General Real Estate Investing
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Updated over 7 years ago,
Going to the next level.
I have read a lot on here and done a ton of research, but I still have lingering questions and I want to make the right next steps.
Over the past 4 years, I have been working towards being a full-time real estate investor. I love working with my hands and have a good eye for what a project could be so I started with a live-in-flip. I purchased my first house at 26 and renovated the house and lived in it for one year and then successfully sold that house. I made sure to live there a year so I would only have to pay the 15% long-term capital gains tax. I took the profits and moved into another live-in-flip that was a little bigger with more upside. Same path as the first, I lived there a year, renovated the house and successfully sold the house. At this point I had a fiance, but she was onboard to deal with 1 more live-in-flip.
So with that, we bought a bigger house with the plans of putting a 1,000sqft addition on it and live there for 2 years (0% taxes on profits up to $250k) while I again did all of the work on the house. I have a normal 8-5 job in advertising so this was going to be 4 years in a row of nights and weeks working on the house.
Fast forward to today, I am married, we have a 5-month-old baby girl, the house is 90% complete and we are looking to list the house in about a month. So, my efforts over the last 4 years should net us around $200k to walk away with and here are where my questions come in. I want to make the next step in becoming a more serious investor and increase the volume of flips. I still want to be cautious and will most likely have a goal of 3-5 flips per year and keep my 8-5 job for the next year or 2 and then move to part time and ultimately full time investing. I will contract the work out instead of me doing all of the work so I can turn them quicker. The plan is to pay off all of our family debt (car/truck/student loan), put a substantial down payment on what I consider to be our first home and then put $100k towards my "business." Here are my questions...
1) Start an LLC or S-Corp? Through my research, it sounds like an S-Corp would be best, but since I will only be doing 3-5 flips a year is there really a need? Can I just purchase the house as if I'm looking to purchase a second home? These flips will need to be consecutive so there shouldn't be any overlap if that matters. So at the most, I would have 2 mortgages (Primary home and the investment property). My main concern is financing and taxes. If I'm just purchasing a second property, I would think I could do a conventional loan at 5 or 10% down and then when I sell it I would be taxed at my normal taxable income rate which is 28%. So financing and tax wise for the next 2 years am I better off not forming an LLC or S-Corp?
2) What type of insurance coverage should I be looking into for these secondary properties and can I get this insurance through my normal agent that covers our family home or do you need to get "special" insurance for this investment "secondary" property? I've tried researching it, but i'm getting really confused.
3) Will I be able to be financed through a conventional loan on these secondary properties? I know I can go the hard money lender route, but I would rather not simply because of the unknown with them. Never worked with a hard money lender and from what I've read, the rates/points seem to be higher. I have enough on hand cash to put down 20% if need be on a conventional loan, but I'm trying to limit the amount of upfront costs. Also, I will be paying for all of the renovations out of pocket as well.
So if you are still with me after that long post...thanks, hopefully, my questions make sense.
Cliff Notes:
1) If flipping 3-5 houses a year consecutively warrants starting an LLC or S-Corp that would help me benefit in the financing and tax department.
2) What type of insurance would be needed for 3-5 flips in a year and who carries said insurance?
3) Can I finance a secondary home/investment property via a conventional loan 3 to 5 times a year?
Thanks for reading my novel :)