All Forum Posts by: Michael Seeker

Thanks for the info guys!

I found this article which seems to point me more towards filing Schedule D http://ezinearticles.com/?How-Will-You-Be-Taxed-on-a-Flip?&id=2430929

Any thoughts from a tax guy?

@Jeffrey - I realized this wasn't the best approach too late to do anything about it. Going forward I probably won't partner up on flips, only on rentals. If I do partner up there will be an LLC with an OA drafted by an attorney.

A friend and I just finished a flip with pretty much a 50/50 split arms length agreement. Everything went fine, no arguments or problems.

The question(s) surround the taxing and distribution of funds. Both the hard money loan and the property are in my name. My partner and I set up a joint bank account and 90% of transactions went through that account. The remaining 10% or so were purchases on our personal credit cards that were reimbursed by the joint account.

Assuming we each put $40k in and we're netting $120K at the closing, what is the best way to distribute and pay taxes on the profits?

My current plan is to deposit the $120K check to our joint account then each of us take half the $ in the account and close it out.

How would we handle this so that each of us gets our initial $40k investment back and each of us pays taxes on our $20K profit separately?

Any thoughts/suggestions would be most appreciated!!

You estimated $250/month for expenses/maintenance, that seems very low for 12 units. This includes things like water heaters, new carpet, roof repairs, landscaping, etc, etc, etc. You will probably spend $250/month for normal months, but this number doesn't account for the major repairs that crop up much more frequently when you're dealing with a large number of units.

If you have to replace the A/C in one unit and a water heater in another unit in the same month, you could be talking $1500-$2000. That right there is 50-66% of your annual repair/maintenance budget.

It was stated above, but the 50% rule is a LONG term average, not what a typical month will look like. Make sure you price in the former as it makes this property MUCH less appealing.

You can get by with much lower maintenance costs, but then you devalue your building over time, if it's in good shape now, you had better keep it that way or you won't have much money on the table when you go to sell it.

PEX PEX PEX!

This is almost a no brainer. The stuff is sooo flexible and easy to use/install. It doesn't burst (as easily) in cold weather. It's cheap and very easy to transport/install. It comes in rolls, so you can put a 25' section in the front seat of your car. The biggest downside to this stuff, if you want to call it a downside, is that you have to buy a tool to crimp the joints. There are 2 styles of "crimps" both are easy to use, just make sure you don't mix up the tools with the fittings.

Are your age and number of properties purchased last year really why you're on the fence? Seems like the cashflow and price tag are the real issues.

Sounds like you're trying to get in at a peak instead of a trough. If you don't think you could handle this property with 10% vacancy and $600-$650/mo rents, then it's not worth the risk of overextending yourself.

I wouldn't want to be a buyer in a seller's market. Also, if the price is truly ridiculous, then offer less. It sounds like it would be really tight at the asking price, find a number that would make it comfortable and don't offer a penny more.

Again, if this is the case it sounds like you have more leverage to offer a lower number.

I would argue that BP is one of the best (if not the best) resources for learning real estate terms, lingo and acronyms. I would recommend reading a few of the books listed here to gain some understanding of context, but don't get hung up one one author or expert.

If you have specific terms/acronyms you would like defined, try starting a new topic and asking for a definition. You're likely to get several different angles on the term which will help you come up with your own understanding of it. Not to mention it would be a good resource for many future BP newbies!

People still mail checks?

Do what Jim said and set up an auto-pay. There is no way they can "lose" your payment and you have easy access to payment history and any other account related information you could want.

What would the 4th unit (the one you'd live in) rent for if you weren't living in it?

One of the factors that you can't really put a price tag on is the fact that you'll be able to live there (essentially for free). Since you'll be living in the building, you should be able to keep expenses lower and quality of tenants high. I found that by telling prospective tenants I live in the building and will be around if anything goes wrong, I tend to attract a much better quality tenant. The crappy tenants that are out to screw you over won't want to live a wall's thickness from their landlord.

Manuel,

If you don't have time for a "part-time" job right now, then you won't have time to do much in the way of investing in real estate.

I would recommend saving up about 5% of what a typical working class 3BR/2BA house goes for in your area. In my area this was about $5,000. I started saving the day I got a full time job and started looking as soon as I got close.

Somebody mentioned a duplex earlier, if you can afford a 3/2 SFT, you should be able to find a duplex relatively close in the same price range. This would be a great way to go...if you want to rehab, you can live in one and rehab the other then switch it up. If you want to landlord, you can live in one and rent the other out. The best part is that when you're ready to move on to something else, you can still keep it as a rental and generate some nice monthly income.

That's pretty ridiculous! Guess you can't expect too much privacy if you're renting out a room in a house though.