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, flipper Boynton Beach, FL · Member since 2015 · 23 posts · 3 votes
10y
congratulation. the staging is nice and modern did you do it yourself? the pictures also look fabulous, did you use granite on the kitchen ? or did you find a way to make it look like granite in a cheaper way . it looks beautiful. the paint color was a great choice.
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.
Sacramento, CA · Member since 2015 · 74 posts · 21 votes
10y
@Rachel Gill The house looks fantastic. Congrats on a job well done! The pictures came out really nice, did you take it yourself, use a real estate photographer, or did your agent handle this?
@Rachel Gill The house looks fantastic. Congrats on a job well done! The pictures came out really nice, did you take it yourself, use a real estate photographer, or did your agent handle this?
Hi Patricio,
My agent has professional photos taken. Definitely makes a big difference!
Auburn, MA · Member since 2015 · 16 posts · 2 votes
10y
Wow. I am putting in a offer on my first investment house to flip, but I don't think it is going to look that good. That looks like something out of the TV show "Flip This House" Congrats, Beautiful job.
Investor · Asheville, NC · Member since 2011 · 833 posts · 499 votes
10y
Hey @Rachel Gill, what a beautiful rehab! Is that grey subway tile with with white grout in the bathroom??!! My wife will LOVE that. Wherever did you find it?
Thank you so much for sharing your story. It's important for people to see that it is do-able, and there will be issues, no matter how experienced you are. I ran into some serious contractor issues on my first few deals, and while painful and stressful, I've learned a ton.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
10y
It always tends to take longer than expected. But it looks like you had some room even with unexpected expenses and $12,000 is nothing to scoff at. The rehab looks absolutely fantastic! Great job!
Firefighter / EMT / PT Real estate investor · Cocoa, FL · Member since 2015 · 12 posts · 3 votes
10y
@Rachel Gill I believe that you said you used a hard money loan on this flip. I'm trying to get started. Who did you use and how much money down did you give? Also what were your fees to pay back?
Chicago, IL · Member since 2015 · 3 posts · 1 vote
10y
Do you think it's a better idea to flip a house and sell or flip and keep it as a rental property? I know they're two very different things, but in the long run, do you think renting is to large of a risk? Thanks so much.
Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
10y
That's a huge project you undertook. It turned out incredible, amazing job. Did you have any issues getting a hard money lender to lend to you since this was your first one?