First Flip in USA Market

Thought this may interest some on PC, we just secured our first flip in Atlanta, has taken some time to network with the right people from wholesalers, builders/contractors, lenders etc.

Atlanta is a second tier market in US, a first tier market would be New York and third tier market would be Ohio. Atlanta is an extremely hot market been so since 2011 with multiple offers and properties closing within 4 hours. We are targeting a particular postcode because its not only hot but its very much hipster Ville and land is scarce and we see in a short time frame we can use a number of strategies such as flipping, hold 1-2 years (short flip), hold for cash flow or develop.

We managed to secure this property because we were around the corner from this property and jumped on it within the first 30 minutes. The idea is to develop a relationship with the right wholesalers, once they understand you are not a tyre kicker then they will work with you.

The wholesalers have so many investors in US and overseas they don't need or want to waste their time. Its also important to understand that in the main most of the stock on the market we would not touch, as it is rubbish, wrong location etc.

There is no stamp duty costs in USA
No capital gains if you continue buying/selling, replacing property, just need to fill out a form which US accountant sorts out.

I will keep the numbers simple, these are the bigger ticket items.

$89,000 3x2 bungalow
$215,000 (conservative end value, according to recent sales data)

$40,000 renovation (labour costs much cheaper in US)
Painting
Replacing heating/air conditioning system
Upgrading/renovating bathroom
Upgrading kitchen

The nasty surprise in US is that you pay 6% selling costs, its shared between 2 re agents, buying agent gets 3% and the sellers agent gets 3%

The time frame is from closing the deal to completing renovation will be a 6 week period.
We have the option of using cash for this deal or using a hard money lender which is expensive at 12-14%, with 20% down. This would cost around $5000 if we went down this road.

The goal probably ambitious is to complete/flip 20 per year with a view of making a minimum of $50,000 net on each flip, $1,000,000 US dollars in 12 months. What if we only manage 10, then we are down to $500,000 that is US dollars.

If we were chasing a hold strategy then we can increase our cash flow very easily but I wont mention how on this forum but this is a very attractive strategy once we do our first 20.

The numbers are not hugely impressive compared to developing property in Australia, however ROI is brilliant, entry level is low compared to Australia and if you can do volume then its a different ball game.

MTR

 

Photos?

20 a year? Time to do your own reno show on TV please. I like Flip or Flop and Masters of Flips.

 

Sounds great! How much time do you spend on the ground in the US to pick your properties?
Is their any reading material you'd recommend for getting started in US property investing?

 

20 flips is huge. Does that mean relocating to the US?

 

No, it will mean frequent short terms flights to US.
Also we have a US investor/business partner also has skin in the game, he has 104 doors, which means houses and growing this. He flips, holds in the main multi units/blocks of units.

 

I started investing/buying in US in 2011 and been learning along the way. The properties I hold in US are purely for cash flow, though they have now tripled in value, so properties we were purchasing in 2011/12 at $35K are now worth around $150K.

My strategy and target market in US is different to what I was doing in 2011 and have been learning a lot from networking with US investors, book, forums etc.

If you want to learn about US property start researching no different to what you are doing with Australian property, key is networking with the right people.

 

The photos will come, I don't want to post the link there is already more than enough competition.

MTR

 

I agree. Back in the day, people lost a lot in the US market thinking they could get rich buying property sitting in front of a computer buying property over the internet.

^^^ this is the solution. There is nothing like feet on the ground and a team of people on your side.

 

Awesome stuff!

 

Love the idea as a side business to other property related businesses. Great stuff @MTR looking forward to some before and afters in the future. Best of luck! I hope you clean up nicely.


Does this mean roughly,

Site: $89,000 3x2 bungalow
Renovation: $40,000
End sale Value: $215,000

Equity invested @ 20% of site and renovation: $25,800
Gross Profit $86,000
ROI: 333%

Roughly as I know there are selling costs etc , but is that the picture?

 

net profit will be approx $72,000, deducted 6% re agent fees. As we keep buying there will be no CG tax to pay

If we want to use hard money lenders it will cost around $5000.

If we decide to bring profits back to Australia then we have a currency play approximately 30% profit on top of this, depending on Aus$ rate.

 

Will love to follow this! Very interesting to me

 

Looks good.

 

3% selling agents' fee would add up a bit each transaction.. Would it worth getting an agents license? Does the buyers agents fee come off the sale price? That sounds different.

If there is no cg tax to pay, there must be income tax to pay either in the states or here if it's generating income/equity?

Wish you all the best MTR, very brave

 

Amazing, very inspirational @MTR

 

We know that property markets are all about cycles and what pushes price up is supply vs demand.

This is exactly what has been happening in Atlanta there is a shortage of inventory, which means there is not enough supply to meet demand..... BOOM.... we are targetting the sweet spot which has lowest inventory

Another strategy which many investors in USA/Atlanta are doing is called slow Flip, renovate and sell after 12 months because the prices are just continuing to rise. During this period lock in lease for 12 months, rents are also rising so there is huge demand.

Recent article for those interested
Atlanta: An Inventory Account - The Five Star FORCE

The story of the Atlanta housing market is currently one of tight inventory.
Atlanta’s housing market holds about 3.2 months’ supply, according to RE/MAX of Georgia. A balanced market is characterized by about six months’ supply.

While inventory is limited across the market, the inventory story is even more prevalent at the lower end of the market. Zillow reported inventory at the middle and bottom tiers of the market dropped 20.7 percent and 19.7 percent, respectively, over the year in April. At the high end, it declined 3.8 percent, according to Zillow.

The strong competition and rising prices are shutting many first-time buyers out of the market, and this causes potential move-up buyers to stay put.

Adrian Smith, senior agent for Redfin in Atlanta, told the Atlanta Journal Constitution that the stiff competition has led some buyers to bid more than the appraised value of the home. They may win the bidding war, but when they apply for a mortgage, the lender won’t approve a loan for more than the home’s worth.

While bidding wars wage on, the rental market is booming in Atlanta. In Fulton, Clayton and DeKalb counties, nearly half of households are living in rental properties, according to a real estate expert in Forbes.


The Atlanta metro suffered greatly during the foreclosure crisis, and insti- tutional investors rushed in to purchase foreclosed homes at a bargain. Today, those homes are up for rent.

Ten years ago about 11 percent of single-family homes in the Atlanta area were being rented. In 2014, the most recent year reported, single- family rentals made up 19.3 percent of the market, according to an article in the Atlanta Journal Constitution.

 

We don't pay a BA fee, we buy from a wholesaler and we don't buy unless there is a minimum of 20% net profit in each deal.

I have been using US/Aust accountant since 2011 when I started buying and any tax in US is credited to Australian tax, my Australian Trust is the buyer.

However, my structure is different today as we have a set up a business in USA. Anyway wont go into too much detail with this as its complicated and I leave it with the accountants to work how to minimise tax.

MTR

 

@MTR
Love to hear your thoughts on west coast/ perhaps LA
I thought migration and jobs better there?? Thanks

 

It's like reading real life rich dad poor dad

 

There is the equivalent of cgt in the US at 15%, however you dont pay it if you buy another property with the gain. However at some point you will want to take some money off the table at which point the 15% applies.