In light if the the other Post “Self Directed IRA LLC”,
It got me thinking at flipping houses. How do they make money if they have to pay capital gain tax of the profit.
Say you buy a house for $20k and put $50k into it. SO you have $70k total investment. You then sell it a month later for $100k.
Do you pay capital gains on the $30k (100-70) or on $80k (100-20)
You can re-invest the profit to avoid CG tax, but then how do you get paid? Do you keep the $30 - CG tax???
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Originally posted by Fishb8In light if the the other Post “Self Directed IRA LLC”,
It got me thinking at flipping houses. How do they make money if they have to pay capital gain tax of the profit.
Say you buy a house for $20k and put $50k into it. SO you have $70k total investment. You then sell it a month later for $100k.
Do you pay capital gains on the $30k (100-70) or on $80k (100-20)
You can re-invest the profit to avoid CG tax, but then how do you get paid? Do you keep the $30 - CG tax???
You’d pay capital gains on your profits which would be 30K. I do not think you can avoid that tax either.
So the money you would make would be 30k - (20% of 30k).
20% is the maximum long term capital gain. House flips are usually short term and are taxed as regular income. Your tax rate could be up near 40%.
Real estate is best as a long term investment. Not the television crap we always see. There’s a lot of money to be made, but its long term thing and not as glamorous as it seems.
I assume by long term, you mean rental…
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Originally posted by Fishb8It got me thinking at flipping houses. How do they make money if they have to pay capital gain tax of the profit.
I flip houses for a living. After I cash out of the two I have going right now, I am probably going to invest in rental property. Between the income taxes, property taxes, carrying costs, RE commissions, closing costs, etc, (and the fact that I am doing a fair amount of work myself and am worn down), it’s almost not worth the effort.
The shows on TV about this business are just that, TV shows. Buy rental property…
birddawg, would you take the same approach? Buy a fixer-upper. fix it and keep it? Will you use a property management company or do it yourself?
Yes. I am a little bit different than most investors in that I am a licensed home builder and I own a prpoerty management company.
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Originally posted by Fishb8birddawg, would you take the same approach? Buy a fixer-upper. fix it and keep it? Will you use a property management company or do it yourself?
We have a rental property and all is going very well. Three years we’ve had it and no major issues yet. Someone else is paying my mortgage plus a little extra. No complaints here. Helps on taxes a little too.
Give me a call if you have questions or are thinking about doing something similar; I can probably help.
Redfish Baron Extraordinaire
23, do you manage it or do you have a property management company
I own a few rental properties and since having pretty good luck, I started a side business as a property manager in Greenwood. If you have a knack for judging character and are handy, it is easy.
The worst properties I have are the ones that someone else put the tenants in.
My advice is to buy as low as possible, a house that you would let your son live in if he was going to college and you wanted him to feel the need to better himself, but not a slum. My experience is the actual return on investment is sufficient. The hassle of lower than that can be difficult to deal with.
Houses w/o air conditioning is a level that once you’re below, your theoretical return is really really high, but you deal with collections and with the degraded things inside the property. Windows, porches, posts on porches, paint, cigarette impact (burns, smell, discoloration),etc. are all crap in the houses. Wood floors is a blessing in a house, worst case stain them almost black and poly them.
My rentals are houses that I lived in and then never sold. I manage properties that are 20% of the value of my lowest personally owned rental house and they are money pits.
A tip, I never initially let the tenants of my personal properties know that I am the owner. I make sure they think I am “the man”. I even dress nicer when I go show it and now I in fact have business cards, yard signs that look specific and are not generic/from Lowes. I see folks on Facebook looking for a “owner managed rental house” to rent. That means they want to get away with something and are looking for fresh fish.
There’s also a big law about all of this in SC, the Landlord Tenant Act. It’s not complex, just specific about some things. Keep it in mind.
BG
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Originally posted by Fishb823, do you manage it or do you have a property management company
I do it. Its fairly easy if you take your time and interview people prior to moving them in. We have a really great family living in our place now and they take care of it.
Ask for credit report, last rental property payment history, recent pay stubs, etc. I’ll show you what not to look for…
Redfish Baron Extraordinaire
And call the numbers at the top of those reports to make sure they are legit.
BG
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Originally posted by btodagI own a few rental properties and since having pretty good luck, I started a side business as a property manager in Greenwood. If you have a knack for judging character and are handy, it is easy.
BG pretty much summed it up.
I will add a few things to what he said. In SC, you are not required to be licensed if you manage property that you own. If you decide to take on properties for others, get a license. If you arent licensed and you have to evict somebody, the judge could throw out the case. That would be hard to explain to a client. The license course basically teaches you the SC landlord tenant act.
There are a number of background check services online. They range from $20-40. I suggest using them rather than having a tenant provide you with their own credit report. The background check say it looks for criminal records. Dont put much faith into them. The way the records are compiled, the check rarely turns up anything unless they are on the sex offender list. Another easy (and free) thing to do is check the magistrates records online and see if they have any evictions or judgements. I dont know where you are, but here in Charleston I will search Berkely, Dorch, and Chas county. It’s quick and easy.
When screening tenants, go with your gut feeling, verify employment, and look at credit. I dont dwell on credit scores, I look at how many payments a month they have to make.
Good advice. Also to get out of the capital gains tax I believe you can make your primary for 2 years or do a like kind exchange.
Sounds like rental is the way to go but it also sounds like it would take a long time to realize the financial benefits.
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Originally posted by Fishb8Sounds like rental is the way to go but it also sounds like it would take a long time to realize the financial benefits.
You should target a 12% cap rate. 10%+ would be good enough for my level of aggression. The higher the value upside the tenant believes they are getting vs their actual rent, three longer they will stay and more likely they will be happy. If you charge fair market out even above fair market, you’ll find tenants, but they will leave as fast add they find another house and the lease allows.
The lower you charge, the lower your cap rate will be.
A lot of owners have a cover the costs, build assets kind of view, but you should try to make money off of your money and have a positive cash flow asap.
BG
After thinking about this, how much do you make from a rental?
After taxes,insurance, maintenance and management fee how much is left?
Appreciation. Hopefully…