want to consult a financial adviser as to the strategy he or she may employ in paying for a home. This...

Real Estate - Make Home Buying Pleasant

Real estate > Real Estate - Make Home Buying Pleasant

Real Estate Owners Biggest First Mistake

Real Estate Owners Biggest First Mistake

by: Robert Pomerleau

The single most common mistake that a note holder makes when creating a note is that they fail to check their buyer?s Credit Report. It seems so simple, but it is worth repeating "Most people fail to check the credit report of their prospective buyers!!" Can you believe this? Just by doing this one simple step can save you a bunch of money now and in the future.

How so? First and foremost by checking your potential buyers credit score can help resolve your worries of your buyer?s ability to repay their future debt to you. Heck, I don't know of any bank that would not check the credit score of any one of their customers seeking a mortgage. So why shouldn?t you?

The second benefit of checking your buyer?s credit score is what if you should ever decide to ever sell your real estate note, trust deed, or owner financed mortgage for all cash? By knowing your buyers credit score...

Real Estate Owners Biggest First Mistake

Real estate > Real Estate Owners Biggest First Mistake

Sell Your Real Estate Notes

Sell Your Real Estate Notes

by: Steve Gillman

People sell real estate notes to raise cash quickly. A real estate note is just the loan document created when you financed the sale of your house or investment property. It could be a mortgage note, or a land-contract or contract-for-sale. The point is that the buyer is making payments to you, and you want to cash in.

You can sell the entire contract, or just a certain number of payments if you want. The buyer of your property will have the same terms and payments. He'll just be making those payments to somebody else.

Selling real estate notes can be an intimidating process. You know you won't get the full face value for your note, but will there be other fees you have to pay too? How do you know if the buyer is reputable? What is a normal discount on a note? Here are some guidelines to follow:

1. No upfront fees. If they ask, go someplace else. You should be able to find many note buyers...

Sell Your Real Estate Notes

Real estate > Sell Your Real Estate Notes

A Guide to Investing in Real Estate

A Guide to Investing in Real Estate

by: John Mussi

With all of the investment opportunities available these days, it can sometimes be difficult to decide which one is right for you and your money. If you find yourself trying to make a decision about where your money should be invested, you might want to take a few moments to consider investing in real estate. While real estate investment isn't right for everyone, there is a rather significant potential to make money if you handle your real estate investments correctly.

To help you to decide whether or not real estate investment is right for you, here is some additional information on investing in real estate for both resale purposes and rental purposes, as well as some of the advantages and disadvantages of this type of investment.

Investing for Resale

One common method of investing in real estate is investing for the purposes of resale. This method uses real estate in much the...

A Guide to Investing in Real Estate

Real estate > A Guide to Investing in Real Estate

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Outdoor Activities For Parents and Their Children

by: Michael Cottier

An outdoor activity is something that everyone needs and should do. Watching to much TV or just sitting inside is boring, unhealthy and has no reward. Many people go outside and walk or jog, but that too is pretty boring and unrewarding. So what can you do outdoors that is both fun and healthy?

Many adults and young adults have forgotten that the best way to exercise outdoors is to play...

electric generators Outdoor Activities For Parents and Their Children

Real estate > Outdoor Activities For Parents and Their Children

Tropical plants blossoming in your home

by: Dio Tropica

The easiest plants to grow are tropical plants. You don't

even require a greenhouse to grow them. Most of the tropical

plants grow very well in a typical home environment.

However, you have to provide a consistently warm temperature

to help tropical plants grow well. Of course you don't have

to do anything special about it. They need the temperature

that you need. Since the average...

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Real estate > Tropical plants blossoming in your home

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