Few questions regarding CA market

[William Romero]

How's it going guys, I have a few questions regarding flipping homes in CA, Los Angeles area to be exact. This is my first post and I am looking to learn a lot before I get started on my 1st flip. I do have some real estate experience as a realtor, i got my license at 18 and did real estate for about 2 years, now I am getting back into it.

Since the AVG price of homes is considerably higher than other states, what are the best loans to go with?

Are there any laws that prohibit me to purchase and sell a home in under 6 months? what about 3 months?

Also, if a home is purchased and sold in 3 months, are there additional taxes that would need to be paid?

Any other tips would be greatly appreciated... :cool:

[Jon Holdman]

Fix and flips are going to need non-conventional financing. "Best" depends on a lot of things. Usually, though, you're going to need a line of credit, private financing, or hard money. You'll usually need some of your own cash, too. Rates on hard money are quite high. Four points and 15% is common here, not sure about CA. Private is whatever you negotiate with your lender. One a profit split deal, typical split, at least initially is 50/50 between you and the money partner.

CA has some regulations about the number of transactions you can do in a year. There was a post quite some time back, but I don't recall the details.

The tougher part of doing a quick flip is getting your end buyer financed. But there's been some loosening up on that. If you can substantiate the improvements and corresponding increase in value, and your buyer is well qualified, shouldn't be a problem.

Be conservative with your comps. Choose the ones at the lower end of the market, but not distressed, when establishing your selling price.

If you actually own it and sell in under a year, you'll owe short term capital gains. That's the same as your ordinary income tax rate. You may owe SET (self employee tax), too. That's both halves of social security and medicare, about 15% total. And CA taxes. Best to have a conversation with your CPA ahead of time so you know how to handle the transaction.

Keep in mind the 70% rule of thumb. If your purchase price plus rehab costs are 70% of the eventual selling price, you use hard money, and you turn in the deal in six months, you sell with an agent, then you'll make a profit of about 15% of the selling price. If you have your own cash, are an agent, or can do them quicker, you can improve the profit or do deals at a higher purchase plus rehab cost.