Newby at rehabbing and flipping - have a few questions

Rehabbing & House Flipping
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Newby at rehabbing and flipping - have a few questions

Katrina P.
Investor · Randallstown, MD · Member since 2010 · 185 posts · 57 votes

Hi All,

Hubby and I will likely buy a few tax foreclosures next month. Depending on the possibilities for each house, we will decide at that moment whether we will fix and flip or buy and hold. Anyways, we're brand new to this, so I have a few questions:

1. Should I form an LLC now?
2. Initially, we will begin investing in another state, so if we form an LLC, does it have to be in the state we plan on investing in, or can we form it in the state we live in? I'm pretty sure we can form it here, but just thought I'd ask.
3. Also, if I currently have an LLC setup, can I just change the name on that one and use it, instead of opening a new one?
4. Can we use our accountant here or should I find one in the state we plan on investing in?

Also, would anyone mind sharing some of their experiences with buying tax foreclosed homes? What's the average price you pay, and the average cost of repairs? When flipping, what's the average profit you make? I'm just curious :-)

Thanks!

Katrina

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Steve A.
Real Estate Agent · Idaho Falls, ID · Member since 2010 · 23 posts · 29 votes
16y

My 2 cents:

You are only asking for trouble if your first flipping experience is out of state tax auctions. LLC formation would be the least of my worries.

Tax foreclosures can be very complex. Get a great real estate attorney to work with you for tax sales AFTER you do some local REO flips (again this is just my 2 cents).

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    16y

    I suggest you make a few separate posts specific for each issue, in the specific forum that would best fit the issue. Entity questions posted into the Legal forum; tax foreclosures in the Tax lien and deed forum. That way, people who specialize in certain aspects of investing can pick up your questions.

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  • Steve T.
    Real Estate Investor · Colorado Springs, CO · Member since 2009 · 26 posts · 4 votes
    16y

    Here is some very general info:

    I'm no lawyer, so take this for what it's worth... when I began my research, I found that I needed an LLC in my state (where the property is owned), and really, you will probably want (need) a separate LLC for each individual property. The cost for an LLC will vary based on the state, and some states allow one overarching LLC with individual properties entered separately under the LLC (but the cost for this is higher). The goal is to ensure a legal issue could only result in the loss of one property. Changing the name is a state issue... can likely be done for a fee, but again, the goal is to isolate assets, so you don't want too much in any one LLC.

    Foreclosures are hard if you are buying them at the tax sale. Generally better to start with properties that have gone back to the bank (meaning there was no buyer at auction = REO). Prices are usually then discounted below what was owed on the property (i.e., at a loss for the bank). This will not be the case at auction. Can't talk price... varies too much even in one city, let alone the country. I've only done a few deals and am holding as rentals at this point, will wait for a few years at least. Focus on location. A low price is only a good deal if you think it is a desirable area. Too many properties out there to buy in an area you don't think has decent long term potential.

    I'm sure someone smarter than me will elaborate on these points (or correct me!).

    Steve

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  • Tracey B.
    Real Estate Investor · MD · Member since 2010 · 124 posts · 84 votes
    16y

    1. Should I form an LLC now?
    It depends on what you will use LLC for. If you plan to buy and hold and are using a loan, you may have problems if using LLC name. If you are flipping, using an LLC wont matter.
    2. Initially, we will begin investing in another state, so if we form an LLC, does it have to be in the state we plan on investing in, or can we form it in the state we live in? I'm pretty sure we can form it here, but just thought I'd ask.
    You should check on the requirements of the state you are purchasing in for using out of state llc's to purchase real estate.
    3. Also, if I currently have an LLC setup, can I just change the name on that one and use it, instead of opening a new one? In Maryland you can just pay to file a resolution to change the name as long as the name is available. But do you have to change the name? Can you just use it as it without making the resolution?
    4. Can we use our accountant here or should I find one in the state we plan on investing in? Your accountant will need to work with you to do your taxes so I always recommend find someone local and mention to them what you plan to do. They can provide some input based on your specific situation.

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  • Steve A.
    Real Estate Agent · Idaho Falls, ID · Member since 2010 · 23 posts · 29 votes
    16y

    My 2 cents:

    You are only asking for trouble if your first flipping experience is out of state tax auctions. LLC formation would be the least of my worries.

    Tax foreclosures can be very complex. Get a great real estate attorney to work with you for tax sales AFTER you do some local REO flips (again this is just my 2 cents).

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