How's my day going???

[Volpone]

Oh. Just an "evergreen" bit, coming back to the HGTV brainwashing: "Flipping" isn't a very good strategy for most of the people most of the time. You've really got to know what you're doing, work your ass off, and have a decent bit of luck to boot to do well flipping. For a flip, you're finding a house that is run-down, cost-effectively making it more appealing, and in doing so, increasing the value enough to make a nice profit. There are a number of problems with this: 1) The market is pretty effective. It isn't easy to find a house that is priced for less than it is worth. That means, if a house is selling for, say, $100,000 and could sell for $130,000, chances are that it's going to cost you around $30,000 (maybe more) to get it fixed up. Your best bet is if you're handy and can do most of the work yourself. Of course if you're doing that, I hope you don't have a day job. Because even if you had $150,000 just laying around to buy a house for cash and buy materials, you're still paying insurance while you're fixing the house. And you need to eat and have gasoline and a roof over your head that all cost money. And if you *don't* have the money, you're paying higher interest than someone who bought a home with a 30 year mortgage. And if you don't do the work yourself (or aren't allowed to because of some kind of local laws requiring contractors) any "sweat equity" is going to get gobbled up by contractors. Then, when it's done, Uncle Sam is going to want his cut in capital gains taxes. And since it is a flip instead of a buy-and-hold, Uncle is going to treat you as a "dealer" instead of a "homeowner," with a stricter eye on what you're doing. (You can't do 1031 deals* on flips either.) The only money you make on a flip is the difference between what you spent fixing a place up and what you sell it for. And then you don't make any more money and need to find another flip. Oh, and god forbid that you find a problem like bad plumbing or termites or a crumbling chimney.

Conversely, if you buy a house and hold it, not only is it going to gain the value from being fixed up, it is going to gain as property values rise. 6% a year is easy. 11% isn't uncommon. One author's rule of thumb is, without doing anything but maintaining it, a home will double in value in 10 years. On top of that you're going to rent it out and get a big fat check every month (if you've done a good job and picked good tenants). Buying and holding is a money machine. Buying and holding lets you use depreciation to get tax deductions. You can defer capital gains taxes with a 1031 deal. Heck, if you're expeditionary, you can completely avoid capital gains taxes by living in a house for 2 years before you sell it.

So yeah, flipping sounds appealing. You buy a place, knock out some walls, put in new lights, and sell it at a big fat profit. You don't have to deal with collecting rent and fixing plumbing and all the other headaches of owning rentals. But if you fixed a house up right and put good tenants in it, maybe once in awhile you need to swap out the spray hose on the kitchen sink, but most of the time your work consists of taking the check from your mailbox on the 1st, and depositing it in the bank. There's a lot more room to make mistakes with a buy and hold strategy than with flipping. The best reason to flip is if you have as many rentals as you can manage and you're making as much money as you need and now you need a hobby to occupy your time. You might do flipping if you're strapped for cash and credit, in order to build your capital, but the risk is awfully high for the reward and you've got almost as good a chance of having one bad deal that wipes you out. If you're holding homes, they're growing in value and you're building equity (if they're financed) by paying down the mortgage (with your renter's money). If you make a big enough mistake, you can still sell the place as an exit strategy. Of course if you've got tenants in the place under a lease, your options for selling are more limited, but there are people who will buy rental properties with tenants in place and assume the lease.

*A 1031 deal is named for the section of the tax code and it lets you defer capital gains on the sale of real estate as long as you use the proceeds to buy real estate of equal or greater value. Can't do it on a flip. Conversely if you've lived in a home for 2 years of the past...5?...you can sell it and pay NO capital gains taxes. (I think I already said that above.)

 

[Volpone]

I have a plan. And it isn't crazy. Actually, I drank the Kool-Aid so a mentor understood things earlier than I did. The Book says you need 5-10 properties before you can quit your day job--leaning towards the 10.

But I have no debt. I have no wife to keep in dresses and jools and no kids to pay for college. Just an old dog and cat. And a few people dear to me that died left me money that I mostly grew instead of pissing away. And moving from an expensive city (Portland) to a cheaper one (Louisville) I was literally able to buy 2 houses that were twice as big for what I got for my Portland house (there were moving costs, etc, that kept me from buying said 2 houses right away). I've invested in the stock market literally since the day I was born (my aunt gave me 1 share of stock in the company she worked for as a birthday present).

But I'm rambling/bragging. Getting ahead of myself at any rate. As I was going over applications for the first house I rented, the lightbulb finally went off: The Rule of Thumb is to only rent to people whose income is 3x the rent. If I only rent houses I'd want to live in myself and charge an appropriate rent, I only need 3 houses to pay for my lifestyle.* And really, technically, I only need 2. Because according to the model, 1/3 of my income goes to rent. If I'm in a house I own free-and-clear, I have no rent. So I only need 2 rentals to live off. 3 would be better, though. In case a renter flakes out and decides to stop paying rent or something.

Anyways, life isn't bad. I wish I had more money and time, but I'll get by. I'd like to quit my job, but first I've got to rent out my second property. And I should gut it out at least until I get a mortgage, because then I could buy a 3rd rental and even with the mortgage, that would likely push me over the top. And mortgages are easier to get when you've got a W2 and a paycheck.

Incidentally, 3 properties is the most you can own before you're bound by the Equal Opportunity Housing Act. If you only own 3 rentals (and your own home) you can, technically, put a sign in the front yard that says "NO cupcakeERS" and there isn't a thing anyone can do. Of course I'm told this would be a stupid thing to do and you could still wind up defending yourself in court at a substantial cost.

*Assuming free-and-clear--kind of. I think I already cover this earlier.

 

[Volpone]

That being said, I *am* having to "gut" the bathroom of the new place. House was built in 1938 and I'll bet it had an outhouse. House was extended back twice. Three times, actually. Original house has 4 rooms (plus a front porch): 2 bedrooms along 1 side and living room and kitchen on the other side. Through the back door of the kitchen, the bathroom is on the left. Funny little room and the ceiling is a foot lower than anywhere else in the house. There's nothing to explain this in the attic, so I got in there with a wrecking bar and started bashing out ceiling drywall. There were 2x4s at a sloping angle. So basically, it was a penthouse that was tacked onto the back of the house so they would have a bathroom. I don't know if you went out the back door and then into the bathroom or if they had some kind of vestibule. Then, when they added onto the house, they just put an attic above it and rooms around it and left the old roofline in place.

I pulled the sink when I started doing the demo and discovered that there was a 2nd floor, raised 2" above the original floor. The toilet is up on the new floor but the vanity and the tub were down at the old floor level. Since I was pulling out the ugly mocha fiberglass tub with surround, I needed to pull up floor. (Oh, and when the tub came out, I found the window framing for the old room, over the tub.) Since the old framing of the original bathroom aren't load bearing, I can rip them out and get a few more inches of space in a fairly small bathroom. That's about all I can do, though. Because the bathroom can't get much wider--the stairs to the basement are behind it and the doorway to the kitchen is in front of it. I guess I could make it longer, but I'd have to redo the plumbing--or have toilet, sink and then tub across the room and then have extra space on the other side of the tub. That would be peculiar.

 

[Eggs Mayonnaise]

What about replacing the tub with a standup shower that would take up less floorspace? Or a wider shower with a built-in bench for older/impaired people? Unless it's the only bathroom in the house, in which case I can see having the tub.

 

[Volpone]

Yup. To date I've never had a house with more than 1 bathroom. I likely never will either, given my financial plan. Once I get this place habitable, move, and get my place rented, I gotta figure out how to buy 1 more rental property and once I get that rented, I don't think I need a day job anymore. But the way property is going up, I worry about getting any more properties, let alone ones with more than 1 bathroom.

 

[Volpone]

This is awfully nerdy and bloggy. My username is "Volpone." For "Fox." Hence the Megan Fox, holding a fox avatar. It has been my username since before the www. On usenet sites, etc. My college colors were orange and black. Some arrows my Dad had had an orange and black color scheme painted on the shafts. Odysseus was "the fox". Zorro is Spanish for fox. Rommel was the Desert Fox. Foxes aren't at the top of the food chain so they have to be smart and cunning and hustle. So I've chosen a fox as my totem. When I was in the Marines and we needed an apartment for comm school, I found me and my roommate the Fox Run Apartments. (They've since changed names, but they are still on Fox Lair Drive.)

When I moved to Kentucky I wound up on a street named for an old-time mover and shaker. But it is at the end of Embassy, which is a cooler name than some guy's Dutch sounding name. My rental is on Diamond Way. The house I just bought and am fixing up is on Terry Rd. Terry Fox was a Canadian runner who'd lost a leg to cancer. The day I closed on the house was...I dunno. At any rate, as I was negotiating to buy the house, Google had a Terry Fox Doodle. So I have decided to call the new place "Fox Ridge." So I've got Diamond, Embassy, and Fox. D-E-F. I either need a C or G address. Something by a golf course? :/

 

[Volpone]

I like to think I'm at least an OK Christian, which means you do things to help other people. That said, one of my Great Truths is that 9 times out of 10, you can't help other people, you can only take responsibility for their problems, freeing them up to find more problems.

Walking The Dog tonight. Cold and dark. Guy walks past and asks where the road goes--not at all dressed for the weather. I tell him. He says his ride left while he was in the bathroom and something about why he can't just call someone so he's got to walk to where he's going. Again, because I try to be a good Christian, even though I was cold and tired and it was late, I asked where he was going, considering giving him a lift. "Indiana." Fuck. Me. On so many levels.

First off, Indiana's a pretty goddamn big state. Obviously your trying to get some place where you have shelter. It isn't like Indiana has magical teleporters or free shelters and transportation. At least give me the name of a town. Second, as the crow flies, Indiana was about 4 miles from where we had this conversation. Which is bad enough. But there's the little problem of the Ohio River being between Indiana and Kentucky--not a minor obstacle on a warm sunny day. Insurmountable in any condition to a pedestrian on a cold winter night. The nearest bridge was miles and miles away.

So yeah, I feel a *little* guilty for not helping someone who is so obviously doomed, but on the other hand, sometimes you've just got to let Darwin thin the herd. Because, damn. If you somehow manage to get yourself stranded on the wrong side of a river with no option but to walk and no end goal beyond the state you want to get to, maybe nature is trying to tell you something.