All Forum Posts by: John M.

Correct. Those prices include labor and materials since they are based on contractor bids. All roofing contractors that I've worked with typically bid/estimate on the complete job including all materials and labor, any required permitting, debris haul-off, and site clean-up. You might could save a few bucks by acting as the contractor and just hiring out the labor, but you will earn any money you save (and you will need to speak Spanish if you hire a roofing crew in the south).

JMac

Dan, I think prices vary quite a bit across the country, but here's some ballparks from my area (SC)

1) Kitchens...too hard to say since there are so many degrees of finish, but expect to spend a large portion of your rehab budget here

2) For a small bathroom in a typical rental, I'd say 4-6k. That's with nothing too fancy -- you could easily burn 10k if you use nicer tile, fixtures, etc. I just did one about 75 sq ft for about 4k. That included gutting to the studs, joists, re-plumbing everything (tub and toilet were re-located), re-wiring, insulation, moisture-resistant drywall, new window, new basic tub, subfloor, underlayment, fairly cheap tile on floor and tub surround, sink/vanity from lowes, basic toilet, paint, etc. I did most of the work myself. If I had hired it out, I think I would have spent about 7-8k. For a low end rental, using vinyl floor, basic (read: cheap) materials and fixtures, and a lowere grade of workmanship/finish, you could have probably done it for 3-4k. But my experience is that a nice kitchen and bathroom will pay for themselves in increased rent over a fairly short period (as long as the neighborhood will support the rent)

3) Basic vinyl, double pane, decent windows cost from 150-200 apiece as long as you can use standard sizes. Figure 250-350 for custom sizes. Figure about 150-200 apiece to have them installed properly.

4) I think roofing is particularly subject to regional differences, but here you can get a basic shingle roof done on a small (900-1400 ft) house done for 1500-2500.

Hope this helps,
JMac

Flipper, I'm not challanging your expertise, just trying to gain a better understanding. You stated (and I totally agree) that costs do not equal "rent minus house payment, taxes, and insurance," but in the analysis you posted, the Total Operating Expenses consists of taxes, insurance, and a maintenance reserve equal to 5% of gross sched. rents. What is the basis for that last figure? It seems low to me, at least over the long-term.

I believe some of the rental experts on here (MikeOH, for example) would use the 50% rule and analyze the deal like this:

Gross monthly rents: 7045
-Expenses (taxes, ins., maintenance, repairs) 3523
(using 50% rule)
=Net income 3522
-debt service (490k @ 7%, 30y)
(if you could get it at 100% LTV!) 3260
=cash flow 262

With a cash flow of only $26 per door per month, that doesn't look like such a great deal to some investors. I do realize that your objective was to make the portfolio look as good a possible and sell it. Now I must agree that if someone did the rehab themselves, they would have the beginnings of a good rental portfolio with $1566/mo. positive cash flow.

Is there some reason that the 50% is not appropriate to use in your example? Perhaps I am misunderstanding something. Thanks for any clarification you can provide.

JMac

I'm keeping the extension option in my pocket, but if I can determine how to deal with this flip I should still be able to file on time. Upon further research, it looks like I could safely treat this flip as short term capital gains on Sched. D. Most things I read seem to indicate that I would probably not be considered a dealer by the IRS if I only flip one or two a year. This is the only one that I sold in 2007 so wouldn't you agree that I can consider it an investment rather than a business?

Thanks for the link Eric. That article seems to support the idea that I would not likely be considered a dealer with just one flip on my '07 return.

Joe, I live in Aiken but I do spend a good bit of time in Charleston, which is where my avatar photo was taken (Chas harbor to be exact). Since you have experience in SC, do you think I'm on the right track with setting up a llc for the rentals and a S corp for the flips? If so, should they be in SC or another state? Can I flip and hold properties in other states with these entities or should I set up additional ones for each state I do business in? Can you suggest any good books/sites/resources on how to set them up to best advantage and how to run them and do the accounting and fulfill the other requirements?

Much thanks,
JMac

Oh man how I hate doing taxes! Although I must admit that as I learn more and more, it does get a bit less intimidating. I've got pretty slim chances of getting an audience with a CPA this week so I hope one of you guys can advise me (Joe??).

Background: I've got several single family rental houses and I've done a few fix-and-flips as kind of a side job. But now my RE activities are taking the forefront and I've all but quit accepting environmental consulting jobs (former day job). In the past I have (incorrectly, I now realize) treated fix-and-flip income as short-term capital gains. Hopefully I won't be too bad off if the IRS checks me out since I believe the short-term capital gains rate is the same as my ordinary tax rate, but I'm starting to think that maybe I should have paid self-employment tax even though I only did a couple.

In any case, now that I am going to focus more on REI, I will set up a S-corp to do the fix-and-flips and a llc for the rentals. But I'm having trouble figuring out how to report the last two flips that I did in my name. Basically, my question is how do I report business income/loss on my personal return when there isn't an actual business entity? Do I use Schedule C even though is says it's not for "a sporatic activity or a hobby"? I'm not really sure that my flip activity could be called continuous and regular. I spend a large portion of my time personally rehabbing properties to rent out (not the most effective use of my time, probably, but I enjoy it), but I think that should be considered a separate activity. Schedule C doesn't really look set up well to deal with flips and it appears that I still can't get any credit for my own labor.

Perhaps I should report my flip income on Line 21 - Other Income?? If so, I'm unsure of how to tackle the accounting: just add everything up that I put into the property and subtract it from the sales proceeds? What can I include? Personal labor, mortgage interest, insurance, etc. or just purchase cost + hard rehab costs?

And I guess I need to download and study Schedule SE for the Self-employment tax? Oh goodness, the IRS is taking all the enjoyment out of real estate investing and not even giving me a credit for it! :beer:

Any guidence appreciated!

JMac

Tim, I've noticed on a couple of threads you've mentioned specific home prices in different areas (a recent thread regarding south FL comes to mind). I was wondering what tools/sites you use to efficiently pull up that info? Difficulty in researching prices and especially rents has been something of a barrier to me when it comes to investing out of my area. Any tips would be greatly appreciated.

BMR, I agree that the in-service date should definietly be the date it became available, but I'm still confused about the accounting. What do you mean by "capital asset account"? Perhaps the total of all the start-up costs (not counting actual inprovements)? And would that be claimed as an "other" expense on Sched E? or depreciated separately? Thanks. I'd also be interested in talking to you about ICFP -- are you Jason?

JMac

I have a related question. When is a property put into service. Say I purchase a rental house 12/15/06, spend two months and $7500 on re-hab/major improvements, property is available to rent 2/15/07, property is rented 3/1/07.

I would like add cost of rehab to basis and begin depreciating both on an "in-service" date of 2/15/07. Problem with this is what is the property considered between purchase and rent-ready? Personal use?? If that's the case then I have to split up taxes, insurance, ect. between personal and business use. It might be correct to consider the property to be in service on date of purchase since it was always intended to be a rental, and put the rehab cost in service on date of rental and depreciate it separately -- but it's my understanding that it should be included in the basis. If I did this, then I should have filed a Sched E for 2006 even though the property wasn't ready to rent (which I didn't)

Also, insurance, for example was paid in 06, so how can I claim it on the 07 Schedule E -- seems like I should be able to claim everything I spent on insurance since the property was never anything other than a rental.

Arrrg, I don't mind paying taxes nearly so much as I hate figuring them out!

LCass1, Are you doing most of your investing in Lexington Co.? Any in Aiken? Just curious -- I've never flipped any properties that low on the price scale -- In fact, I've never seen anything that cheap in my area.

JMac

Pimpin, where are you seeing the pre-designed rooms on the Ikea site?