There are lots of articles, courses, boot camps, and forum posts related to turning the house inside out. Bigger Pockets And all other kinds of websites. For many, it makes perfect sense.
Most families want to live the American dream. They bought a 3BR / 2BA house (or 5BR / 6BA McMansion) in a beautiful neighborhood and moved with 2.3 kids (average for statistical purposes. I recommend having 0.3 kids I don’t), I want to gradually repay my mortgage. (Or walk away from home when they are tired of paying).
In such a large market for single-family homes, it’s no wonder that all the rehab and flippers out there correspond to this large demographic.
But let me suggest another way. In today’s economy, fewer and fewer people are interested in the “American Dream” (although there are still many). I think there are several reasons for this.
- Over the past few years, many people have been burned by buying homes whose value has begun to decline dramatically.
- People are struggling to believe that homes are their “best investment” and are starting to see primary homes as liabilities rather than assets.
- Thanks to technology, the workforce is much easier to move around.They like the flexibility of renting
- Young workers are worried about taking on more debt like mortgages University debt burdens continue to grow
Sure, many of these observations are my own personal views from reading the news, but I see them in my rental business and talk to friends and colleagues.
These same reasons, however, provide people with a great market Buy a housing complex..
Reasons to flip the properties of a small apartment
If you have a lot of potential buyers, does it make sense to be a seller?
Most of what I bought were apartments from duplex to 4plex, both flips and long-term rentals. I have no experience in commercial apartments. This article is not intended to include apartment buildings. Nor do we say that the property in an apartment building is a “cat bark”. Brandon “Catman”) And the only type of property to flip.
But I made a lot of money by flipping some duplexes and renting duplexes, triplets, and 4plexes.
Explain why you think these properties are so good for rehab and reversal.
1. Exit strategy
Experienced single-family rehab and flippers will always teach you to plan your exit strategy well. That’s great advice. Part of that strategy is to determine ARV or “value after repair”. You need to know what you can sell a fully repaired place to understand a good offer price and rehab budget that will ensure you make money.
But they also ask – “What if I’m wrong about what I can sell it?”
Let’s say the market plummets or your rehab budget increases due to an unexpected large-scale repair. A good guru (and many other experienced flippers) will instruct you to make another exit plan. In other words, if it doesn’t sell, you can rent it.
For single-family homes, rent often covers very little mortgage payments, including insurance and taxes. If you have maintenance items, you can lose money for the month. You certainly don’t make a lot of money.
On the other hand, residential apartments can be cash cows. In many cases, you can cover your mortgage payments with rent from one or two units and receive pure profits from other units. If your apartment flip doesn’t sell, it certainly won’t break your heart. Borrow it and make money!
When flipping the duplex, put the lessor in one unit. That way, the buyer doesn’t have to look for a lessor and can start receiving rent as soon as he buys the unit.
However, having lessees in all but one unit has another advantage. Having at least one renter in a building will help you pay a mortgage for rehab while you wait for the property to sell. In a single-family flip, the building must remain empty while it is on the market, and the flipper must pay the full mortgage.
Rents are rising in many areas. The foreclosure crisis has transformed many from homeowners to renters. This can make it more difficult with the flippers of a house. Their market has shrunk in the last few years as fewer and fewer people are eligible for mortgages.
However, high rent means high selling prices for investment real estate. This is a major factor in commercial apartments, but it is also a very attractive part of selling residential apartments.
Due to the high rents in certain areas, single-family home buyers are not willing to pay any more, but duplex-to-four-plex buyers do.
I’ve also heard that flippers, like car dealers, are trying to sell their homes by promoting monthly payments rather than selling prices.
“Move to a new home with 3.5% down for just $ 997 a month.”
What would you do if you could say:
“Would you like to move 3.5% down to a new home for $ 100 / month?” Or “$ 0 / month”?
Do you think the second place may sell faster? I would rather buy those terms than a single house. There are many adventurous souls out there that would be okay with a little property management in exchange for having the tenant pay the mortgage.
There are many opportunities to buy, rehabilitate, and sell residential apartments to the owner’s resident at a price that allows the buyer to live virtually without mortgage payments.
3. Housing loan
Buying and selling commercial apartments involves the use of commercial loans.From what I understand, for commercial financing
- Higher commercial lending rate than housing
- Higher closing costs and fees than housing
- Increased down payment due to higher purchase prices and possible equity partner requirements
- Few government support programs to encourage ownership
The government wants to help Joe and Sally’s homeowners – don’t make a fuss about “Donald.” So there are all sorts of programs to encourage people to own their homes, including FHA loans, VA loans, HUD sales, and HARP programs.
guess what? All of these programs also apply to single-family homes and buildings with up to 4 units. Therefore, either flippers or end buyers can enjoy all the benefits of commercial real estate. This means improving cash flow, diversifying risk across multiple units, but also maintaining the benefits and cost savings of residential real estate.
4. Market for investors and homeowners
Once you’ve rehabilitated a housing complex, you can sell it to both homeowners and investors. This creates a larger market and can raise prices.
Many successful investors started their careers by buying duplexes, living in half and renting the other half. The building allowed them to:
- Save money for their next investment as their tenants were paying their mortgages.
- Their rent was about the same as getting to their home, so I’ll introduce them to property management in a very easy way.
Even if someone doesn’t want to be a real estate tycoon, they like the idea of living with no rent or almost no rent. Residential apartments seem like a great option these days when everyone is trying to reduce them.
On the other hand, you can sell a fully rehabed apartment to an investor for a healthy profit and still provide great monthly cash flow to the investor. Buying a fully rehabed property with cash flow from day one is very attractive to many investors, especially those with little rehab experience.
5. Tax benefits
Attention – I am not a tax expert and should not interpret this as tax advice.
Apartment buyers, especially those who live in one unit, are eligible for tax credits for both homeowners and investors.
People who live in apartments cannot receive depreciation for the entire building, but they can receive a portion of the depreciation depending on the number of units. They can also take part of the cost as a deduction.
Buyers also receive mortgage deductions and all other deductions that homeowners receive. This includes the exemption of some of the proceeds from the sale.
In addition to buyers, flippers who buy apartments also have excellent tax incentives. I actually rehabilitated some of these properties and kept them for a year. I rent all the units in the building and “recommend” one of the tenants to move out at the end of the year. This is usually pretty easy as I buy most of me near my local college. Therefore, in many situations tenants will not stay for more than a year.
Then I sell the property.
Doing this has several advantages over traditional flips.
- Receive a year’s worth of cash flow and increase your profits
- It allows me to extend my rehab over a longer period of time to ensure that all “kinks” are removed. Also, you do not have to prepare all rehabilitation costs in advance.
- I can sell it a year later and receive a long-term capital gains tax rate. This is much better than the normal tax rate that most flippers have to pay.
Duplex via 4plex is available for both rental and flip types of investment as both the real estate and rental markets continue to improve. While the true, trial-and-error advice of always trying to find the best deal still applies, investing in this type of apartment may be a great way to increase profits.
What do you think? Have you ever turned a small apartment over? Share the comments and questions below!
Photo: Simple joy