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.
Investor · Murphy, TX · Member since 2011 · 189 posts · 86 votes
11y
Really great job Rachel!! What was your role in this house? Did you GC it yourself or pay someone? Did you hold down a full time job while renovating? Thanks for posting. The renovation is top notch - the overall feel and finish does not look much different from what I am seeing in 500K renovated homes in Dallas area (minus the marble and quartz). You got the look without spending a fortune.
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
11y
That was a pretty rugged looking first deal! The finish is so nice...and the photos and staging really make it shine. Well done~
@Chris Colvin, hard money lenders charge a high interest rate 12%-16% and often up front points, for a short time period loan. This allows people to buy properties that conventional lenders cannot or will not lend on. Imagine a fire-damaged house, for example. They are usually private individuals, some of whom also have experience with rehabs so they know their numbers; HMLs typically won't lend more than 65 to 70% of the value. We didn't know about hard money and got conventional loans on our first couple of fixers. With closing and funding & closing costs, on the buy and again on the sell side, hard money would have been a lot easier and comparably priced to Wells Fargo, our lender at that time.
Real Estate Agent · Richardson, TX · Member since 2014 · 511 posts · 161 votes
11y
@Rachel Gill Great work Rachel! The rehab looks fantastic. You mentioned the rehab went over budget by 8K. What were these unexpected expenses? Did you hire a contractor or did you manage the project?
Real Estate Consultant · Brighton, MI · Member since 2013 · 607 posts · 251 votes
11y
Terrific job, you go girl! Fantastic choice on colors (greys are still very popular), finishes, etc. Now, ride the wave while you're still on a high. :)
WOW. Great job. Would you mind saying want you used for flooring?
Thanks for sharing.
Hi Jim,
This is an espresso stained solid hardwood flooring. My contractor actually picked this up for me at one of the local distributors, so I'm not sure of the brand or exact color. Sorry I can't be of more help.
@Rachel Gill Awesome for your 1st.. Inspiring. You said you had contractor issues, what were they? Keep up the good work...
Hi Johnny,
Well, where should I start. We hired a contractor who had successfully completed several flips for my HML, however, she became over extended and started to rob Peter to pay Paul. In the meantime she wasn't pulling the permits she said she was pulling and when she did finally pull them, she pulled them fraudulently under a different contractor's license. We fired her and in order to keep his license, the contractor whose license was used fraudulently agreed to finish the job, however, a lot of the budget had already been paid out to the first contractor therefore this guy wasn't getting much $ to finish the job, therefore his motivation level was very low. We finally got it completed, but it was about 2.5 months behind schedule!
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.