All Forum Posts by: Chris Mercer

Hi Taylor - I'm glad you all are moving back to where you truly want to be!  I can't say with 100% certainty, as I am no longer in this situation, as I sold that property, but I heard through the grapevine that the Feds removed the 2-out-of-5-years-as-a-primary-residence law.  So basically, as I understand it, you can do a live-in flip and sell as soon as you want to, without being heavily taxed.  Again, I'm not 100% sure, but something sure worth looking into.

Good luck on the move and future investments!

Cheers,

Chris

@Dennis M. @Matt M. -- Thank you for your responses.  I agree...balloons are risky approaches.  Seller and I are still negotiating.  I may see if she will extend.

@Russell Brazil -- Thank you for the suggestion.  Very true regarding leverage's risks and rewards!   Most of us in the RE world love a good game of risk, even when we know things could get messy  =)

@Anthony Wick -- 2 months worth of their current market rent up front! Then my mortgage to them lowers to the point where the current rents will cover everything (op ex, et al).  Not much profit margin now, but I'm buying this for the long game.  Seller basically wants to continue an income stream, but remove herself from actively managing.  Win win!

@Anthony Wick

Thank you for the suggestion.  Seller is understanding and great to work with.  I believe they would be willing to extend, should that scenario present itself.

Have a great weekend!

Chris

@David Acosta I like both of these approaches!  This is a great property and I would hate to default on it (never have and don't plan to).  Plus, this is a great long term hold, regardless of potential sales price fluctuation.

No pre-payment penalty, either.

Thank you for the info!

Chris

@Jason G. Good point.  I'd like to avoid that, as you mentioned, but it is an option.  Would it hit a credit report?  

Hi Folks - I'm currently in discussions with a seller who is willing to carry the note for a few years, at which point the note will balloon and the balance will be due in full.  I'm a glass-half-full kinda guy, but a realist at the same time.  I was in the game back around 2008 when the market tanked and took a couple hits.  My concerns are valid!  =)

My question is:  What is one to do in a scenario where a seller's note is due, but the market slipped a bit and the property is now no longer valued at the contract price - and the plan is to bank refi to close the note?  Other than come up with the cash to cover the gap, what options exist?

Thanks!

Update to my post from a few days ago:  I found a great article on fix-and-flip taxes and how those taxes behave in various scenarios, including 2 year live-in projects.  Basically, all costs and expenses are rolled up at the time of sale and, if done correctly (2 years out of 5 years as primary residence), then the gains are not taxable and all of the associated expenses are deductible.  Pretty good scenario for the patient investor!

https://fitsmallbusiness.com/taxes-on-flipping-houses/

BP Family!  I need your advice on a deal I'm currently working through.   General overview, then the question(s):

-Seller outright owns two condos in the same community; no mortgage.

-Tenants in place:

---one has been in place 3 years; always on-time; just went on month-to-month, as he is looking to buy his own house.  

---one has been in place about 1 year; just started a new 1 year lease; seller says he is a PITA and it typically late on his rent, but pays the lease-ordered $25/day late fee

-Seller said he wants to enter an owner carry / owner finance scenario, as he wants to spread out his tax liability

Here's where I need your advice:

-Seller paid $150k for both properties four years ago.  Complex was built in the mid-80's.

-Units are same sq ftg (approx 500 sq ft), but one is a studio and one is an actual 1 br

-Fully renovated (floor-to-ceiling) units of the same layout and size in the complex are selling today for $155k-$180k (big range, but supply and demand, right?)

-His units are not renovated:  original kitchens; original bathrooms; one has some pretty messed up carpet and older vinyl flooring; other unit has 4 year old carpet and tile; new furnaces, A/C units and windows in both units 4 years ago.

-To be competitive in the resale market, both units need:  full kitchen and bath remodel; new flooring; new paint; new window fixtures; some / all new internal doors; popcorn ceiling scrape and paint; new light fixtures; likely new water heaters.

My experience tells me that each unit can be fully remodeled for between $20k-$30k.

Seller says that each can be fully renovated and be market-competitive with only $5k.  I know that's not the case.  I plan to have my contractor provide quotes on both.

So, all that said.  We've been going back and forth and have a great rapport.  We both agree to the post-renovation value of the units, so we're good there, thankfully.  Seller wants:

-$285k for both properties.  For simple math, call it $142,500 each.  That is VERY close to today's fully renovated resale market, which these are not in that condition, again.

-$150k down, to recoup his initial purchase costs.

-$135k remains:

---$67,500 (half of balance) due December 2019.

---$67,500 (half of balance) due December 2020.

-$0 in between.  No monthly payments, interest or other holding costs or fees.

I initially offered him $110k for each unit, given the potential $30k renovation costs.  Given his generous terms, I'm considering countering at $245k.  This would come down $40k off of his asking price and I would need to count on continued appreciation to ensure a return at the end of the day.

My goal with these units is to keep one as a long-term rental and renovate + sell the other.  Maybe keep both as long-term, but for sure one.

Given that bit of information, I'm curious to see what your feedback and / or advice is?  WWBPD?!

---

***EDIT:  I don't have the $150k in-hand.  I would have to leverage other assets I have or, preferred, private money.

Thanks!

Chris

Hey folks!  A little late to this conversation, but it is tax time and I completed a 2 year live-in flip last year.  Back when I bought the property (2015), I mapped out my 2 year exit and it all went off without a hitch.  Nice little bit of profit, too  =)

One thing I did not do, however, was properly claim my expenses entering the property:  agent commissions, closing costs, etc. in 2015.  The majority of my rehab took place in 2016, with a mix of my own and contractor work.  I also made another rookie mistake there and did not claim those expenses during my 2016 taxable period.

Here I am looking at 2017 and recording everything and realized my misses in 2015 & 2016.  Is it possible to amend the taxes for those years?  Is it possible to roll them up into 2017?  I have a CPA do my taxes.  She is way smarter than I am and likely has these answers, but I wanted to ping the BP community, too.

Thanks in advance!

Chris