Am I Missing Anything?

7 Replies

Hi BP Family!

We are close to purchasing a Fix N' Flip property with the numbers below. The "All-In Cost" works well with our ARV but I am wanting to make sure I am not missing anything that could make the costs go up. We are doing a 1031-Exchange to avoid Capital gains. Below is a screenshot of a portion of my evaluation spreadsheet.

  • - Materials & Labor = Rehab Costs
  • - Purchase Price = Cost to purchase from owner
  • - Purchase & Sale Commissions = Our brokerage fee (partner is an agent)
  • - Down Payment = 10% of Loan & Loan Needed = 90% of Loan
  • - We will be paying 2 points on the loan needed.

Thoughts? Am I missing anything big?

P.s. - Once I iron out this excel sheet and the calculations I would be happy to share it on FIleplace r send it directly to you if you'd like.
Thank you!

Chad

How much are you budgeting for holding cost? How long do flipped properties sit on market? Those are important factors to consider. There's a couple properties down the street from my house, both over priced, and been on market for at least 4 months.

I'm not a professional flipper but utilities and property taxes cost money. 

Pretty sure you can't 1031 on flips but not 100. 

@Chad Dickenson , Two things - Like @Christopher Giannino said you will not be able to sell this as a 1031 because your intent is not to hold for productive use.  And if you meant that you are doing a 1031 into this property to shelter gains on a sale of a different property then you'll end up paying all of the deferred tax when you sell this property.  So you need to factor in taxes.

Which leads to the second ouch - When you sell this you will not pay capital gains rate.  You will pay ordinary income rate and possibly self employment tax as well.  Thank heavens you're in a tax free state or you'd have that looming as well.  But your tax could well eat up 30% of your gain.

Thanks everyone! This is really helpful. For clarification, this would be under a LLP not an individual. Couple follow up questions:

1. Am I not able to do a 1031 exchange and roll it into another property which would be a rental? 

2. If I can't do that, how much should I expect to pay for Capital Gains if this is the only flip I do for the year and the profit is between $50-60k?

Thanks again! I really appreciate this community and all the help!

Chad

@Chad Dickenson , the entity owning the property is not an issue. Any tax paying entity can do a 1031 exchange. The issue is that then intent of the LLP is not to hold the property. The intent is primarily resale. So it is not eligible for a 1031.

Capital gains is only available to properties you own for more than a year with the intent to hold.  You will have to pay ordinary income.  And only your accountant can tell you what that bracket will be since it will be a pass through to your personal return via the partnership return.