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Erik Perotti
  • Scotts Valley, CA
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Negative (Fully Loaded) Cash Flow BRRRR or Flip?

Erik Perotti
  • Scotts Valley, CA
Posted Aug 5 2019, 16:17

Hi -

Newbie question. A favor, please. If you are using #s to explain something, please pull from the #s below.

I am in the process of buying my first long-distance property. First the #s:

$150k purchase price

$50k repairs

$260k ARV (I hope)

$1750/mo - would be rent

W2 employed.

Selected the market because it should appreciate

Property tax - ~3% of appraised value ($150k*.03/12mo = $375/mo). 

Paying Cash

Ok, here goes.

I am buying the above, and it would not cash flow if one considers things like CapEx, Repairs, Vacancy, etc. If you ignore those, it would break even. The problem is most likely the local taxes for investors in South Carolina. My current thinking, and I waffle, tells me to flip, take the $45k post-sale profit, and do a 1031 Exchange. This then could become two properties and somehow I could use this profit for the next two.

Or, if I could get a realtor as good in Tennessee or similar, flip in SC, hold in this other market. My realtor is a true rock star, and I have not found another like her, and question where they exist that is not super-saturated with investors.

1. Does a 1031 hurt resale price (ARV)? Do potential buyers see it as a negative?

2. Everything I see about 1031s talks about two factors - sale price and loan amount. I won't have a loan, so how does that work? 

3. I want to BRRRR, not flip. Is it better to BRRRR it and just deal with those expenses? Or keep a bunch of capital locked up? The problem, like I said, is the tax issue, so, $10k left in the property is about $25/mo savings in positive cash flow. So, I'd have to leave not just my forced appreciation locked up, but also another big chunk of capital to get to a fully-loaded cash flow.

4. Does this high investor property tax really help me with my personal taxes? To explain that a bit - BP talks a ton about cash flow (monthly), but I do not see cash flow annualized on BP, but in this case, this tax could be not-so-bad? 

Really, my question is, 'what would you do?' I will talk to my local accountant tomorrow, and my long-distance accountant on Saturday, but want all the data I can get.

Any advice welcome. 

Thanks for your time!

Erik

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