All Forum Posts by: Denise Evans

With reference to title vs. lien, Alabama is a title state but with non-judicial foreclosure. Lender gets title after the foreclosure auction.  Former owner has 12 month redemption rights in some circumstances, six months in others.

@Brandon Hall, excellent advice.  I'm afraid I've had very bad experiences with accountants who refused to have discussions with me, but basically took the parents' line, "Because I said so, that's why."  It colors my judgment sometimes, and I should not have been so flippant with my comments. Thank you for taking the time to add your insights and comments. If my accountant or lawyer can give me a reasoned explanation to why they want to do or not do something, then that's terrific. If I disagree, then it's a matter of "Who is willing to take the risk of a bad decision in an iffy area?"  If I want to take the risk, but the accountant is unwilling to sign off on the tax return, then we should part ways.  On the other hand, I am appalled at the number of gurus who advise bogusing up a business plan, and as long as the paper in the file is okay, the taxpayer is okay. As if the IRS is populated by gullible idiots. If you are flipping as an incidental activity to support your investments, then I think you should get investment tax treatment.  If you are a flipper, BE A FLIPPER.  There are many tax advantages available to flippers that are not available to investors.  Many reported decisions on this topic are people who WANTED to be characterized as selling properties in the ordinary course of business, rather than mere investors.  Perhaps you could start a thread on tax advantages available to flippers but not investors. I'm sure there would be a lot of interest in that.

@Bill Walston, my bad for not being clear.  I see I posted at 6:21 in the evening. Note to self:  "Remember, you are a morning person who usually rises at 5am, and not at the top of your form in the evenings. DO NOT POST after 3pm!"  That probably explains why I started looking for legal precedent on this issue and then gave up and was satisfied with a nudge in the right direction!  I'll see if I can find some more definite guidelines to share with everyone. It's often not the IRS we have to convince, but our own accountants. :)

@Bill Walston, I was not saying that was the decision of Byram, I said to take a look at it.  It is the beginning point of research on this topic.  I am comfortable with the advice I gave, and have no need to spend hours on the legal research finding the support.  If someone else wants to do that, I gave them a starting place.  No, the decision is not relevant to the typical wholesaler. It is relevant to the original question, which related to a desire to engage in some flips to generate capital for long term capital gains. That is defensible as investment income, not ordinary income.  And, while you are correct that only 7 flips were at issue, the  history of 22 sales was a factor in the analysis.

@Marcus Perkins Sr  The former owner can redeem at any time during the 3 years after you take possession of the property, even if you have a tax deed.  Some experts believe that if you have 3 years of possession starting with the tax certificate, then the former owner does not get an additional 3 years. Some experts believe the former owner gets at least 6 years from the tax sale, no matter what. Please send me an email off-post, and I'll send you my phone number so we can discuss. It is very fact-specific. 

If you've been cleaning and fixing up the property, you are entitled to the VALUE of these "preservation improvements."

If you have access to Federal Court reporters, you might want to read the case of Byram v. Commissioner, 705 F.2d 1418 (5th Cir. 1983) for a decision that 22 flips in 3 years were, nevertheless, investment properties.

If your business plan has a goal of flipping SOME properties in order to raise capital for your long term investments, then the flips are not considered "dealer" properties and you can take advantage of tax benefits designed for investors.  MAKE SURE your accountant does not report the income on Schedule C.  If your accountant is not on board with this, get a new accountant!  You can't flip a lot of properties and rely on a business plan to "hide" your from the wrath of the IRS. But, if you strategy is truly to do a few flips to raise capital, you should be okay.

I also have a free article that tells you how to set up an online repair request system, if you don't have one of the property management packages that handles that for you.  It's on my website, under the same landlord/tenant tab.

Go to my website. I have a book that's a landlord's desk reference and forms book. It is for Alabama landlords, and large chunks will not be relevant to you. BUT, click on the link for the table of contents and the list of forms, to give you ideas about forms you might need to collect or create. 

When drafting forms, I like to see titles of forms, and then not read them right way. I like to create a list of problems that might be solved by that form. THEN I read the form, and see if it covers all of my needs. If I read the form first, then I get "channeled" in my thinking, and have a tendency to just go along with the form, without revisions.

Also, Appfolio has an excellent collection of forms you can modify.  Have you taken advantage of their 14-day free trial period?

Hi Milan, Even when self-managing, enter a management fee comparable to what 3rd parties choose. If you enter only 5% because that's all you charge yourself, then any lender or future buyer will enter a different number to reflect actual market conditions.  I like to avoid any opportunity for people to even THINK about tinkering with my numbers. Once they get started "recasting the financials," then goodness knows where they will stop. The more they increase those expenses, the lower the price goes, as you know.

The estoppel letter is for tenants to say they have not prepaid any rent, the security deposits are as represented by the current owner, there are no side agreements either oral or written, there are no unresolved repair requests and the tenants have no claims or disputes with the current owner. The last thing you want is to buy a property and then half of the tenants say, "I TOLD the prior owner there is mold in the spare bedroom closet and he said he'd fix it but he never did, and now I want YOU to fix it or else" or "I had an agreement with the prior owner that I could pay a $50 fee and cancel my lease early." You might win in court on either one of these, but you would be out a lot of legal fees and aggravation. The estoppel letter avoids many problems.

9-cap is great for such apartments!

I like to include a "Rules, Regulations and Fee Schedule" as an addendum to my lease. This is the place where you spell out the rules, and attach a price tag to breaking the rules.  For example, "No pets allowed. If we discover credible evidence you have been keeping an animal, you will be notified of the default and informed of the steps you must take. There will be a fee of $____ for the notice, and a fee of $____ per site visit to follow up regarding this issue. Site inspections might increase to as many as one per week for up to three months after the default notice, to make sure the problem has not recurred. These fees are for the increased work involved with having an illegal pet. You may also be liable for damage to the premises, and any problems you cause with other tenants because of the illegal pet."

Be sure to post and tell us when closing has taken place. We all like to hear the happy ending to the stories.