All Forum Posts by: Dylan S.

Hi All,

What are some tax implications to keep in mind for flipping a single-family home in California? For example, if I were to purchase a home for $1M, fix it up then sell it for $1.4M, how much of that $400k gain would be taxed?

We are real estate investors that primarily invest in commercial assets. This will be our first venture into flipping SFH. Would we be automatically classified as real estate dealers in the eyes of the IRS for this one flip? If we are classified as dealers under the tax code, it seems any profit a partner takes home would be taxed at their ordinary income rate vs. capital gains tax if we were considered investors?

I'm relatively new to this so just trying to understand these tax implications before we get started. Appreciate any insight!

 Yes, that was my concern that the cost wasn't worth it in terms of value. In that case, it may make more sense to convert existing components of a home (attached/detached garage) into additional rentable space rather than building an additional structure. Have you seen that strategy work in Orange County area? By converting an existing garage into additional rentable space, would this add more value upon sale?

Or we could simply look into flipping a home. I see you have done that before in OC, do you see that strategy still working in today's market? We'd likely be able to purchase a fixer home with little debt. Looking in Costa Mesa, Garden Grove, Orange areas of OC.

Our company is looking to jump into SFR investments and want to look for properties in the OC area with value-add potential to either rehab or add an ADU/convert a detached structure to an ADU. Ideally, we'd like to buy an oversized lot and build a separate ADU on underutilized space and/or convert a detached garage. Then the goal would be to either sell it off or keep it as a rental for a long-term hold. I know certain cities have different ordinances/rules for building ADUs. Which cities are best to execute this strategy? Has anyone had experience adding ADUs to properties in SoCal? How does that impact value? Was the cost to build worth the additional rent/value the property sold for?

 Thanks Harrison. I'm aware it's a lottery system. I just registered, but want to make sure I understand the consequences of my strategy fully if I am selected.

I recently was on a call with a loan officer on this new shared appreciation loan program CA is offering. Through the program, the state will give you 20% of the down payment or $150K (whichever is less) at no interest. However, when you sell the home, you will owe 20% of any appreciation on the home in addition to whatever you borrowed.

My intention going into this was to house hack for a year or so and then refinance. However, after talking with the loan officer, he said you cannot change your primary residence while in this loan (even after a year) and that it was technically the same for FHA loans. But I've heard many people house hack with an FHA loan where you use it as your primary residence for a year, and then you can move out and rent the rooms no problem. Is this a scenario where it is technically not allowed but many people do it?

I'm in the Orange County, CA area and thinking of either house hacking a single family house or just rent for now and put my capital into an Airbnb/investment property out of state. I'm 24 with around ~70K to invest and make ~120K/yr from my job. Based on this, I'd estimate I can only qualify for a ~$500K house, which doesn't go very far in CA. There are some older houses in Long Beach area that I could get and house hack, but my mortgage payment would still be roughly $2K/mo after rental income from renting out a room. I realize there is inherent risk in that with misc. expenses/repairs and other items that inevitably pop up with homeownership. My plan would be to house hack for a year, then move out and rent out the whole place. Additionally, I could offset some of my taxable income with deductions from home ownership.

Alternatively, I could rent locally for around $1200/mo and put my capital toward an Airbnb/investment property out of state. Specifically, I'd look at the Tempe, AZ market as I'm familiar with the area. The barrier to entry in AZ is obviously much less than CA. I'd assume I'd have to put 20% down if this is solely an investment property, which still should be ok. I'm unsure if I do go this route if it would affect my ability to qualify for first time homebuyer incentives and if that's worth considering.

I've been thinking about this for a while, but have gotten cold feet with the recent uncertainty in the market and this being my first property. I'm hoping to take action this coming year but don't know where to start. Curious to hear what would you do in my situation? Any advice is greatly appreciated!

Hi Everyone - 

I've been looking to do a house hack for a while as my first real estate deal. I'm 24 and have taken the last few years since I graduated college to get a job, save for my first investment property, and become lendable. I've worked at my current job for the past two years so have had steady employment and have built up some savings over the years. I'm fortunate not to have any student loans and have a stable income. Now, I'd like to put my money to work to do a house hack. Below are my financial stats:

Income: $120K/yr (gross income)

Cash: $3K

Savings: $23K

Investments: $44K

Debt: $1.8K (just credit cards, and all are paid in full on time each month)

After selling some of my investments, I'd have around $60K for a down payment. Currently, I'm looking at a triplex for $1.2M. I could potentially have my sister come in on the deal with me and be able to put down $116K total (10% down if we offer $1.16M). The monthly payment would come to around $8,870/mo (30yr at 6.646%). We could rent out one of the units for ~$2500/mo, bringing the monthly payment down to $6370/mo. Then we could split that payment equally at $3,185/mo. It's still a little steep at that price, but I'm thinking it would be a good piece of property to have for the long term, with it being in a highly desirable area in OC, with some rehab potential.

I've also heard in this real estate market, you can work with the seller to have them buy down your rate. So if we could have the seller buy down the rate 1 or 2 pts, that brings the monthly down to $8,194 (5.646%) or $7,551 (4.646%), making our payments more reasonable. There are also some potential down payment assistance programs since I'm a first-time homebuyer and other financing solutions I haven't really looked into, but does this seem like a reasonable investment opportunity? What would you do in my situation?

Also, as a comparison, it'd probably be around $1.5-2K for me to rent in the area. I know there are obvious risks with homeownership (vacancies, repairs/maintenance, capex, etc.), but I'd think it would be a better alternative to pay a little more each month to own a property and build equity rather than rent. Any advice is greatly appreciated.

Hi Everyone, 

I'm 22 and am beginning to consider buying my first home. I know I want to do a house hack and buy a duplex, triplex, or fourplex. I've read and heard so many people talking about FHA loans for house hacking since the down payment is so low, but few people talk about the Conventional 97 loan (with 3% down). It seems like that type of loan would be much better for a person in my financial situation (stats below).

- $74K (gross income) and have been at my job for almost 8 months now

- $9k in savings and another $24K in stock market investments

- No Debt

- Credit score is 740+ across all bureaus with a high of 769 and a total credit limit of $24K

I live in a high cost of living area (Orange County, CA), so houses are definitely not cheap, but putting 3% down does make it a little easier. Are there other loans out there or does the Conventional 97 make the most sense for me? Definitely will be talking to some loan officers soon, but wanted to hear your thoughts on this and any other advice you have for someone in my situation that's trying to house hack in an expensive market.

Hi everyone,

I'm 22 and just about to graduate college this May. Since I'm graduating with a degree in real estate I bypass the requirement to work under a broker for 2 years. I just need one more class to become eligible to take the broker's exam in California. I can easily take an online course through a local community college and get that done over the summer in like two months.

I don't plan on going into brokerage or investment sales; however, I do plan on purchasing investment properties in the coming years once I have a steady income to qualify for a loan. I've also talked to some people who've said they use it as extra side money to broker real estate deals for friends and family. Do you not need to create or be a part of a brokerage firm to do this if you have a broker's license? Can you just independently broker any type of real estate even if you're not associated with a firm?

I'd also like to know if this would be advantageous for me to get considering I'm nearly eligible. And what would you guys do with a broker's license in my position? Any input is greatly appreciated!

@Sandra F. Thanks for the detailed response, and good point on the primary residence tax write-off! I'll look into that but I think you're right. 

And congrats on house hack #2! How have your first 2 house hack investments gone? Did you buy and rehab the property or just buy and rent out? And would you do anything differently if you had to do it again?