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Are you looking for an experienced agent to help you buy or sell a home? Contact Jim the Realtor!

Carlsbad
(760) 434-5000

Carmel Valley
(858) 560-7700
jim@jimklinge.com


25 Comments

  1. Agenda.

  2. I was just reading through the previous post about this story and heard there were some negative comments about this man.What the heck is wrong with people.Here we have a hard working guy making some money and he’s the bad guy?Cmon people.These people are jealous they aren’t making the money.This guy has done the research and educated himself on this topic.He is more advanced than me as I have never bought at a trustees sale.It is a goal of mine and educating myself how to do it.Hats off to sd realtor who had the balls to take a risk.I am glad he is making great money.I hope he more success in the business.

  3. Capitalism at it’s finest. Commend both Adam and Jim. For anyone complaining or bellyaching about the opportunities Adam is capitalizing on please zip it and get off your lazy asses or move to a 3rd world country or both…

    Great stuff Jim!

  4. Exactly, they are putting $600K on the line and is being rewarded. I don’t think I’d have the fortitude to do what they’re doing. He’s also putting in a ton of back-end work, so while it seems like buy a house make $100K if you take that and split it three ways and divide it over the work done it seems like an honest days pay for an honest days work to me.

  5. I wonder if all the bureaucrats honestly thought they were helping anyone other than current owners with all their bailout programs.

    The reason flippers are able to make $$$ right now buying on the courthouse steps is because banks haven’t been forced to show their hand.

    Once the foreclosure floodgates open up it’s going o be much harder to make $$$.

    Even SDR said the reason he’s able to do this is because of the limited supply.

  6. Kudos to Adam, et al: More importantly than the work/risk, the pricing is low due to the zero financing available.

    To put it in perspective, ask yourself how much home you could afford if there were no banks and everyone had to pay cash…how much could you afford? Not much I bet. Thus your down payayment of 20% would then become the full price you could pay and homes would drop 80%.

    On the other end of the pendulum, we just lived through overly high prices due to 100% financing (and know how unsustainable that was). Thus you may think you have $1mm of risk, however, we’ve all been shown you really had NEGATIVE cash at risk when you pulled out your downpayment and then some.

    Lastly, any buyer who had attitude against flippers can just not write them an offer…its that easy…just like turning off TV shows that you don’t like…costs you nothing to take your downpayment down the road to another seller.

    You are not entitled to risk-free, cheap real estate…that is a holdover from the bubblerider days.

    Either pony up the cash, take the risk, stress out the wife, and lose sleep by being a flipper..or buy retail through the MLS and enjoy your home on day 1.

  7. I think people are just jealous. They should ask themselves, if they had $600K would they risk it on a foreclosure without being able to see inside? What if it had serious foundation or structural problems?

    On a side note – Adam has submitted some offers for me in the past and he did a great job. He gave his honest opinion of the property without guiding my decision. My only complaint? That I don’t have access to these trustee sales because I only have 20-30%!

  8. Shadash – don’t stop your thinking so short….if there were a flood of properties due to no gov bailouts, then the Trustee’s sales would experience a similar flood of properties further driving down the initial purchase price at the Trustee Sale below the market.

    All boats rise, and sink, with the tide.

    The trouble comes when the gov changes the rules in the middle of the game (i.e. after you buy a trustee sale at $500k then the next day the gov stops all programs and prices crash leaving you holding the bag). Hence, SELL AS FAST AS POSSIBLE!!!

  9. Adam,

    Take the day off and enjoy some turkey and fixin’s!

    You deserve it!

  10. Jim

    Happy Thanksgiving to you and yours!

  11. It seems the greatest problem w/ the trustees sals are the cash you have to have up front.Where do most of these guys get the money?Is it mostly from investor pools?

    Is anyone familliar with a good hard money lender?I guess this would be a temporary loan and then refinance.

    Doesnt FHA have a 90 day seasoning requirement?

  12. Happy Turkey Day to everyone!

    Just like with Jim’s cute blonde investor, I have no problem with what Adam’s doing.

    I will say that the government & banks are certainly creating the opportunity for flipping by minimizing the number of trustee sales.

  13. Shadash you nailed it. The only reason we decided to undertake this is ABSOLUTELY due to the limited supply. That can be traced back to the snails pace of the foreclosure process, the shadow inventory, etc… Also again this is not just me. I am one of 3 people and they have worked really hard as well.

    I was incorrect in my measure of exit strategy. I earlier mentioned interest rates will be the measure of when we bail but it will not be that alone. If we finally do see a spike in inventory then we will be out. It is not an if, but when. At some point things will roll over and undoubtedly we will be holding a home or a few when it happens and we will have to slash and burn.

    This entire market is a charade. It is not an if but a when in terms of rolling over. We just got tired of watching it on the sideline.

    ***********

    Seasoning IS a requirement. None of our homes can sell with FHA financing. Even CONVENTIONAL is a chore. Many conventional lenders will use FHA overlays even though the loan is not FHA. Seasoning is not an FNMA guideline… YET. That will also chase us out.

    Alot of the big guys buy and hold properties for 90 days or 120 days (in the case of IRS liens. We are not comfortable doing that.

  14. Where do we get the list of trustee sale homes?

  15. This site has some:
    http://www.lpsasap.com/

    What about land trusts? Someone told me you could buy at auction and then transfer to a land trust to avoid the 90 day rule.

  16. What a novel idea — you need deep pockets to flip properties. And to think a few short years ago all you needed to flip houses was the desire to flip houses. This a good thing. He’s helping to lower comps along to way, too.

    But now that there’s a whiff of money, the competition will be tougher, and the chances of racing to buy a dud will be higher.

  17. The planning on the exit strategy has got to be rough. As more homes hit the courthouse steps, prices paid by flippers “should” be less, right? But you’re worried that the greater inventory could leave you holding the bag (or taking under purchase price).

    It really does seem like a gamble, of when do you say when? After the first time margins go under 5%? After the first time you get unlucky on deferred maintanence needs?

    More power to you. $600k seems like an awful lot of money to put on the line just to clear $60k.

  18. Cara and Mike yes the exit strategy is nerve racking. I keep a very close eye not on the courthouse as much as the market itself. As we know the market is so heavily manipulated right now, what should be happening and what is happening are two different things.

    The 600k to earn 45k is not what was planned. Also we have 3 closings under our belt so we are playing with SOME house money. Jim featured just 1 of our homes and recall we have 7 of them. In fact that 45k is a perfect illustration of our strategy. Actually when we close it will be about 55k. So we had a higher profit margin targetted but after a very short time on the market with no acceptable offers we slashed the price by 30k to be consistent. Our goal is to NOT get caught with property and to stay liquid. So if we don’t get what we want quick we cut and run.

    So yes on the outside looking in a 600k investment to make 45 or 55k is an idiots game, but if you look at the whole story it makes more sense then holding a depreciating asset hoping for someone to come in and then getting killed right?

    As I said, we are not expert at this but I do feel like we are adhering to a strategy that will help us avoid getting hammered. It is absolutely inevitable that we will be holding properties when the bottom does fall out but we are trying to minimize the probability and reduce the fallout when it does happen.

  19. Definitely the short hold time is key to surviving at this on a small-timer basis. What you’re trying to do is essentially arbitrage but with added lien/liability risks on an illiquid asset. So, to minimize the non-liquidity you are smartly listening to the market when it speaks (or stays silent) and rapidly adjusting your price.

    How overlapping are your properties? How much cash are you leaving out there at any given time? That’s got to be the key decision. That and how long this arbitrage opportunity lasts is going to determine whether you end up making or losing money overall. Though I assume you have a baseline scenario in your head for just how fast you think the market could fall in a worst case scenario, and that’s probably not as bad as getting a house that has $50k+ of issues that take time to repair.

  20. Cara are you sure you are not doing this as well? No need to comment on strategy because you called it exactly.

    The overlapping is random and is simply based on liquidity we have. Right now we are full or RE and have a little cash if we wanted to buy a cheap condo… which we are trying to. Although 2 of the homes are in escrow, one is past the contingency period and one has not. One home got listed today and one will be in another 2 weeks. Right now we are actually trying to push escrow closings to after Jan 1.

    The question you asked is one I would pay for an answer to. I could not tell you how fast the market can roll over but I think within 2-3 months in the case of something rather cataclysmic. As you would agree what we are doing is terribly risking and not recommended at all. We have been lucky and I only wish we started at the end of 08 instead of the middle of 09.

  21. SD – what about capital-gains tax?

    You are rolling the equity from closings into other properties, and deferring the capital-gains tax.

    But once the music stops, you’ll end up owing fed and state tax on the net profit on every deal. Does having an LLC help greatly, or just a minor benefit in reducing income taxes?

  22. Jim don’t confuse equity with profits. We are getting absolutely hammered on taxes. Here is the worst case scenario, all of the net profits we make are taxed at full income. Our biz is structured as a corp. The corp will pay each of us as employees. Now yes we can defer some of the taxes using a SEP but that is it man. We can also issue dividends rather then pay salaries but you have to watch out for that. You go to far and you get screwed. So even though each investor is reinvesting profit back into the company to increase equity shares, each investor still is getting pounded hard. Normal income man. Both the corp and investor are paying normal employment taxes as well.

    Can we play it more aggressively? Yes we can however I am not a fan of messing with the IRS and have more to lose then gain. So that will cost me a few more thousand in taxes. Not good. I am not a tax expert, we use an accountant who is very risk averse.

  23. Sorry if I didnt answer your question directly. The corp doesn’t do much taxwise, it is simply a liability protection purposes. We are paying for taxes at both state and federal levels. Equity is not taxed but profits are. So think of it this way. You invest 100k to buy a home. You make 140k on it. Even if you invest the 40k back into another home, you pay taxes on that 40k this year. It is not at all like 1031 exchanging.

  24. I have neither the money nor the stomach for this, so, no.

    The taxes are a killer. That 40k isn’t 40k it’s 70% of 40k or whatever your bracket determines.

    At least if you were playing black jack then all your gains and losses would be in a short timeframe such that you just have the net gain to pay taxes on…

    Can you even apply your future losses to your current gains? Is that the logic of moving the closes to after Jan 1st? Such that when the music stops it will be in the same year as as many of the gains as possible?

    Yikes. The only motivation I can see for putting in this much effort for such a risky venture is (a) because the big boys are making money at it, and you want in. (b) the transaction numbers are so few in SD that you aren’t making enough as a regular Realtor right now…

  25. Cara the taxes are such a killer it is ridiculous.

    This business is no different then any other small business. Your losses are your losses are your losses but they only apply to each year they occur in. These sales cannot be treated like capital gains. They dont qualify as 1031 exchanges. Yes the logic of moving our current escrows to close after Jan 1 is due to the income we have already made this year.

    As for the reasons I am doing it, it is because I see it as an opportunity. Is it risky? Yes but I don’t view it to be nearly as risky as someone on the outside. The other two investors are electrical engineers as I am as well. My income from real estate transactions this year, (not from my flipping) is very good as well. As I said at the very beginning, what was hard for ME to stomach was to have a couple hundred thousand sitting in a 2% cd. So after taxes I was making what… a little over 1%? I knew with hard work and diligence I could at least minimize the risk, and participate in a market that while manipulated at least I understood the manipulation. I could have dumped the money into the stock market and done great but I don’t have control over that market.

    So the risk premium while not pallatable, (or advised) for most people was for me. I will repeat, I do not advise anyone else to try this.

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