All Forum Posts by: John Pauler

Thank you @Michael Plaks! 

Thanks @Jon Holdman. That's what I was thinking, but good to hear it from someone more knowledgeable. Appreciate the response! 

I am looking for help on tax implications for two flips I invested in passively with slightly different terms. For both of these, I was completely passive, simply supplying the capital and waiting for my return. 

FLIP 1:  20% fixed interest. Deal closed January 2018 and was paid out 13 months after initial investment (120% of initial investment) . 

FLIP 2: pro-rated share of upside created. Deal closed January 2018 and was paid out 14 months after initial investmen (117% of initial investment). 

I am pretty sure I will get hit with taxation at ordinary income rates for FLIP 1, because this is a simple interest structure, but am not sure about FLIP 2. My original thought was this would be a capital gain, but the more I read about it, it sounds like the IRS never treats flipping as a capital gain, but rather as a business activity. My question is whether that changes when you are a passive investor, and not the one driving the project. 

Can anyone with more expertise weigh in on this, specifically answering...

1. How will these two flips be taxes?

2. Is there anything you would recommend in the future for more favorable tax treatment? 

Thanks for the help!

I agree with @Rory Gill - it's going to be a lot cheaper in Cambridge. $7k for a 2F sounds about right. 

@Mike Abramowitz - this depends on your current plumbing, so it will vary a lot. Here are the considerations...

• Purchasing water meter(s)/reader(s) from the town - $325 for the pair. Any 2F already has 1 pair, so if you're just adding a second, it's $325. If you're going to have a pair for each unit and also have a common meter for the basement, then you'll need two sets - $650. 
• Plumbing work to separate the two units. This is where the major variance comes in. In your best case scenario, your units are already separated and all you have to do is add the meters. In the most expensive scenario, your vertical plumbing lines are shared between the two units, so you'll need to run new separate lines. 
• Plumbing work to get everything up to code. Again huge variance here, depending on how recently your plumbing was done and how much work is required for code upgrade.

Hi @Chris Conde - I had never done a conversion before and then I converted both of my Somerville 2Fs to condos over the past 12 months. Here's what I had to do. Some of the steps are specific to Somerville (statement of condition, separate water metering).

• Give tenants 12 months notice, 24 months if they are disabled or elderly
• Create your architectural documents (unit floor plans, site plan)
• Create your standard condo docs with an attorney (master deed, declaration of trust)
• Have a different architect come and provide a 'Statement of Condition' (this is the hardest thing to find - most architects will not be willing to take a small job like this - this is also only required in Somerville as far as I know)
• Complete an application to the condo board (meets once a month)
• Attend the condo board approval meeting, or have your attorney attend
• Submit $500 fee per unit to the town
• Prior to closing, separate all utilities with separate meters (electric, gas/oil, even water in Somerville)

All-in costs for 2 unit conversion...anywhere from $12k to $18k.

It's not the easiest thing in the world, but if you're organized and motivated to manage the project, it can be worth it. 

Hope that helps. Happy to answer more questions here / via phone / over a beer. 

Cheers! 

John

Thanks @Mike Hurney! 

Have you done this? Is 'entry only' something you would do through a specific broker? If so, is there one that you recommend? Appreciate the help! 

I am planning to sell my Somerville, MA condo this spring. I am hoping to sell it myself to save on the real estate commission and potentially allow for a great deal to a first time buyer. 

Some mocked up info on the property, located at 5 Arnold ave in Somerville MA

• Top floor, renovated, open concept
• Off-Street Parking
• Private rear deck overlooking large shared yard
• Private laundry and storage in basement (half of basement)
• Low condo fee: $120
• Deep condo reserves and 100% owner occupied (financing is easy)
• Very bright and sunny unit
• Great sized bedroom with bonus office/sunroom
• Open concept with well-defined spaces for living, kitchen, dining
• Certified Deleaded (no worries if you have a kid someday)

Have folks done FSBO before? Any tips you could offer or pitfalls I should avoid?

Note: I have bought and sold real estate before, but have always used an agent. I am familiar with the mechanics of the transaction but don't yet know what I don't know when it comes to FSBO.

Specific questions...

1. Any advice for connecting with Somerville, Cambridge, Boston, Medford condo buyers effectively?

2. Any specific advice for things that could get me intro legal trouble when listing FSBO?

3. Anything else you would mention to market the property that I missed above?

Appreciate any advice! Thanks! 

John

Ia m working on closing a deal that I plan to buy and hold. Looking for recommendations for good property managers in the area. 

Thanks for the help! 

John

@Kevin Scanlon - Central is great. Tuesdays are usually good. Thanks for getting this going!

 @Kevin Scanlon - same here. Would love to join the next one. I'm in Porter.