RE Dealer?

Question

I know the IRS is vague about this, but generally at what point does an investor become a real estate dealer.  I am looking to get more into rehab and flips.  I am currently a self employed home inspector, plus I own a duplex and a 4-plex as rentals and have one home that I rehabbed and sold on a note.  I would like to do 3 or 4 such rehabs/flips a year and also add to my rental portfolio, while continuing with my home inspector business.  From this strategy, would it appear that I would still be seen as an investor and not dealer?

Account Closed · Answer

If you are doing 3-4 rehab/flips a year it is quite likely you will be considered a dealer.  There is no real bright line here though.

I would caution you as well to clearly separate your rental activity from your rehab/flip activity otherwise this could get lumped in as dealer activity as well, not good.

Usually it is better to have two separate businesses for these activities.

Is this the first year you had this much turnover?

Bryan Hancock · Answer

Generally RE investors used a s-corp for their dealer activities to take the salary/dividend split and a LLC or FLP for their holdings.  My accountant told me 6-12 deals per year...it seems everyone has their own definition about what is considered dealing.

Ron K. · Answer

Charles,

Thanks for the reply.  I am not sure what you mean by turnover, but I will try to answer.  I have not sold a property this year.  I just finished rehabbing a duplex that I kept as a long-term rental.  I did just close on a SF foreclosure that I will rehab and offer for sale toward the end of the year and would like to start doing multiple per year if I can find more deals like this.