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All Forum Posts by: Bryan H.

Bryan H. has started 73 posts and replied 766 times.

Post: Tax question for flip house with sweat equity partner

Bryan H.Posted
  • Investor
  • Willow Spring, NC
  • Posts 788
  • Votes 284
Originally posted by @Shaun Wilson:
Hoping someone might be able to suggest ways to solve the following tax question:

My business partner and I have an LLC that we have bought a rental duplex, with the aim to buy several more. In order to build cash reserves for next rental down payment we are doing the flip strategy.

We closed on a single family property last November in the name of our LLC and we were intending to use a contractor for the carpentry. But my partner knew a guy who was interested in doing all the carpentry for "free" in return for a percentage of the profits after all rehab, carrying and closing costs were paid. It has worked out well as this builder does very high quality work and the property in is in a good neighborhood in a great market. We should come out with about $70-80k profit. However, our challenge now lies in how to to make sure we close on this properly so that we have the lowest tax burden possible - both my partner and I (in the LLC, as we build a reserve for more flip properties or rental properties) and our sweat equity partner (who really doesn't want to be paying income and self-employment tax, etc.) Look into Joint Venture Agreements. You can establish one with the contractor for each home, basically the same contract over and over and each one ends when the property sells. Talk to an attorney

1. Could we potentially roll this into a 1031 exchange (including our sweat equity partner rolling his share so that he isn't facing a large income tax on the work on this property)? Can't 1031 a flip

2. Could the profit be considered capital gains since the intent was for this to be an investment from the get-go? You said your intent was to flip, which will be ordinary income plus self employment tax

http://www.biggerpockets.com/forums/48/topics/47202-do-i-have-to-pay-self-employment-tax-on-flips-

3. Does anyone have any other ideas that might work well in this scenario? Like others, you work as 'ready, fire, aim' . Your best best is to talk to a CPA before acting, let them know what you plan to do and structure the business accordingly.

Thanks!

I'm not sure what you can do at this point, I am interested to see what others say.

Post: Where do folks put their emergency cash reserves?

Bryan H.Posted
  • Investor
  • Willow Spring, NC
  • Posts 788
  • Votes 284

I'd use these in this order.

  • Bank Accounts
  • Credit cards
  • Loans against 401k
  • Family

Post: Stop Cable TV vs Raising Rents

Bryan H.Posted
  • Investor
  • Willow Spring, NC
  • Posts 788
  • Votes 284

Call the cable company and see if you can negotiate a better price.

I'd also see what the leases say about including cable, you may be stuck there. I'd also check out local competition and see what they offer, do what they do.

Post: Detroit Agents: Lazy or Scared?

Bryan H.Posted
  • Investor
  • Willow Spring, NC
  • Posts 788
  • Votes 284
Originally posted by @Account Closed:
Agents ARE doing you a favor by helping you with these properties.

How much money do you think agents are making on these sub 50k houses? Those houses are a headache to deal with, for peanut rewards (pre-commission split! pre-tax!)

The mindset is simple: spend as little time as possible, as little gas as possible, as little effort as possible on those homes. Squeezing 10% more money on a 50k house MIGHT afford you enough extra commission to go eat at McDonalds. If you don't have kids.

I'm sorry but agents aren't doing anyone any favors by poorly marketing properties. This is the profession then have chosen and the customers they have chosen to represent. If they don't want the listing, they can say no.

If its about time and effort, I would argue taking more photos would be less time consuming and take less effort than responding to calls and showings that result in a customer immediately being turned off from the property. Show me photos of everything in the house, if I call then you know I am really interested.

Post: Would you purchase this house as a rental?

Bryan H.Posted
  • Investor
  • Willow Spring, NC
  • Posts 788
  • Votes 284
Originally posted by @Account Closed:
@Bryan H. Thanks for giving me your thoughts.

House is only 1261 sq feet. Maybe I am not being conservative enough for my renovation budget however, Fannie Mae just did their own renovations.

I am only going to put 10% down.

OK cool. Your numbers are spot on then. I'd definitely consider buying this then (if I was in your market) It may be tough to get them to move on their price if they did make repairs/updates. Make some offers- good luck!

Post: Would you purchase this house as a rental?

Bryan H.Posted
  • Investor
  • Willow Spring, NC
  • Posts 788
  • Votes 284

Not going to question the property and the rents, just your math.

purchase = $135k

20% down = 27k

mortgage @ 4.75% = $563

50% rule = 1750 x 50% = $875

$875 - Mortgage = $312/mo x 12 mo = $3744

Cash invested $27k + $5k (fix up) = $32k

ROI = 3744/32000 = 11.7% (much less than the 20% you projected)

Yield = 1750/142000 = 1.2%

Without seeing the property, I will honestly say a $135k REO will need much more than $5k to get it ready to rent at $1750

Post: Lowest Down Payment Loan Possible

Bryan H.Posted
  • Investor
  • Willow Spring, NC
  • Posts 788
  • Votes 284
Negotiate zero down seller financing with motivated seller Get 10% down Homepath loan on Fannie Mae property. Partner with someone to purchase and they provide down payment.

Post: Active vs Passive investing

Bryan H.Posted
  • Investor
  • Willow Spring, NC
  • Posts 788
  • Votes 284
Agree with Bryan Hancock on multiple entities. Talk to a tax professional about your activities. There can be huge tax implications if you are doing the same activity in different entities. My experience is LLC is good for buy and hold. Some type of corp (s, c) is better tax wise for flipping. You can possibly further reduce tax liabilities if you pay wife/partner salary. Talk to a pro. It's worth the discussion.

Post: Just Sold Flip- Pictures and Profit Breakdown

Bryan H.Posted
  • Investor
  • Willow Spring, NC
  • Posts 788
  • Votes 284

Congrats! 20 of these in 2014 would be great. Did you really buy in Jan 2013? Can you tell us why it took so long to rehab then?

Post: Should I go ahead and close?

Bryan H.Posted
  • Investor
  • Willow Spring, NC
  • Posts 788
  • Votes 284

I'd wait until they were gone. Two weeks is nothing and they won't be your headache.