All Forum Posts by: Robert Taylor

Actually,  this may not exactly be the question that was asked, but I wanted to mention it as I see something like this coming up from time to time on BP. Yes, if someone flips a house that they hold title to for less than a year, it is taxed at your normal tax rate for that year. The misconception or gray area comes in when you end up holding a flip house for more than a year (entirely possible for a variety of reasons) I've seen it said here many times that then it would be a "long term capital gain"-NOT SO FAST!!!

One of the most basic rules of the IRS involving long term capital gains on a home you own to flip is the question of whether or not you are in the "business of flipping homes". Like a lot of IRS policies, it is not cut in stone either as to who's actually in business and who is not, they have a list of criteria to look at and from there, it is really up to the auditor in charge of your audit (if you're unlucky enough to get one!) as to whether he/she thinks that is your business. Basically, if you do not have a full time job in some other field, you flip multiple homes each year (which could really mean just more the ONE! Again, it is a gray area) you perform renovations or even just cosmetic fixes on these houses that you buy and later resell and/or a substantial percentage of your income came from flipping, well then chances are that they'll determine that you ARE in the flipping business and you can kiss goodbye any dreams of only paying long term capital gains rates on the profits for any flip homes held for more than a year! Then, the profit from that flip that you owned for over a year is treated as ordinary business income. 

One small bright spot, well not really that bright, is once you're deemed to be in the biz of flipping homes, if you happen to lose on one of them, you can treat that as a loss and count it against your income, which you cannot do with a capital loss. 

Hopefully I explained this where it makes sense, but the point is that anyone who says that a flip house held for over a year that makes profit will be taxed as a long term capital gain is likely incorrect, unless you can prove to the IRS that flipping is really just a very part time hobby for you. Its been 16 years since I finished my last accounting or tax course and graduated with an accounting degree and I never wanted to be a public accountant, but it does come in handy every so often-like once a year!

I can see the merits in both the 5 to 10 min inspection as well as being much more in depth, but if you're trying to do even a small volume of homes, either for wholesaling or flipping yourself, you have to be quick and efficient with everything, including inspections. I like to have a notepad with me for inspecting a house, so I can make notes of anything that's specific to that one house, but if need be I can simply walk through a place and not write down a thing or add up any line items at all and walk out with a general number in my head and it should be pretty accurate. Yes, surprises are on every project, sometimes small and sometimes bigger, but that's part of the "misc", "contingency" or whatever you want to call it category. If its an older home that looks like it was poorly maintained, then I'll put a much larger number for unexpected surprises. A newer home that looks well maintained and then the number gets much smaller. Its all part of the experience that comes with doing it in the real world, but doing research is good too. It also of course will vary based upon the price range of the area and home. $100 vinyl windows are a great upgrade from single pane combos in a lower priced area, but you wouldn't dream of installing them in a fancy area, there it might be $600 wood windows and it'll likely cost more to install them as well because fancy homes often have lots of fancy woodwork and such, which adds up to much more work to install correctly than on a low priced home with simple trim. Its all stuff you learn with experience, but it doesn't hurt to learn now what it all costs. 

One thing I would say though that I didn't see mentioned yet is that once you get that first ACTUAL home that you'll actually wholesale to someone, my thoughts would be to get to know that one and however many after it, inside and out and I wouldn't worry too much about being totally quick and efficient yet. I'd worry about building up the buyer's trust in you as someone who knows what they're selling and NOT someone that's going to waste their time with a "sure thing" that they'll see in 5 minutes is going to cost FAR more to rehab than what you've thrown out there. Certainly, make sure you know every visible issue, even if they're hard to see at first glance. I see a lot of people on here looking to make their first jump in RE investing as wholesalers, nothing wrong with that at all but don't look like someone that just started out! If you lose their trust, they'll pay less if any attention to you next time you have a "sure thing" for them to buy! 

Hi @Doug Martens its funny, I'd not heard of Fortune Builders before and when I read your OP, I got confused with you talking about wholesale deals, spending money and Fortune Builders-I was thinking of a home builder, like how I might name my company "Taylor Builders" if I started building new homes! Luckily, I figured that one out right away and quickly looked at the home page of their website. It looks well done at least! At least you got what sounds like some decent info AND you did by far the biggest part, you got a deal closed and made some money on it! That's a lot farther than a lot of people who spend sometimes tons of money on those programs get. I actually just bought a house in Oak Creek to rehab and sell and I'll be down there later today to hopefully get things moving.

I'm not a wholesaling expert at all, but you can certainly find people who've had success here in that area. They'll know about which methods will generate leads with at least some potential for you, because you don't want to spend all of your time working dead leads over and over again. From there. you've got to sell those leads to someone, so I'd say to keep working on getting to know more buyers (serious buyers). I don't know if I'll be looking for more or not, I'm getting the feeling that once again, all sorts of new people are trying to jump into the rehab/flip biz, which I saw back around 2007 around here and while that's not good news for me, its good news for you! I'm working on putting more focus on my buy and hold biz as well as using my broker's license to work with investors, but of course if the right deal came along for a fix and flip, I'd certainly take a serious look at it!

Good luck with everything and as I said, even if it hasn't been a totally positive experience so far, you're already farther than a lot of people ever get!

Oh, I'd still say location because we have city owned houses in certain parts of Milwaukee that literally sell for $1 and I've heard about lots of $1 houses in Detroit, or that they will sell for $1 and other cities too. When you look at what you could get for a house in that location all fixed up and then look at what the $1 house needs (and they're not total disasters-then they just bulldoze them, but certainly need work) in THAT location-you're NOT going to make any money no matter what!

-Actually looking on the mls, banks have been selling some for $1 too, not just the city and its all in the same location.

That's a very good one George C., both the mold issue as well as the idea of whatever is on the net or in old listings will likely be around for years and will likely be discovered, either by the buyers or their agent when they do a little googling of the address or look at the old listings on the mls.

I was in just that exact situation last fall and-no surprise!-got some good advice here on BP about it. I was partners on a rehab/flip house, well really just all cosmetics as the house was just built in 2001 or so, so it didn't need any major renovation work but it did need A LOT of cosmetic work, basically everything because apparently the former owners weren't big on upkeep! It was a nice home too, 3000+ sq feet in a very nice neighborhood in a nice suburb. So, we did ALL the cosmetic work inside and out, HWF on first floor all sanded and refinfished and all new NICE carpet in the rest of the house, everything painted inside and out, all new light fixtures because former owners took every one but left the 2 drawer fancy dishwasher that no longer worked at all and the expensive brand drop in range that still worked I think, but was so unbelievably beat up and totally caked and coated with grease that we just scrapped it and replaced it with a new one!

The issue came in though because the house had apparently been abandoned by the former owners when the foreclosure had gone through (and on a side note, I found out they owned several gas stations and were apparently doing fine financially but they'd somehow borrowed basically TWICE the current value against that house and figured it was worth the credit hit to just walk away from it!) and once the bank took it over after buying it back at sheriffs auction, someone came and secured the house and made sure every last window was tightly shut and sealed and this was late spring, so the house sat all sealed up through the summer and a teeny tiny bit of mold popped up in the master bath because those casement windows were rather beaten up and didn't seal 100%, a just a tiny amount of moisture got inside and made the tiny bit of mold and the REO agent who was listing the house mentioned it in the listing, but he put something like "NOTE-mold issue is master bathroom!!" Believe me, I'm 100% for being both upfront AND honest about any home I list for sale, but this guy made what was basically two spots of mold, one maybe 2 inches at most and the other 1 inch at most into something that sounded like the whole bathroom could be covered in mold!

When we looked at it, we were of course totally relieved to see that this "mold issue" was a tiny bit of mold and we got a great deal after it sat on the market quite a while and I'll bet it was all because of that line about the "mold issue"! Just as George mentioned though, when it came time to sell, sure enough the "mold issue" came up with nearly every buyer! A former partner of mine was running that project and didn't take any pics of the original problem, which was a big error because then we had no proof that the "mold issue" was really two tiny spots of mold. We did do our research on it though and besides following the steps for getting rid of it, we also had new windows put in (they weren't cheap!) so it wouldn't happen again, as well as totally repainting the whole bathroom, etc.

So, when the whole house was all done and I listed it, we started getting showings right away, it was priced right in a popular neighborhood and the house looked great as it should have, it was just totally refreshed inside and out! Yet, I think that nearly every interested buyer soon found the old listing with the "mold issue" soon after the first showing and sometimes before it and they all were certainly concerned about it and just my explanations (I'm the listing broker as well) of how we totally followed the mold removal instructions, how it was really two small spots (but we had no proof of that!) then the whole bathroom was primed and painted AND we spent I think $1500 on new windows too, all that didn't do much to reassure anyone! That's when I went on BP and got some good advice and ended up hiring someone to come and take samples to show no elevated mold levels in the bathroom or anywhere in the house and then I had that to show interested buyers, which was certainly better than just me telling them what we did but it still sent a couple away I'd say. It was on the market for a while and we did sell it but for less than I think it should've sold for and I'd say it was likely due to the "mold issue" in the old listing. We definitely had a bunch of otherwise very interested buyers at first that weren't satisfied with just me telling them how we did everything required to remove the mold, it was tiny and all that and I never heard back from any of them! Probably cost us at least $20k, as the house ended up selling for I think $460k or so when it should've fetched closer to $500k!

Thanks for the replies Jason and Marcia.

Jason, somehow I could tell when reading your comment that you must know a few things about landscaping before I saw it in your header that you're in the biz, all good ideas and I always do the yard work including at least some landscaping work on any flip, even on a cheap house people will be turned off right away when they pull up and the first thing they see is a crappy looking yard! Usually, my "landscaping" work is basically to of course cut the lawn including edging and trimming as well as using some weed killer on the entire lawn so its not full of weeds and stuff, then usually my "landscaping" is some mulch and some various brightly colored perennials from Home Depot or one of the local garden centers and that's about it, other than one house. That place was a $800k house and I hired a friend's mother who's a big time gardener/landscaper but not in the biz, she just does it for herself but really knows what she's doing and she picked out a bunch of really cool shrubs or little trees or whatever they're really called and we added those to update the existing landscaping, which had been very nice at one point but had been totally neglected for several years at least. It turned out very nice and I got a lot of compliments, even people that weren't interested in buying the house after showings still complimented me on the yard!

I'm going to read your comment again a few times and take it all in, but it all sounds like good ideas that won't cost a ton.

Marcia's got some good ideas too, although the siding is aluminum on the sides and vinyl on the front, not wood, I wasn't sure if you were saying that my house currently had wood siding or not but it doesn't. I'm no big fan of vinyl siding, you'll never find a really fancy neighborhood where the HOA will let you build with vinyl siding or replace whatever is there with vinyl siding, its a product for lower to middle end homes. This isn't a really fancy neighborhood though, its certainly not bad at all but not the type that vinyl siding would look out of place and my experience has been that a lot of buyers in this price range don't mind vinyl at all, many of them like the no-maintenance part of it and that it should keep its color for probably longer than they'll ever own the place, much longer.

I'm still thinking on this one, but I think I'm still leaning towards replacing it with new vinyl. I'll have some time later today to go over the budget again, which is tight on this one and tomorrow I'm meeting my 3d partner there and one of the things we'll do is he will measure exactly what we'd need for new siding and all the accessories you need too and then I can get an exact cost on it. As I mentioned, he's done siding for years and our deal is if he'd install it, he'll get some compensation for the time he works, but not at regular contractor rates including the profit margin, it will just be enough to compensate him for spending 40 hours or whatever it takes to install it, while I'm not putting in any extra hours for that. So, it won't be full price is what I'm saying!

Thanks for the responses! I'd say that so far, I'm leaning towards new siding, I'm going to have to get an exact price on what that would cost and make a final budget, because there are several other items that are still not totally nailed down as far as either if we'll do them or not and others like the new carpet where we could spend more or less. Its in a nice neighborhood in the suburbs, nothing that fancy but a nice area nonetheless and the two best comps I have are two very similar late 60's ranches (one looks like the exact same house and layout from the pics) that sold for $205k and $207k and both were nearly a year ago, everything that's sold more recently in that area isn't comparable to this 60's ranch, but prices have gone up a bit generally since then, although I'm not planning on getting more than that. If I do that's great, but not counting on it.

I'd have to say that really the only thing that can't possibly be fixed on any home no matter what is the location. OK, I suppose people do occasionally move a house to another location, so its possible but of course no one's going to do that on a flip project! The house I have for sale now had major basement problems, or at least one wall was ready to fail, two other walls were bowed but could've lasted fine for years and the fourth wall was fine. Also, the floor had some big cracks and looked bad and this was a home built in 1904 with a brick basement, common for the area which is a hot area of higher priced older homes here, so I had the three walls removed and replaced with new block walls, a drain tile and sump pump system put in and a new floor poured on top. Now, when you go down there, it really looks like a new basement! Its a real plus in an area of all older homes where most of the basements are pretty dark and dingy looking and many either have issues now or will sooner or later.

The house was an REO that sat on the market for several months, despite having a low price for the hot area and when they dropped it lower I bought it. No one wanted anything to do with that basement and the rest of the house was in good shape. It needed some updating here and there and I ended up taking the useless and tiny 4th bedroom and combining it with the 3rd bedroom to make a master bedroom with a full master bath. Now, this is an area that doesn't have too many families or the families that are here often aren't big ones, if it was out in one of the burbs where a 4th bedroom is a big plus, I'd probably never get rid of a bedroom. In this area though, a 4th bedroom is really superfluous.

Its been on the market now for almost two weeks and I have had at least 8 showings and have feedback from several brokers that their customers are very interested, including one the other night that showed them six houses and this was their definite favorite, but they all want more info on what was done to the basement, which I've been providing (I'm also the listing broker) as well as giving them the contact info for the contractor. Hopefully a good offer will be coming soon!

Other than location, I can't see much being enough to make a house "unfixable" but of course the price has to be adjusted accordingly and also always keep in mind that big problems need big fixes and that usually takes a lot of time as well and time is money in this biz!

This just might be my last rehab/flip project, at least for now. As I've mentioned in another post, I want to refocus my business on taking on clients looking to buy or sell in the Milwaukee area and to focus on investors because I know my experience in both being a landlord since 1999 and having rehabbed/flipped many homes gives me a good perspective and background on things related to investing. I also want to focus on growing my own buy and hold rentals as well, but that's going to take time of course, I'm not looking to jump into just anything. I do really like the rehab/flip business, I never have to drag myself through a day of work at all, its always interesting and sometimes even fun, but I just have a gut feeling that I shouldn't be relying on it for most of my income, as I have been recently. If a great deal on a possible flip came along, I'd certainly take a look, but it also ties up a lot of money as well, so I'm looking to move on. Plus, I've certainly read enough posts here on BP from other cities where investors are saying that the flip market has or is drying up already, which is what I saw back around 2007 here in Milwaukee. That time, it was mainly because so many people were trying to get into the biz, it seemed like every "project house" was getting bid up far past what made sense to pay to me.

So, that having been said, here's what I'd like some opinions on, its a house I just bought in one of the suburbs here. Its about a 1600 sq foot ranch, built in 1967 that has been taken good care of for the most part, the roof is nearly new, basement is solid and dry, furnace is nearly new, overall its in good shape but inside it definitely needs updating. It has 1 1/2 baths and both are original and need to be redone, hardwood floors in the bedrooms could certainly use some work, I have to get my floor guy there to see if he thinks they need to be sanded or not, it needs new carpeting in the living room and family room, kitchen isn't bad but we'll be putting granite in there along with new appliances. The whole interior needs to be repainted and that's the other big issue, the owner was a 3 or 4 pack a day smoker and it sure smells like he wasn't big on opening any windows when he smoked either! I've found several good posts on here on the smokey smell issue though and some good ideas there, so I've got plans for that.

My question is for the exterior and I'm attaching some pics of the house, as well as some of the surrounding homes for some perspective. Its a nice neighborhood, they built some of the homes in the late 60's, the street its on was a cul-de-sac and then they added another phase in the 90's and turned this street into a regular street, so most of the homes on the street are 90's homes and they're are pretty well kept. In fact, as you can see the grass is long on mine-I'm getting over there tomorrow morning to take care of that! As you can see though, the front of the house looks like it was updated at some point with the light blue siding and the sides and back of the house have the older looking, wider white siding and the color is kind of gray/white as I've seen before with older white siding. So, I'm wondering which way to go here, the budget is fairly tight on this one when I add up everything that's needed, so I'm not looking to spend money if I don't have to here.

I see three options:

1-replace the siding with new siding, in which case I'd replace all of it and make it all the same. Not exactly sure yet on a color, but I'd definitely go with narrower siding as opposed to the wider siding on the sides, as that seems to be the trend for a while now. I do have a 3rd partner on this one and he's a contractor who's done a lot of siding work, so I wouldn't be paying full price for new siding, but it still would cost a fair amount to replace it all

2-paint the siding, in which case I'd just paint the white siding on the sides on back, I'd leave the light blue as it is even though I'm not wild about that color, but I don't think it would make sense to paint over the blue siding

3-Leave it as it is!

Or, if anyone has any other options, I'm open to hearing them, that's why I'm here! Thanks!

The first three pics are of my house and the last three are of the neighbors for perspective and as I mentioned, I'm cutting the grass tomorrow!

I didn't read everyone's response, but I used IKEA cabinets for a rental remodel and they seemed pretty well built and durable to me, the hardware was good quality and the price was good too, so overall, I was impressed. I don't own that one anymore, so I don't know how they held up over the years, but they seemed like they should hold up well. Its funny that you brought this up because I actually kind of forgot about IKEA for cabinets and now I'll have to keep them in mind. The only issue for me is as of now, the closest IKEA is near Chicago, so its an hour plus drive there each way, so I'd have to make sure I brought a trailer or something in case they didn't all fit in the van, or else I'd be making two long trips!

IKEA furniture is another story though, I also bought a couple of dressers and a bed frame and headboard, etc and that was barely above junk in my opinion!