Flip Thy House

Furnaces on the Fritz, Fixed Foundations, and Fun in Las Vegas

Apologies for the general radio silence in these here parts, but it has honestly been kind of nice taking a break from the joys and worries of real estate the last month or so. Well, that’s a half-lie, as I’m not sure you truly can escape either as a home owner or would-be flipper, but it’s been nice to bask in a relative measure of REI peace, with House #1 rented and House #2 finally sold.

We’ve started various renovations on the house we live in, which is coming with its own inevitable headaches and annoyances, but nothing too major. We’ve had the pier and beam foundation leveled and are in the process of having the carport converted into a honest-to-goodness two car garage, as well some cosmetic work on the front of the house to rebuild some pillars to add more curb appeal.

Contractor #2 has been tackling all of that and to give him credit he’s been pretty on the ball, and winning me over to possibly consider using him for another flip. I was happy enough with his work on House #2 but he kind of gave me the contractor shuffle there towards the end, juggling lots of jobs and doing enough when I’d get upset at his absence to satisfy me, only to disappear for a few days after that, etc. Which is part of that business, granted, but I wasn’t sure I’d use him for another flip where time was of the essence, and he’s managed to be responsive enough this time around to worry me less in that regard.

While all that work has gone smoothly, we’ve been having major issues with our furnace/AC, which is pretty major when you live in Texas and the high is regularly topping 100 degrees. It’s a pretty new unit (both inside and out, as well as the coils) but we’ve had problem after problem since buying the house, including Freon leaks, a motor burning out, the condenser randomly freezing up, and other crap. It’s increasingly hard, too, to get the guy who’s worked on it (and installed new furnaces in both the investment properties in the past) to come out and fix it. It’s a sucky situation as he and his wife are friends of ours and I want to keep using him, but it seems to take days and days to get anything fixed, he disappears with stuff half-finished, etc.

Last weekend was pretty much the breaking point, as he came out on Saturday to replace the copper linesets (after promising to do it on Monday the week before, then Tuesday, then on Thursday, then finally showing up on Saturday) an check the coils. Coils were fine, linesets were replaced, all was well. Until Sunday morning, when it was blowwing completely hot air. Blowing up both he and his wife’s phones didn’t result in a return call, and every HVAC company in the phone book that promised 24 hour service couldn’t come out to look at it until Tuesday.

With all of our furry kids (two pet rats and a dwarf rabbit) and a thermostat reading 92 degrees, we finally had to check into a Best Western here in town. Which is a pretty funny experience, as far as hauling cages through the lobby and finally getting our whole zoo situated comfortably. Eventually got the guy out who’d done the original work to get the AC back up and running, but it’s still struggling to cool the place down without running constantly and we’re $400 poorer, so the next step is getting additional insulation blown into the attic and wrapping some of the ductwork better, which needs to happen anyway but is yet more money flying out th window, or into the attic, or something like that.

I’m off tomorrow to Las Vegas for another gig covering the World Series of Poker, and won’t be back until July 16th. Boo, that. The money is good and the poker playing side of me really enjoys these trips, but it sucks to be away from home that long, and I had to burn pretty much all of my vacation time at the day job to make it work.

The day job is a whole other set of frustrations, and I’m definitely getting off my ass when I get back from Vegas and actively start looking for a new job. I’m still on the fence about going after any more flips in the short term, but if I do the income from a day job of some sort is pretty necessary, and the train has long ago left the station in regards to my current job. The only thing making it tolerable was the kick-ass boss I previously had, who got a new job about a month ago, and interim boss is just serving as a pretty harsh reminder of how screwed up where I work is when there’s no buffer of a good boss to use common-sense and try to shield you from the stupid as much as they can.

I’d love to simply quit and take a few months off to pursue all of my other schemings but I just don’t see that happening for a lot of reasons, not the least of which is I still haven’t thrown in the REI towel yet, current market be damned.

House #2 Closed: Sort Of

Not a heck of a lot went perfectly smoothly with House #2, and closing has been a similar story. We “closed” last Friday, signed all the papers, dotted all the i’s, but the buyers still hadn’t received the second part of their settlement money from the great State of Texas, which should arrive this Thursday or Friday. So everything is signed and waiting for the funds to arrive, at which point they get the keys, we get our money, and much drinking ensues (for me at least).

Obviously a bit frustrating, especially since the state officials dealing with the issue originally claimed they were ready to cut the buyers a check back in early April, but not a huge surprise and not the worst thing to deal with, as far as waiting a bit longer for money to appear so that the buyers can pay in cash.

Even without a flip house to work on I’ve stayed pretty busy the last few weeks. Operation De-Clutter culminated in a big yard sale last weekend, and we managed to make about $300 from selling all sorts of ridiculous, unnecessary crap we’d accumulated over the years. It also had the nice domino effect of clearing out our storage unit to the point that I can move all the stuff we’d been storing in our carport/garage to the storage unit.

Other plans have been on hold as far as waiting for House #2 to close, as we’re getting the pier and beam foundation of our house leveled, at which point I can start on renovating and tiling both bathrooms, kitchen remodel, etc. I’ve checked out a few investment properties lately but nothing is really leaping out at me, so I may focus any house renovation efforts on our home for the near future, instead of tackling another flip.

I keep flip-flopping (har) on future real estate investment plans, at times convinced I’d be crazy to wade into another flip and at other times equally convinced that I’d be crazy not to. I really, really enjoy the work and process itself, much more than any other job I’ve had, so that’s a definite reason to keep diving into the real estate waters. Juggling all of my current jobs makes it possible to keep tackling real estate investments on the side, which I do enjoy, and which have made me a decent amount of money so far.

On the other hand, I’m really, really close to being able to bid adieu to the boring, soul-sucking corporate day job from a financial point of view, as far as all the freelance work and other assorted money making schemes being able to replace the day job salary. Which would make me very happy. Very, very happy. But it’d also make taking on more real estate deals very hard, as far as getting approved for loans, having steady income coming in to fund renovations, etc. If I quit my day job I’d really have to put any REI plans on hold for a few years as I built up the freelancing/business income to the point where there was once again excess cash floating around to plunk into real estate.

So yeah. Dunno. Another alternative would be to try to marry the two by finding investors for real estate deals, so that I’d essentially be managing the projects, but not footing all of the expenses and risks. Which I really wouldn’t mind, as I’d do that in a heartbeat if I could make an equivalent salary (or even slightly less) to the current day job. The only problem is that opportunities like that are fairly limited in the small town that we live in, and working with investors carries its own set of unique difficulties, some of which would take away from what I enjoy about the whole house flipping thing to begin with.

In Which the Author Talks About Everything In the World, Including Real Estate

We had to push closing on House #2 back from May 15th to May 30th, but things seem to still be firmly on track. The delay was due to the stunning efficiency of state government, as the buyers apparently have to deal with two different state offices in regards to getting paid for their land that’s being toll-roaded, an office that deals with the purchase of the property itself and a separate entity that deals with compensating people for relocation costs.  One would think that both functions would live in the same place but apparently not, and one was ready to close by the 15th but the other wasn’t, thus the delay.

Basically down to twiddling my thumbs in regard to House #2, as the buyers are apparently finally happy with the condition of it, so except for mowing the yard right before we close, there’s not much for me to do over there.

We’re in the process of getting bids for leveling the foundation at the house we currently live in, which needs to happen before I get serious about tackling work here in the kitchen and bathrooms, which is going to entail tons of tiling. I’m waiting on House #2 to close before trying to refinance House #1, as I need to wipe out some credit card debt run up by the renovation on House #2 (nearly all of it on promotional 6 month, no interest deals, etc.)

I’m curious to see what’s going to be available as far as a refi for House #1 and a possible home equity line of credit/refi on our current house. It’s hard to turn around without running into doom and gloom stories about any and everything lending-related when it comes to real estate, but everything I hear from people actually involved in such (at least locally here in Texas) is that it’s far from doom and gloomy. My wife and I have really good credit and our debt/income ratio is going to be pretty ridiculous once House #2 is settled out, so I can’t imagine we’ll have much trouble. House #1 is an investment property but I’m just looking to refi to a reasonable rate and not get cash out, so I’m thinking that won’t be too painful or arduous.

Still not sure what route to go with our primary residence, as I’m leaning more towards a home equity line of credit, assuming we can get approved for a decent amount. The only reason I’m considering it is to give me a bit of a cushion on the next real estate purchase so we don’t have to rely so heavily on our savings to fund the bulk of it, so it’s not a make or break deal as far as a home equity line of credit/cash-out refi. No real hurry, though, as I’m going to be out in Vegas again for much of July covering the World Series of Poker, so I’m not even going to consider another deal until I get back.

Speaking of poker, I’ve actually been playing a ton lately, more than I have since 2004-2005. I’ve had a bit of a love/hate relationship with poker over the years, especially as I played for higher stakes and began to take the game seriously as an opportunity to make money. Despite the gambling nature and common perception many have of poker, it’s 100% possible to consistently make a profit at poker in the long run. No, really. It’s a game of skill, much like chess, and it’s entirely possible to make a consistent, substantial salary from playing poker.

The difficulty is that, like any job, it takes a lot of work to be skilled at it, and you have to put in many hours playing. While the idea of your job consisting of sitting in your underwear in front of a computer clicking buttons may seem initially appealing (when compared to commuting to a day job every day that you hate), in the end it loses some appeal when you find yourself sitting in front of a computer in your underwear every day, clicking buttons. The money you make is directly proportional to the time you put in, so in many ways you’re really just swapping one job for another in the end.

All that said, I’ve been playing seriously again the last 3 weeks or so, just to get a gauge of what sort of profit I can grind out at pretty low stakes. I’ve been playing .50/$1 NL, which means that you buy in for $100 when you sit down and initially start out betting at least a dollar, with typical final pots in the range of $7-$20. This is a lot lower than I played in the past (the highest I ever played regularly was $50/$100 LHE, which meant that each bet was in increments of $100, and final pots in excess of $1,000 reasonably common), but my poker game is more than a bit rusty and I’m really just trying to get a gauge of what sort of profit I can make with very minimal risk, more as supplemental income than anything else.

So far so good, as I’m clocking in at about $25/hour, which is a bit better than I expected. I’m getting a new boss at the day job, which is one of the catalysts towards getting serious about all of potential extra income streams such as poker, as our old boss was one of the few saving graces about the day job. The odds are very high that we’ll get saddled with a new boss that’s as far from a saving grace as possible, as my company has a disturbing tendency of late to hire the absolute worst person possible for any open position, so I’m getting more serious about having an exit strategy in place.

All my freelance work and Web design work has consistently equaled my day job salary for quite awhile now, but right now it’s gravy money that goes towards real estate, savings, etc. So while I could quit the day job and still have decent income from Day 1 being self-employed, I like gravy, and the gravy would disappear. Thus the returning to the poker grind, to prove to myself I can consistently churn out an extra $2,000-$3,000/month, making everyone happy.

But, who knows. I’ve been threatening to quit the day job for years and I’m still there, so all this may turn out to be even more empty threats.

Get Your Hands off My Ladder

I’m kind of digging this strange feeling of waking up in the morning and not immediately finding myself reviewing the yard-long checklist of things I need to get done on a house somewhere. I still need to give House #2 a good cleaning and shift some stuff out of the garage there into storage, but that sucker is mostly done. The buyer’s are having their inspection done next week, so who knows what will suddenly jump back on the to-do list, but for now I’m in rest and relaxtion mode (or as close as I ever get to that).

Kind of a funny scene yesterday as I was driving to Austin to buy a new laptop and drop off my extension ladder with a friend doing some painting on his house, and I just threw the aluminum extension ladder in the back of my truck and took off, like I’ve done a thousand times. My wife always nags me about not strapping down anything in the back of my truck, but, bless her heart, it’s more from a lack of grasping the physics involved, as she’s convinced that anything in the bed of the truck that weighs less than 300 lbs is subject to constant gale-force winds and in imminent danger of blowing out.

So I’m driving along merrily at about 70 mph yesterday and remark to myself, “Self, gee, it’s damn windy today”, as we were getting 20-30 mph gusts of wind, enough to blow my wee little truck around on the highway, when suddenly a huge gust of wind just blew the ladder right out of my truck. I mean, just cleanly whisked it out and sent it spinning (thankfully) about twenty feet over onto the side of the road, well away from traffic when it finally touched down.

The funny part is that by the time I slowed down, turned around, and got back to it (which took about 90 seconds), some dude had already stopped and was loading it into his truck.  I got out of my truck came running up and he’s looking at me like we’re about to have a Mortal Kombat style deathmatch there on the side of the road over a $50 ladder, but he caved in fairly quickly and laughed when I explained what happened, as I was like “Dude, look at all the paint cans and drop cloths and other sundry crap in the back of my truck. Seriously, that’s my ladder.” (Well, okay, I didn’t actually use the word “sundry”.)

Manage to safely deliver the ladder (after, umm, strapping it down securely) and bought a new laptop in preparation for another poker reporting gig for PokerRoom.com in Las Vegas from April 15th-27th. I’m not 100% thrilled to be gone that long, especially when trying to close on House #2, but it’s good money and hard to turn down staying at the Bellagio with meals and other perks provided. And yeah, I likes the Vegas, so I can’t really complain, I just wish my wife was there and that the trip was about 5 days shorter, as a week is usually enough time for me to get pretty sick of being away from home.

The Myth of Passive Income

Before anyone comes after me with sharpened pitchforks and torches ablaze, yes, indeed, passive income does exist.  And in various forms, whether you’re talking about dividends, royalties, or other investment income that is truly derived with not one whit of work on the part of the investor or the lifting of a single, solitary finger.

My only beef with passive income is that it seems to increasingly be tossed about in contexts that I’ve personally found to be far from passive, if you want to have any success at all. It seems that suddenly it’s hip and cool to talk about passive income as a goal (which I’m all for, don’t get me wrong, as I think we’d all love to be in a position where our bank accounts grow of their own accord), but it’s hard for me to scan the horizon or pull from my own experience and find many situations that actually produce the much-talked-about passive income.

Case in point: I’ve been involved in affiliate marketing/SEO optimization for nearly 10 years now. I’ve got a dedicated server with approximately 250 websites parked on it, all angling to make money in one form or another, whether it be from direct e-commerce sales, Adsense ads, affiliate products, direct ad sales, text link sales, reviews, you name it, I’ve got a site that’s likely trying to capitalize on it.

House #2 pretty much dominated my life the last month, with all my free time going into the renovation work there, so I had essentially zero time for my Web ventures. I didn’t launch any new sites, didn’t overhaul any sites, didn’t do a single damn thing to any of the sites other than the bare minimum to keep the trains rolling. For the month of March I ended up with a net profit of +$2,072 from all of those websites combined.

Pretty sweet, no? 2 grand in passive income isn’t something to sneeze at, not for me at least. But is that really passive income?

By definition, sure. I did nothing, yet all of my little sites hummed right along, producing a handsome profit. In this example, though, there’s a piper to be paid later down the road. You can’t really sit still in the world of affiliate marketing via websites, as things are always in flux and your targets are moving. Google is constantly tweaking its search algorithms, competitors are angling for top keywords on your sites, sites that get a short-term boost due to current events or links from huge sites drop back to reality, etc. For the particular game I play in the affiliate marketing world, I have to rely on volume, as far as producing lots of sites that typically return a decent but small profit, so I’ve got a pretty consistent churn of sites that I launch and build up, they make decent money, then slowly spiral down to producing nothing.

While taking a month off didn’t show any demonstrable effects, as far as income I’m going to pay for it 2-3 months down the line (unless I bust my butt in the next month or two working double-time), as I won’t have sites in the pipeline that start making cash to replace the ones dropping down in search engine results.

Which, really, is the point of this babbling about passive income. In my case — and I think in many cases when people discuss passive income — it’s not really passive income at all, as it requires a good amount of attention moving forward. While the sites I’ve built in the past are on auto-pilot and passively generating income, they’ll almost assuredly die a slow death if I never touch them again, and my net income will drop unless I constantly pay attention to them or add additional sites.

I think the same is true of many other cases where people talk about passive income, especially in real estate. Rental properties are usually what’s discussed, in combination with property managers that handle all of the day-to-day work, allowing you to simply cash fat checks  as the owner. Which could definitely be the case in some situations, but far too often investors are stuck managing their property managers, rotating in major repairs to rentals stuff as new roofs and/or renovations between tenants, scoping out new properties to buy, determining when the best time to sell other rentals is, etc.

At the end of the day it’s pretty difficult to find any magic passive income pill that really works as promised.  Or at least that’s been the case in my own personal experience, as anything that will make you money, whether it be REI, affiliate marketing, or even investing in dividend-producing stocks, also includes more than a small amount of associated work, if you really want to do it well and be successful.

Granted, it’s not as sexy to say “Project A should generate $1,000 in income from a massive amount of hard work, planning, and determination” when you can say “My latest venture will easily provide me with $1,000 in passive income”, but in my experience the former is far, far more common than later, unsexy as it may be.