Thread: Living Strictly On Property Income

Originally Posted by Bigd41190

Do you need licensing to purchase multiple properties? I know the licensing is for selling, but say you decide to cash out and sell them is it ok without licensing?

You don't need licensing of any kind to buy or sell real estate. You need to have state licensing to represent buyers and sellers in transactions, but you can buy and sell whatever you want for yourself, a business entity of yours, or whatever else. The fact that you can buy and sell whatever and whenever is what makes real estate a great income generating tool compared to something like cars, where you do (technically) need licenses to buy and sell them repeatedly.

Quick cash: The obvious answer is to buy a home under market value, fix it up, and sell it. In this market, however, I feel it's a risky endeavor. It's still a buyer's market and it's difficult to compete with endless short sales and REO's. To me, this risk isn't worth the reward - not in today's market.

I have to agree with GStephan that flipping is a tricky prospect, especially in this market. First, off you need cash. It's too risky and expensive to finance flips in a traditional manner. Banks have hold clauses and owner occupancy stipulations that aim to put off flippers. The housing stock is too large as well, making it hard to compete with whats already in inventory. Successful flippers either are, or have immediate access to rock star contractors, cheap day labor, and materials hookups. That's what my experience has been. I know some great contractors that got beat up pretty badly trying flips on their own because of dicey financing, cash shortages or some other piece of the puzzle. The TV shows of 2004-2007 made it look so easy, but they're all off air now for a reason.

If you're into trying a flip but want to mitigate some risk, find a property that you'd be perfectly fine renting out for income if you couldn't swing the flip. Just make sure that when you sign leases, there's a sale clause that says the tenant agrees that they will move out within thirty days of a signed contract if house is for sale. That way you can get them out if you can sell the house and the new owner doesn't want renters.

If the extra money is going to be spent on booze and girls, then it's a no brainer -- pay off the mortgage quicker.

You could argue that the whole point of earning extra cash is explicitly for booze and girls, but I agree that getting it paid off is a viable plan.

Originally Posted by Sinjen

The TV shows of 2004-2007 made it look so easy, but they're all off air now for a reason.

They have been replaced by Flip This House, Flip Men, Flipped Off... There is no shortage of flipping shows on TV right now.

Originally Posted by DialM

They have been replaced by Flip This House, Flip Men, Flipped Off... There is no shortage of flipping shows on TV right now.

Yes, you're right. Good point. These new ones no doubt coincide with the FHA extending the 'anti-flip waiver' earlier this year. The thought process being that flippers will at least keep foreclosed properties from becoming distressed properties because of abandonment, thereby propping up entire markets that are in trouble. We'll see.

At any rate, if you have the cash and crew, there's definitely a right way to flip successfully. I'd love to see some people in here post some experiences if they do so. I'm doing a renovation right now and am anxious to see if I can sell it for a good number. It's not a flip, because I've owned it for about 10 years, but the same rules apply.

Originally Posted by 123456

Do you guys prefer to buy and flip, or buy and rent?

You might decide to start by flipping, and then when that provides the cap needed to have multiple income properties, start to rent some, it's a good way to build inventory. It's better to rent as a long term plan because flipping requires a lot of attention depending on how you go about it. When I'm retired I would much rather spend the day at the golf course and pick up my monthly check, even if it is a little less.

This all 100% depends on the specific housing market you plan to be in.

Originally Posted by Dr. Handsome

That's the problem. Don't pocket that money. Throw it and whatever else you have at the mortgage and pay it off as soon as you can. After that, do it all over again, maybe buying two condos the second time around. If any of them appreciate, sell them and buy a nicer/larger one, and so on.

It's obviously not that simple, but that's an easy set of base rules to follow before considering the myriad other important things involved.

Could be the right strategy for some but not for all. Paying off your mortgage slowly will lower your monthly payments and at the end of the day, it will increase your cash flow. You can play around with mortgage payments to pay less income tax or create more income if you want to increase your cash flow and have more money in the pocket for the next investment.

Originally Posted by Sinjen

It's a good idea in theory, but be careful with new construction renting...especially in the condo market. Many developers put in the deed that you can't rent it out for X years, or at all. They do this for a few reasons generally: 1. they don't want flippers. They want the whole piece of the pie. 2. high renter occupancy generally means the value of the properties decrease, as renters just don't take care of property like owners do. 3. banks look at owner occupancy rates for condo associations when making loans. For instance, here in CT, anything over 40% non-owner occupied, most banks won't touch (for your average buyer). FHA won't touch them either. So selling condos to those buyers becomes impossible.

Another thing to consider is that single condos often don't provide adequate cash flow to make sense. The math sounds good at first, $1500 rent and $700 mortgage, but add in insurance, taxes, condo or HOA fees, and other misc. costs and it the margin tightens.

The flip side is if you can get it with no strings attached, and the price is right, go for it.

Good luck.

As well, keep in mind, if you don't have renters for 3 months, will your payments be low enough that you'll still survive?

BTW, if you're buying a condo for 90k and renting out for 1,500, that's not bad in my books. Certainly not a high cap rate, but it is a good way to get involved with investment real estate without investing too much.

Originally Posted by Sinjen

Yes, you're right. Good point. These new ones no doubt coincide with the FHA extending the 'anti-flip waiver' earlier this year. The thought process being that flippers will at least keep foreclosed properties from becoming distressed properties because of abandonment, thereby propping up entire markets that are in trouble. We'll see.

At any rate, if you have the cash and crew, there's definitely a right way to flip successfully. I'd love to see some people in here post some experiences if they do so. I'm doing a renovation right now and am anxious to see if I can sell it for a good number. It's not a flip, because I've owned it for about 10 years, but the same rules apply.

Uh, no. The flip shows now are all about buying all cash at auctions, not with FHA financing. Buying $75k-$150k houses to flip using FHA financing is pretty small ball.

Originally Posted by DialM

Uh, no. The flip shows now are all about buying all cash at auctions, not with FHA financing. Buying $75k-$150k houses to flip using FHA financing is pretty small ball.

Shows how much TV I watch...and the shows are, and have always been, marketing to the lowest common denominator, or 'small ball' as you put it...but there was/is an FHA anti-flip provision, and a further anti-flip waiver, meaning people are doing it enough to show up on the Govt's radar.

Anyway, this is all irrelevant. As I said, if you have the cash and crew, it's possible to be successful flipping houses.

Originally Posted by GStephan

As for the condo topic, I agree completely with Sinjen. Condominiums typically don't make the best investments. I prefer multi-family buildings - they tend to be the least risky and often offer much better returns than single family homes.

What part of LA do you find to be the best market for multi-family buildings for individual investors?