Hi BP Family! We are close to purchasing a Fix N' Flip property with the numbers below. The "All-In Cost" works well with our ARV but I am wanting to make sure I am not missing anything that could make the costs go up. We are doing a 1031-Exchange to avoid Capital gains. Below is a screenshot of a portion of my evaluation spreadsheet. • - Materials & Labor = Rehab Costs • - Purchase Price = Cost to purchase from owner • - Purchase & Sale Commissions = Our brokerage fee (partner is an agent) • - Down Payment = 10% of Loan & Loan Needed = 90% of Loan • - We will be paying 2 points on the loan needed. Thoughts? Am I missing anything big? P.s. - Once I iron out this excel sheet and the calculations I would be happy to share it on FIleplace r send it directly to you if you'd like.Thank you! Chad

I'm not a specialist so don't quote me on this but I'm pretty sure you can't 1031 exchange into a flip so definitely look into that. Also, I think there's fees you will incur on the sale side of the transaction other than just the commission.

@Chad Dickenson, Two things - Like @Christopher Giannino said you will not be able to sell this as a 1031 because your intent is not to hold for productive use. And if you meant that you are doing a 1031 into this property to shelter gains on a sale of a different property then you'll end up paying all of the deferred tax when you sell this property. So you need to factor in taxes. Which leads to the second ouch - When you sell this you will not pay capital gains rate. You will pay ordinary income rate and possibly self employment tax as well. Thank heavens you're in a tax free state or you'd have that looming as well. But your tax could well eat up 30% of your gain.

@Chad Dickenson carrying costs,,,,,,and add a few more bux for repairs,,,, Good luck

How much are you budgeting for holding cost? How long do flipped properties sit on market? Those are important factors to consider. There's a couple properties down the street from my house, both over priced, and been on market for at least 4 months. I'm not a professional flipper but utilities and property taxes cost money. Pretty sure you can't 1031 on flips but not 100.

@Chad Dickenson, the entity owning the property is not an issue. Any tax paying entity can do a 1031 exchange. The issue is that then intent of the LLP is not to hold the property. The intent is primarily resale. So it is not eligible for a 1031. Capital gains is only available to properties you own for more than a year with the intent to hold. You will have to pay ordinary income. And only your accountant can tell you what that bracket will be since it will be a pass through to your personal return via the partnership return.

Thanks everyone! This is really helpful. For clarification, this would be under a LLP not an individual. Couple follow up questions: 1. Am I not able to do a 1031 exchange and roll it into another property which would be a rental? 2. If I can't do that, how much should I expect to pay for Capital Gains if this is the only flip I do for the year and the profit is between $50-60k? Thanks again! I really appreciate this community and all the help! Chad

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Updated over 5 years ago on 09/09/2019. Most recent reply

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Chad DickensonPoster

Buying & Selling Real Estate

Am I Missing Anything?

Chad DickensonPoster

Posted September 09, 2019 11:19

Hi BP Family!

We are close to purchasing a Fix N' Flip property with the numbers below. The "All-In Cost" works well with our ARV but I am wanting to make sure I am not missing anything that could make the costs go up. We are doing a 1031-Exchange to avoid Capital gains. Below is a screenshot of a portion of my evaluation spreadsheet.

- Materials & Labor = Rehab Costs
- Purchase Price = Cost to purchase from owner
- Purchase & Sale Commissions = Our brokerage fee (partner is an agent)
- Down Payment = 10% of Loan & Loan Needed = 90% of Loan
- We will be paying 2 points on the loan needed.

Thoughts? Am I missing anything big?

P.s. - Once I iron out this excel sheet and the calculations I would be happy to share it on FIleplace r send it directly to you if you'd like.
Thank you!

Chad

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