Advice Needed on Flip or BRRRR. House won't sell due to neighbor

[Eliot M.]

Hi everybody. This is a continuation of a thread I started last year about my neighbor screwing up my flip:

https://www.biggerpockets.com/forums/67/topics/373...

Well my flip is still on the market and I’ve had multitudes of people see pictures and set up appointments to go view the house, but instead drive by and not go in because of my neighbor’s house (if you’re not familiar with my original post, the gist is that I have a neighbor who boarded up his house’s windows and doors… long long story, but that’s where we’re at right now. So it’s turning off potential buyers by the droves.) I listed this house in January and have reduced the price by $50k from original list price ($50k!!!). There’s still room to make a healthy profit on the flip, but I’m beginning to think I need to dust off my Plan B.

Plan B would be the BRRRR strategy and so right now I'm comparing the two options, and the more I look at this, I'm beginning to wonder if BRRRR should've been Plan A! For one, I forgot to estimate capital gains tax on this flip (rookie mistake), which I think could actually be my biggest expense besides the rehab.

So, on the tax cost… I’ve done some reading and research and I’ve found conflicting and convoluted information – as all tax discussions are. Anywho, I keep seeing 30-40% pop up as a good placeholder for estimating tax expense on a flip. Is this a good placeholder for me to use? And 40% of what? Should I just multiply the 40% x “profit” as we all would define profit on this site? Or is there another esoteric, mythical number that I need to find instead of “profit” to calculate the 40% on (like purchase price, minus 1/27.5th of depreciation, minus rehab costs, plus how much gas prices are at the moment, rounded up to the nearest integer of your mother’s birth year?)?

If the calculation is indeed just profits x 40%, then I’m looking at an after-tax profit on the flip at $40,000. The calculation is below:

Basically what it looks like is in my previous pro forma I was estimating profit to be $60k, but when subtracting 35% from that number, I’m left with $40k. Can you guys please let me know if I’m using a fairly good rule of thumb on the tax cost?  Does this look right to you so far?

So, in considering the BRRRR option, below is the pro forma. I will assume a same $145k for appraisal value. I have stellar credit, so assuming I can get 70% LTV on that, that means I get a check for $101,500 when I refi. The monthly payment on this loan is $533 at current rates over 30 years. I pay off my previous lender and my HELOC and am left with around $45k to go invest. The reason this is Plan B is because I'm not cash flowing anything on this house (see below the $247 annual cash flow this baby would throw off), so I'm basically treading water for 30 years while I pay it off. But the $100k check from the refi is enticing. And, I could just basically rent it out while I wait-out the next door neighbor to get his act together and sell, or at the very least, get the boards off his house. But then I could sell and unlock the other 30% of equity and move on.

So basically what I'm looking at here is either 1) sell and give the IRS 40% of my profits and walk away with $40k (assuming the above sales price works out... it could very well NOT work out this way), OR 2) retain the house, rent it out at $0 cash flow per year, but get a $100k check in 5 months to go reinvest.

Is my thought process correct here? What would you guys do in this situation?