Investing in Cleveland

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Investing in Cleveland

Jim Cran
Investor · North Olmsted, OH · Member since 2016 · 51 posts · 24 votes

Hello BP Cleveland, OH community! My wife and I are in the middle of flipping house #5 and so far, so good (knock on wood)! We've purchased most from a RE agent/friend off the MLS to date which has been profitable but not quite as good as we we'd like.

Also, we have begun to establish cash flow by purchasing our first duplex (in Lakewood).

Jim & Mehri

Before/after of our 2nd flip:

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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
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#makeclevelandgreatagain

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  • Eric P.
    New York City, NY · Member since 2016 · 470 posts · 348 votes
    9y

    @Jim Cran awesome, well done! Curious why sfr for flips & mf for hold?

    0Reply
  • Jim Cran
    OP
    Investor · North Olmsted, OH · Member since 2016 · 51 posts · 24 votes
    9y

    @Eric P. Thanks Eric! SFRs are relatively quick ROI; we are trying to buildup MFs to establish cash flow. Would love to divorce the corporate world on my 50th birthday. :-) Why do you ask? I'm very open to suggestions from the ultra-knowledgable BP community.

    1Reply
  • Eric P.
    New York City, NY · Member since 2016 · 470 posts · 348 votes
    9y

    @Jim Cran arent you paying massive (like >50%) taxes on the flips since you also have to pay the 15.3% self employment income? How much are you making per flip on a sfr? (Pre tax? Post tax?) Sounds like a lotta work for small post-tax gains, no?

    0Reply
  • Sandy Pinali
    Real Estate Agent · Medina, OH · Member since 2016 · 5 posts · 0 votes
    9y

    Jim. Nice job. Those flips look amazing 

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  • Jim Cran
    OP
    Investor · North Olmsted, OH · Member since 2016 · 51 posts · 24 votes
    9y

    @Eric P. this will be our first full year of flipping so the tax question is hard to answer with 100% certainty at this point but on average, pre-tax $45k; post-tax we've been calculating about 35% for the IRS. From acquisition to sale (including buyer escrow), turnaround has been 5-6 months. I have a full-time job so I expect that to come into play in terms of tax write-offs. Wife manages the day-to-day of the flips. Does that answer your question? 

    0Reply
  • Jim Cran
    OP
    Investor · North Olmsted, OH · Member since 2016 · 51 posts · 24 votes
    9y

    @Sandy Pinali Thanks Sandy!

    0Reply
  • Matt Motil
    Rental Property Investor · Cleveland, OH · Member since 2015 · 1k+ posts · 880 votes
    9y
    Originally posted by @Jim Cran:

    @Eric P. this will be our first full year of flipping so the tax question is hard to answer with 100% certainty at this point but on average, pre-tax $45k; post-tax we've been calculating about 35% for the IRS. From acquisition to sale (including buyer escrow), turnaround has been 5-6 months. I have a full-time job so I expect that to come into play in terms of tax write-offs. Wife manages the day-to-day of the flips. Does that answer your question? 

     35% is high. If your wife is managing things full-time, she can designate as a real estate professional which will help on the taxes, especially the rental losses. I'm not a CPA, but I believe capital gains taxes is 25% 

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  • Eric P.
    New York City, NY · Member since 2016 · 470 posts · 348 votes
    9y

    @Matt Motil @Jim Cran

    You're thinking long-term capital gains - these are flips so they don't get that benefit. Also don't forget to add 15.3% self-employment income to your 35% tax rate. I think you're drastically underestimating your taxes - google "taxes on flips". The enormous tax burden on flips is why I prefer BRRRR to flips.

    1Reply
  • Ryan Arth
    Developer · Cleveland / Akron, OH · Member since 2008 · 922 posts · 399 votes
    9y

    @Jim Cran Welcome to BP. Congratulations on creating a plan and then working that plan. You seem to be moving in the right direction, taking flip profits and buying long term holds with a portion. 

    I have spoken to quite a few people in the last six months that were looking at Olmsted Falls to live, seeing the cost/value ratio there being much more preferable than some of the other West side suburbs.

    0Reply
  • Nancy Mullins
    Real Estate Agent · Olmsted Falls, OH · Member since 2015 · 8 posts · 3 votes
    9y

    Hi Jim Cran. nice work on going after your dream! I just finished my #4 flip and curious what you are spending on average for reno cost?

    0Reply
  • Kristopher HanksPro Member
    Rental Property Investor · Davenport, FL · Member since 2016 · 593 posts · 382 votes
    9y

    Yes! very nice @Jim Cran. I just got my first two houses under contract in Cleveland. Happened today in fact. 

    0Reply
  • Jim Cran
    OP
    Investor · North Olmsted, OH · Member since 2016 · 51 posts · 24 votes
    9y
    Nancy Mullins : average about $55k but the range is $45-65k. Congrats on #4! Where abouts? Congrats Kristopher Hanks ! Where abouts?
    0Reply
  • Luis Moreno
    Rental Property Investor · Fishers, IN · Member since 2016 · 45 posts · 30 votes
    9y
    That's an awesome flip, I really want to start investing in Ohio, But I live out in San Diego. I want to start building a team that could help me out there in the next year. Your flip looks amazing, could I ask how much the renovation coast you on that flip?
    0Reply
  • Jim Cran
    OP
    Investor · North Olmsted, OH · Member since 2016 · 51 posts · 24 votes
    9y
    Luis Moreno Purchase: $84.5k Reno budget: $52.6k Listed @ $189k; 10 offers in 24 hours = bidding war! Sold @ $201k
    2Reply
  • Jim Cran
    OP
    Investor · North Olmsted, OH · Member since 2016 · 51 posts · 24 votes
    9y
    Eric P. That's disconcerting info because we didn't factor in another 15+%. I have another post requesting CPA referrals in my area. Clearly, there's more homework to do before celebrating a "successful" flip. Thanks for the response!
    0Reply
  • Nancy Mullins
    Real Estate Agent · Olmsted Falls, OH · Member since 2015 · 8 posts · 3 votes
    9y

    @Jim Cran - Our first was in Vermilion, right on the lake.  Next was Olmsted Falls, then Avon Lake and we just finished up our fourth in Milan.  

    0Reply
  • Jim Cran
    OP
    Investor · North Olmsted, OH · Member since 2016 · 51 posts · 24 votes
    9y
    Nancy Mullins What was your Reno budget? How were the returns if I may ask?
    0Reply
  • Nancy Mullins
    Real Estate Agent · Olmsted Falls, OH · Member since 2015 · 8 posts · 3 votes
    9y

    @Jim Cran 

    My Latest one in Milan, OH is about 40K in reno. 

    Returns should close out at 30K. 

    We have buyer and under contract. Just have not closed yet do to government slow down with land split approval for the property. 

    0Reply
  • Tracey Thornton
    Investor · Monroeville, OH · Member since 2016 · 43 posts · 7 votes
    9y

    Hi there Nancy Mullins. I grew up in Milan Ohio, and am curious about the latest house you bought. Where is it located? Just curious?

    0Reply
  • Christopher Blanco
    Real Estate Consultant · Cleveland, OH · Member since 2016 · 511 posts · 345 votes
    9y

    Great to see other investors having success in Ohio!

    0Reply
  • Ryan Arth
    Developer · Cleveland / Akron, OH · Member since 2008 · 922 posts · 399 votes
    9y

    @Jim Cran @Eric P. et al.

    This thread may be of some help on mitigating self employment taxes.

    https://www.biggerpockets.com/forums/67/topics/144...

    1Reply
  • Eric P.
    New York City, NY · Member since 2016 · 470 posts · 348 votes
    9y

    Thanks @Ryan Arth - I think part of the thread may be erroneous. I posted a follow up Q on there

    0Reply
  • Nancy Mullins
    Real Estate Agent · Olmsted Falls, OH · Member since 2015 · 8 posts · 3 votes
    9y

    @Tracey Thornton.  It's on Kelley Road in Milan.  The address is 13719 Kelley Rd.  

    0Reply
  • Ryan Arth
    Developer · Cleveland / Akron, OH · Member since 2008 · 922 posts · 399 votes
    9y

    @Eric P. Amanda Han wrote a blog post a couple of years back about the topic. The relevant part said something along the lines of "through proper entity selection, you can mitigate most SE tax exposure."

    It does make sense that an LLC with S corp election could pay you a salary (that you owe SE tax on) and the rest as a dividend (that you would not).

    You also can set up a retirement account within the company to shield quite a bit of income, though it wouldn't be available to grow the business directly. 

    This is my armchair tax answer, as I am not a CPA.

    2Reply
  • Eric P.
    New York City, NY · Member since 2016 · 470 posts · 348 votes
    9y

    @Ryan Arth makes sense. Sounds like your first flip or 2 each yr would get taxed as salary (~50% incl SE tax). Then you could claim the rest of the flips each year as dividends & just pay regular income tax (~30-35%).

    0Reply
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