Real estate investing has various benefits and challenges not associated with other investment vehicles. There are specific tax codes made just for those investing in real estate, whether they are commercial or residential.
Last week I looked at my first property for investment purposes. I doubt I am going to get involved but it was exciting nonetheless. The experience made me question whether I actually want to get involved in a short term flip.
Looking at my First Possible Flip
I took a look at the house with a buddy of mine and his contractor. This particular buddy and I are very good buddies and I think we would work well together on a real estate project (however, I have stated in the past I have no clue what makes a good partner).
It is a short sale that has been vacant for the better part of 2 years. The vacancy didn’t give me a great initial feeling but I figured what the hell if my buddy and I could get a “steal” why not. To say I left overwhelmed is understatement. The house was/is a disaster.
I figured there would be cosmetic problems, but the list of problems were too ridiculous for me to get involved on my first deal:
- people had come in and stolen the copper piping from the house as well as the coils from each of the baseboard heating units
- There was a crack in the foundation that may or may not be serious
- No hot water heater
- Boiler was completely busted
- Contractor said we would have to redo most of the kitchen
- Bathrooms were dated which may be a problem if we were to flip it (if it were a rental wouldn’t be that big of a deal)
- The house had been sitting there for a very prolonged period of time I would be shocked if an engineer doesn’t come in and find mold
There are other problems that aren’t fixable such as being on the corner with a very busy road next to it, a boat I would somehow have to get rid of and an unknown amount of dumpsters of garbage that would have to be removed (which would provide issues in terms of renting a dumpster and actually putting in the hours to remove the rooms full of stuff).
As soon as I walked in the house I knew this project wasn’t for me. I think my buddy might still go for it if he can raise the capital (b/c of the problems with the home it can’t qualify for a traditional mortgage). He could make some good money, but I didn’t think my stomach could handle it.
Why I don’t Think I’ll be Flipping a Home Anytime Soon on Long Island
Talking it out with a few people I came up with a statement that is not original, but seemed to sum up my situation perfectly. For me, flipping this type of home provided a limited gain with an unlimited downside.
The house is going to go for $X eventually (my guess is no where above $300,000 – which is low where I live I know that is shocking for most) but the work I would have to do could be unlimited. Concurrently, I have no idea what kind of town inspections would come after the amount of work that would be needed.
I can’t see myself flipping a home anytime soon on Long Island. The stakes are too high and I only have access to construction services at retail cost compounding the cost issue. It is possible that I buy a rental on Long Island, but the likelihood seems like appealing then the option of working with my brother-in-law down in Philly.