I am looking for advice from people who invest in pre-constructions and then resale/flip the property. What are your thoughts? I was told to flip the property through a corporate addendum for tax purposes. Do you know if I have to set up a legal corporation? Can that be done if I am an individual just flipping a property?
Any help is greatly appreciated? ???
Hi,
I need to make a decision by Monday and would really love it if someone can give me advice who has done this before. The property is in downtown Miami and my concern is the fact that they are building so much and I am hesitant that by the time I can resale the unit there will be a huge supply. I know that the area is predicted to grow over the years but I don’t know this for sure and am not sure what rising interest rates will do? I appreciate any thoughts on this?
Howdy Hinestro:
I am not going to be much help but someone needs to try to help you and maybe you will get some more response. I have never flipped a pre-construction deal and Miami is different than Austin or Dallas or Houston. If you think the market will remain strong or even equal you should do the deal. If you see massive overbuilding in the near future then hold off. Higher rates will hurt some too of course.
You do not have to have a Corp or LLC to do the deal. If there is a tax savings you may want to use a Corp. Also to limit your liability you may want to use a corp too. If you have nothing to lose by doing this deal and are in a low tax bracket it will be OK to do in your name alone.
To form a Corp you will only need yourself as Pres and another person as Secretary of the Corp which can be a spouse or friend etc. The filing fee here in Texas is around $300 with the Sec of State. You probably will not even save that in taxes but you can use the Corp for other deals as well.
I probably just mudded up the waters but I hope something helps.
LOL
I do both, LLC and Corp, anything i do with anothe rgorup i use an LLC and maintian a manging position. anthing personal i use S Corp, and but and sell through it, taking advantage of the tax laws that apply to a single entity purchasing RE for gain. To help perpetuate the savings, i also use my IRA to purchase, gernerally 90% vs 10% and use this as a tax deferment into retirement. My IRA is only at best making me a 10% return, so why not make that money work for me…
Cbrech,
How do you run RE purchases through your IRA?
You can use a self directed IRA and defer the taxes. With the portablilty las that past you can now do this using a custodian to do the trasanction. The one i use only charges $200 per transaction and the developer i invest with pays this fee.
would that also work for 401K?
Yes it would
You can do corporations in other states.
Nevada and Wyoming are less expensive than most and have other advantages as well.
JRB
cbrechbill
Hi,
I have heard about using a Self Directed IRA for Real Estate and wanted to check into it. What is the name of the company that you use and do you have a contact number? My understanding is different companies charge different fees and this is the concern one should have.
Thanks,
RDavis
I am finishing up a course in Real Estate Investing, online through my local college. They recommend a website to check out. You can print out the form and apply online; and they have simulated calculators. http://www.trustetc.com
Hello
I just wanted to respond to the original question. I buy pre-construction in my area (DC-Metro). This has been a wonderful investment area. Buying pre-construction is highly profitable in a hot market. Prices go up so fast that by the time your property is available you will have great amounts of equity. Then you can quickly sell and cashout your equity Or hold for increased value later(your option). I have bought my properties as a individual and have not yet utilized a corp. for tax strategies.
Hope this is helpful, best of luck to you!
I just had a conversation with a realtor who brings me leads on this very subject. I have an opportunity to sign up for the next phase on a new development, houses will be completed in late '05. Will wait till March/April to resell.
Question: How do I avoid problems with lenders(for the new buyer) who want this to be “Seasoned”? I don’t want to hold on to this for 12 months, will be looking for money partner to split equity profit. Can I put a new home in a Land Trust? How do I do that?
If this works well, I’ll do tons more, the market is extremely hot here.
Thanks for any suggestions!
Suzanne
Could anyone share their step-by-step knowledge in how to locate available pre-construction properties? I live in Dallas and wanted to go this route for my primary residence but have not been able to find any properties.
Thanks
Hi I have heard of the pre-constuctuon in Miami Area.
It seems to be a great Idea I really don’t know how it works Could you keep us posted. on how the deal went I would like to try that.
Good Luck !!
to locate properties I use realtors and internet searches. In my area the builders put up a lot of signs so I visit their websites and look for models of the homes to visit. A good realtor can also be very helpful because they usually know about developments that are in the planning stages.
I buy and hold, so, I can not give info a/b seasoning.
Pre-construction is most profitable when you by in the first or second phase of development. If you buy past this point the builder has already priced out the homes so there will not be much equity in the property for an investor. So, that is one of the most important parts of this type of investing you have to by in the very early stages to really be able to cash in on some serious equity.
In my opinion, a good Realtor is your best bet, and I am not saying that just because I am in the business. You need to rely on someone who has extensive knowledge about the market and the market trends in the near future, since more or less you are speculating. This is also especially valid if you are investing in areas other than the one you live/do business in. We deal with many people from other states who like to invest in FL, and if they need to do the research themselves regarding our market, it might take them months to learn what I know. By the same token, when I do my investments out of the state of FL, I usually rely on another Realtor’s opinion, and don’t mind that he gets a commission out of it. The referral is usually paid by the developer, and doesn’t affect the price of the pre-construction you are buying. Furthermore, in FL we have long waiting lists with names of people wanting to buy in the particular development, and sometime your only way in is if you know a realtor on the inside. Don’t ask me on the legal implications of this, I know it happens all the time. I can make a phone call and get you into a development that has a 100 name waiting list, and I don’t know how and why they do it, I just don’t ask questions. I guess sales people appreciate the business that they give each other.
So go out there and find a good Realtor that specializes in investment and pre-construction properties, and use him to the max… ;D
SBarber was asking about title seasoning and their are legal ways the builders can structure the sale so that will not be a problem.
There are conv. lenders that do not care about title seasoning and that is one of the easies ways to get that issue resolved one of the problems with that is they are typically subprime and their rates are a little higher, but agian the interest is tax deducable and PMI is not which most if not all A lenders charge.
Another problem you might encounter is the title company when you assign a property it raisings a red flag if the sales price between the 1st buyer and the 2nd buyer is more than 15%, some title companies go as high as 30%. Remember the title company is the place the lender goes to secure that the title is clean and alot of the underwritter don’t want to risk any problems when the end buyer is paying so much more than the buyer that sold them the property.
The reason I can get such a great discount is because I buy in hugh volume and in many cases the builder is needing a loan from me and in order to qualify they must have a certain % of the homes pre-sold.
If your not in the boat the best time is to catch a builder when they first get into the community or when they are leaving. A realtor can help find builder homes that are not moving and they could work out a nice discount, but I would not except more than 10% to 15%, but many if you use their lender and title company those fees are paid so it could work out to even a better discount.
Watermark,
I would love to hear about some preconstruction deals. I can invest upto 25 K of my own to begin with. Putting down that as 10% buys me 250K worth property. My credit is probably in mid 600’s or above.
Sunny