All Forum Posts by: Ben Kirchner

I've been a buy a hold & land investor up to this point.  I just completed my first flip.  I've been doing my own taxes up to this point, as it didn't seem too complicated with my current rental portfolio.  Now that I've done my first flip, I'm seeking a real estate tax savy CPA in the Durham, Raleigh, Chapel Hill, or Carborro area.

What should I expect to be taxed on? I purchased the house and rehabbed it in cash. I'm paying interest on my HELOC. Beyond that, I've paid fees such as inspections, and utilities. My realtor will get his commission. Are all these expenses to be accounted for? Therefore purchase price - All of what's mentioned = Overall Profit

Being loose with numbers, but let's say $100k was my purchase price + all expenses, and $150k was the purchase price.  $150-100= $50,0000 to be taxed on?   Would the $50k be taxed within my income bracket?  Or additional for short term capital gains, as I only owned the property for 3 months?

Any insight on the above is appreciated.  Hoping to link up with a CPA in the North Carolina RTP area as well.
 

Would certainly be interested in any recommendations from investors for tax professionals.  Would like to discuss this further with a professional. 

I've always used TurboTax for my taxes. Been acquiring rental properties over the last 3 years and still get by with TurboTax. The time commitment is not an issue with me, but I certainly would be open for hiring a professional if the expense was worth what I would get in a return. I keep good records of all expenses/income from my rental properties, and it seems like Turbo Tax walks you through where to enter all the data, and generates your return from that. I'd like to get opinions here on tax deductions and elections that I could be missing by using Turbo Tax, get an idea on the cost/benefit of hiring a professional, and decide if the cost would be justified in the additional return I would be receiving. 

Also, my next audiobook will be the BiggerPockets tax strategies book. Curious to hear from people who have read it and how eye opening it was as far as deductions they learned about that they never knew about previously. 

Thanks for all insights.

Looking for advice in regards to this purchase on a property where I believe the seller may be in fault of breach of contract. Looking to get expert opinions and/or experiences to know how to best proceed.

I went under contract with an out of state property. Went under contract early November. Duplex with a tenant on the top unit. During the earnest period, the tenant complained to the seller that the roof was leaking when it rained hard. She sent a video of it POURING rain inside her unit (far beyond a small leak). The seller had work done on it DURING the earnest period. I still inherited a leaky roof after closing. The seller's response was "The roof already was in bad condition when property went under contract. We had work done to restore the roof to the condition it was in at the time it went under contract." However, I was given NO notification of this work being done during the earnest period. I wasn't made aware of this until the tenant had told me, after I closed on the property. The seller has failed to provide any documentation of any work done. Therefore, I believe the previous owner sent a handyman to the roof to do a shotty, band aid fix. Is this a breach of contract? This may have caused me to back out of the deal had I known about it before closing. However, I've already closed on it, invested $18k in rehab, and still have a roof issue. The inspection company holds strong to their disclaimer of not being responsible for any leaking for the roof, but I'm wondering what the seller is liable for?

Also, there is a significant lean on the top unit. This is very apparent when viewing it from the outside, and when walking inside the house. I'm no inspector, but I couuld definitely see and feel this when I visited the property a couple weeks ago (I bought the property sight unseen). For the selling party - are they breaching contract for not disclosing this information? For the inspection company, I submitted photos to the inspection company, and awaiting their response. However, with their roof disclaimer, I feel they will pull out another similar disclaimer about this. 

Not sure on how much the roof repairs will cost. My contractor says the lean on the building would be an estimated $5,000. I'd imagine the roofing costs would be costly as well.

Is the seller at fault of breach of contract? Do I have means for a lawsuit? And given the above, the costs, and the fact I'm out of state, how would you pursue this? 

Thank you for any insight

This is the dilemma I see in seller financing.  Assuming the seller has maintained the property well, it's likely appreciated far beyond what they originally paid for it.  In the above case, the seller paid $120k, 20 years ago.  The property is well maintained, and therefore warranted the appreciation.  In fact, most houses in this area would appreciate much more rapidly than that.  So I'm struggling to find favorable terms for both parties in scenarios like this.  

I believe I understand the basics of seller financing, and the pros/cons for the seller and buyer. However, I would like a little help breaking it down. Given the 1% rule, I would figure most houses where the owner has had the property for a long time, it would have appreciated significantly where you would not be able to get 1% rent of the purchase price in this case. Therefore, are buyers forfeiting the 1% rule in turn of reaching other favorable terms that allow them to cash flow? Let's walk through this example:

- Seller assumes value of home is $200,000

- Current rent is $1400/mo

- Seller intends on reinvesting money from sale of the house into conservative stocks, but wishes to avoid the big 1-time hit of capital gains tax.

Given the above, what might be favorable terms for both the seller and the buyer?  Are there win/win terms available?  I should note that the house is in an area that will appreciate nicely, but buyer's main objective currently is cash flow.

@Caleb Heimsoth - What markets are you seeing good returns in, around Durham?  I do have 3 properties in Garner, that all rent for around 1.30% of purchase price.  However, these deals do not seem plentiful, and certainly not in Durham.  St. Louis has multifamilieswith good returns.  For the property this post is about, I'm getting $2225/mo in rent, with a $120k purchase price $25k rehab.  I pay utilities, but still a solid return.  

Disputing this appriasal was worth while, as it bumped from $140k to $155k.  The lender did include that it's rare that they see a dispute providing this result though.  

I am currently under the process of appealing the appraisal done for my property in South St. Louis.  The property is a quadplex with each unit being 1Bed/1Bath, 2970 Sq ft, on  Minnesota Ave (63118).  I was HOPING the the new appraised value would come in around $170k. My realtor did a great job of putting together a thorough report of nearby comps. However, by the time the appraisal was done, some of the comps could not be used, due to being over 12 months old. Instead of coming in at the $170k appraised value that I hoped for, it came in at $143k.  I am pasting what the appraiser has stated about the suggested comps.  

***If anyone familiar with this area has other comps they suggest I bring to the appraiser's attention, please let me know!**

3134 S Compton Ave is over 12 months old.

2834 Wyoming is a two-family and several days away from being 12 months old.

3304 Wyoming is a two-family.

3215 Wyoming has been added to the report.

2732 S Jefferson has been added to the report.

Also - The deep dive into my BRRRR and the current status

- Purchased for ~$120k (downpayment ~$30k)

- Rehabbed for ~$25k

(Initial costs  ~$55k)

So with the above mentioned original appraisal coming in at $143k, after refinance costs, I would only get to pull out about $6,500.  The new debt I would take on would be $100k, rather than the current $89k.  With the higher monthly payment and only pulling out $6500, my cash on cash % return would not be much different, while inheriting more debt.

HOWEVER, I appealed the appraisal.  They have now given me a new appraised value of $155k.  With this, I would be able to cash out $15k.  So now, the numbers are looking more like this:

Without refinance:

$9000 annual cash flow / $55,000 inivested = 16.36% cash on cash return

Current mortgage balance of ~$89,000

WITH refinance:

$8400 annual cash flow / $40,000 invested = 21% cash on cash return

New mortgage balance of ~ $108,500.

Taking on additional $19,500 of debt, but receiving a better cash on cash return, and annual cashflow not dropping significantly.

So certainly an improvement, and it was worth while appealing the appraisal.  However, ideally I am able to appeal further and provide more data that gets more of a bump up in appraised value.  Any comps you feel would be good to bring to the appraiser's attention, please post here.  Help very much appreciated.  

@Joshua Stewart I've looked at some new constructions where you lock in at a certain price, and that's the price you pay when you close, at the end of construction.  So let's say you lock in at $200k and the house takes a year to complete construction.  A year from now, the new constructions are being locked in at $220.  Therefore, I've locked in a $200k house with simply paying the down payment. So let's say I make a 5% down payment of $10k, don't pay a mortgage the whole time it's being built.  Upon completion of the house, I sell for $220k a year later.  Seems to simple, so I imagine there must be some things I've overlooking?

@Greg Dickerson I agree that always enter a deal with an exit strategy. The area I live in is growing quite well, and I would imagine that I would have options as far as renting, but I would look to invest with the low reserve fee while the construction is going on, then sell, and likely reinvest that money into another BRRRR deal.

Have you yourself capitalized on this strategy?  I would be interested on what kind of return you saw on your initial investment and profit after selling or annual cash on cash cashflow if you rented it.