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.
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.
You had me at 'before and after'. I am such a house voyeur...lol. Anyway congrats to you Rachel - the place looks fabulous! Seems roomier afterwards. I'm always amazed at that transformation. Excellent work. Can't wait to see your next project.
Pelham, NC · Member since 2015 · 160 posts · 54 votes
10y
Congratulations!
You learned a lot and made a profit, and $12k is a great profit on your first one you know why, because you made a profit on your first one! Many of the posts I've read, and stories I've heard, say that investors lose money on their first deal and some on their first couple of deals. You didn't!
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
Nice job! The flooring looks awesome. The before and after pics are quite the contrast. This is a great example of taking a run down property, improving it, making a profit, and bettering the community at the same time.
Looks great! Would you mind sharing your paint choices? I like that greyish color that is used in many of the pictures.
Thanks Stacy! The wall color is the same throughout and it is SW Agreeable Gray color matched to Behr's paint + primer. It seems to be one of the best grays that looks great in person and in pics.
it looks great. I'm trying to get into my first flip now and your pictures showed me that it can be done... How did you like the hard money lenders??
Hi Chris,
My hard money lender was great! More like a mentor and guided me every step of the way. Using hard money is the only way I'm able to invest in properties currently, so it works for me. I hope to be able to use private money in the future, but I'm sure the hard money will continue to be a good option.
Investor · Bradenton, FL · Member since 2015 · 34 posts · 12 votes
10y
Rachel what a great project you should be proud. I'd like to talk with you further about your hard lender experience if you have time please let me know and I will private message you.
Jon trojan
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!
Hi Lance,
Thank you for your kind words! As far as the mentor goes, I knew I didn't want to pay anyone to mentor me because I wanted a more authentic relationship with someone. So to make a long story short, I was driving my daily commute home and saw a branded sign in front of a home that mentioned they were rehabbing the home to make it a better place an improve the community. There was a phone number on the sign so I called it and I asked the guy on the other end if we could meet for coffee and talk about his journey into real estate and flipping homes. He agreed and has been there to help me every step of the way with nothing expected in return, however, I have done everything I can to help him in any way that I can as well. I have asked him why he was so willing to help and share his secrets and he mentioned that he received so much help when he was getting started that he simply wanted to pay it forward and see someone else succeed. My suggestion would be to attempt to find someone in your local area that you think you can connect with. Being willing to add some value to the relationship. For instance, as I was looking for my first property, I also sent him deals that I thought he might be interested in and tried to help in any way I could so that the relationship wasn't one sided. Hope this helps!
Jerusalem, Israel · Member since 2015 · 144 posts · 14 votes
10y
Now that's an A grade rehab @Rachel Gill. How long did it take you to close the current contract? Would you say the current price matched your expectations of the ARV?
Now that's an A grade rehab @Rachel Gill. How long did it take you to close the current contract? Would you say the current price matched your expectations of the ARV?
Hi Guyoz,
When I purchased the property the ARV I was basing the deal on was 145K, however, while holding the property the ARV dropped somewhat due to the current market conditions. We ended up listing for 139.9K, but got an offer over asking price, so it all worked out.
Rachel what a great project you should be proud. I'd like to talk with you further about your hard lender experience if you have time please let me know and I will private message you.
Jon trojan
Hi Jon,
I'd be happy to chat with you about the HM experience. Feel free to PM me.
it looks great. I'm trying to get into my first flip now and your pictures showed me that it can be done... How did you like the hard money lenders??
Hi Chris,
My hard money lender was great! More like a mentor and guided me every step of the way. Using hard money is the only way I'm able to invest in properties currently, so it works for me. I hope to be able to use private money in the future, but I'm sure the hard money will continue to be a good option.
Good morning. I'm not to familiar with Hardmoney lenders. How does it usually work? Do I need money down? Do I have to do an inspection on the house??? I found a house that I want to buy and flip but I don't have the money. Any advice ?