Doing multiple rehabs with revolving debt
Hey BP I have a scenario question for any rehabbers or Accountants.
If I have a private lender lend me 100,000 for a year at 12% APR for me to use the money as many times as I'd like through out the 12 month period doing deals. Let's say I'm able to complete 5 flips.
To keep it simple let's assume I buy for 30k put 30k into it and sell for 100k on all 5 flips.
After 10% selling cost I have 90k on each.
The end of the year I give him 112k back and I have 450,000
(90 X the 5 flips)
Will I be taxed as if I made 450k or the 30k gain on each flip. ?
Most Popular Reply
Exactly what Ed said above. From an accounting standpoint, you have $500K in revenue, $350K in cost of goods sold (COGS), resulting in $150K of gross profit. The $12K interest expense is considered part of SG&A (sales, general and administrative) expenses. You may have other expenses there as well -- umbrella insurance, tools, office supplies, home office expense, accounting/legal fees, etc. Ultimately, you have $150K in gross profits minus your $12K in interest expenses minus any other SG&A, which results in your net profit number -- this is what's taxable (likely at your marginal rate plus self-employment taxes).