New member in Alabama

[Joseph Fenderson]

Hello everyone,

My name is Joseph Fenderson and I'm from Birmingham, Alabama. Right i work in the accounting department at a hotel and interested in home investing. I have 4 children with 2 more on the way(twins). This is something i have been studying on and off sine college and now find it necessary to learn more about to my benefit. I want to use this information to not only help myself but to help others as well that may be going through similar problems. I'm willing to listen to any advice that can be helpful.

[Denise Evans]

Danny, what do you mean "shopping for my buyer?"  If you have someone who wishes to buy properties, are you are scouting opportunities for them, you are practicing real estate brokerage without a license. It is a more of a gray area if you are finding opportunities to flip to purchasers with known criteria, especially if your flip is the kind where you assign your contract and never go through with closing. Bear in mind, however, that these laws are designed to stop the person who wants to truly engage in real estate brokerage but without getting a real estate license. If your strategy is a true flip strategy, I would not worry about the real estate license thing.

Make sure you have a written business plan that says your goal is to flip enough properties to build up capital to use for long term investments Attach some numbers and some deadlines to these goals.  You can change your business plan as you gain more experience. In fact, a business plan should be a living document that changes at least annually in some particulars.

It is okay to pay yourself a salary, but you cannot suck out most of the flipping profits to help meet living expenses.  If you do that, the IRS will classify you as a "dealer."  Dealers are not investors. Dealers are like WalMart. They buy and sell inventory.  Investors buy real estate to hold.  The dealers do not get most of the tax benefits given to investors--no depreciation deductions, no 1031 exchanges, no installment sales treatment.  Also, dealers must pay self-employment income taxes on their profits.  On the other hand, dealers can deduct many expenses that investors must capitalize and then amortize over many years.  You can be both, on a property by property basis, but you have to pick in advance before you get audited and the IRS makes the decision.