Investor · Baltimore, MD · Member since 2014 · 78 posts · 48 votes
Although this took way longer than expected due to contractor issues, I'm proud of the way it turned out and happy to report that it is under contract after on 3 days on the market! It's a 3BR, 2 full bath row home in Baltimore, MD and we added an additional BR in the basement. (See before & after pics below)
Breakdown is as follows:
Purchase Price $54K
Rehab $50K ($8K over budget)
Holding costs $8K
Under Contract $140K
Approx Profit $12K
Due to holding longer than expected(almost 6 months) and unbudgeted rehab costs the profit is less than I had hoped, but still not too shabby for a first timer. I had a lot of help along the way from my Hard Money Lender and a Mentor and learned a lot of hard lessons, but I'm so glad I jumped in feet first and accomplished this. I'm now on the hunt for my second and hopefully third flip.
what has happened with the taxes - was a great big chunk taken - are you going to have to pay a capitol gains tax?
Hi Cynthia,
I will definitely have to pay income tax on the money because I'm currently set up as an LLC, which is considered a disregarded entity by the IRS, which means I will have to add my profit as income on my tax returns. I'm going to reinvest my profit in the business, but will definitely set aside some money for the taxes.
This question gets asked a ton on BP and while it is a great question, it is often stated wrong and even answered wrong. To be crystal clear, flipping a home resulting in a profit is not "capital gains" rather, the income is taxed as ordinary income. An LLC used to flip would result in the LLCS profit passing through to the managing member in a K1. That income would then be reported on the personal tax return as ordinary income.
You should always consult a knowledgeable CPA familiar with real estate transactions, however, an LLC is not typically the best entity for flipping. In most cases, an S Corp is better or an LLC with S Corp tax election.
Disclaimer: I am not a CPA and this info is not to be considered tax advice, just my personal experience.
On another note, great job and the turnaround, it does look great. I'm sure you learned quite a bit by jumping in and doing and to summarize, if using a GC, always run a check on their license number, always have a written contract, always have deadlines and draws determined, never pay ahead of the work completed, and time crunch or not, make sure the home is 100% ready for photos for listing, it makes a difference.
Realtor · Charlotte, NC · Member since 2014 · 935 posts · 467 votes
11y
@Rachel Gill you should be so proud of yourself, you transformed that dump into a show place. You are making a great improvement in that housing development and town. Persevere!
Flipper/Rehabber · Alexandria, VA · Member since 2014 · 461 posts · 262 votes
11y
The "after" looks awesome. You should definitely be proud @Rachel Gill. You got $12k in cash and lots more than that in education value. I bet you that your second (and third.... and fourth.... etc.) will go easier and better and it will be thanks to the real life education that you received on the first one.
I look forward to seeing your second flip's before/after photos.
Richmond, TX · Member since 2015 · 24 posts · 1 vote
11y
Congratulations! It looks great! May I ask how you found your mentor? Walking away with a profit on your first deal says a lot about the time you spent preparing! Great job!
Investor · Fort Lauderdale, FL · Member since 2015 · 172 posts · 30 votes
11y
Great job!!! Congratulations on your first flip... What motivation this bring to all of us newbie investors looking to jump in feet first with a fix & flip. Happy haunting for your next property.