Investor · Park Rapids, MN · Member since 2016 · 8 posts · 0 votes
I have a pretty basic scenario I'd like some opinions on... I bought a property in December for 31k, and put 18-20k into rehabbing it. Im debating on flipping it, or renting it. It would rent for $900-$950/m, and my realtor wants to list it for $99,900. Iv owned it for 3-4 months, and an not sure what's the best play here. I have a loan on it for 38k, at 4.75%. What am I looking at for taxes on a sale, vs selling it 5 yrs? Rent it out, or flip!?
Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
9y
I basically don't sell any property until a year and a day later. As a flip you pay federal, state, and both sides of social security. For me, that's 46 percent. If I hold for a year and have it rented, it's long term capital gains for 23 percent so keep 50 percent more profit
Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
9y
Chris, it's really a personal question you ask. I would hold it forever and give it to my kids, or grandkids, others would sell it. I look at it like this. You could buy one car (a very nice car) with the cash you get from the sale of the property, or you could use the cash flow to finance or lease a new car every few years for the rest of your life. I'm not saying that is what you should do with the money, but it illustrates that long term cash flow is very powerful indeed.
Rental Property Investor · Saint Paul, MN · Member since 2016 · 45 posts · 37 votes
9y
Gosh, depending on property taxes, who pays the utilities how much maintenance is required and if you do in fact get the rent you expect and don't mind dealing with tenants its a slam dunk for me. I agree with Tim that I would hold it forever, pay it off in 8 or 10 years then walk away each year with $7,000 or $8,000 in my pocket (caveat about the above questions).
But, if you hate dealing with tenants ongoing maintenance and the like you may not have the same view. But again, great numbers and could be a nice long term hold...and you avoid capital gains.
Investor · Waconia, MN · Member since 2014 · 238 posts · 104 votes
9y
I was in this exact situation a little over a year ago. purchased a house for $31.5k, rehab for around $23k and list price was $100k. I decided to sell, got a full price offer the same day and closed. I took the profits a bought a 6 unit apartment complex. I don't regret that choice as my IRR is much higher now. I do think about if I should have just refinances to pull my money back out, keep and rent it and then still try to buy the 6 unit. Numbers get tighter doing that and I would have had to bring more money out of pocket to close on the 6 unit so I think I did the right thing.
Deerwood, MN · Member since 2014 · 184 posts · 122 votes
9y
I have a spreadsheet that shows what holding for five years does for your bottom line. I don't sell properties, I just hold them. Why eat the goose that is laying little golden eggs.
Investor · Minneapolis, MN · Member since 2012 · 187 posts · 117 votes
9y
Depending what tax bracket you are in, you could be in a situation where you will pay 30-35% in income taxes on the flipping profit for 2017. The extra income in 2017 could also hurt your ability to claim other deductions and prevent you from contributing to a Roth IRA. It is complex and depends on your tax situation.
Personally I would consider selling if I was not enamored with the location and they types of tenants that live in that area. However, I would lean on keeping it "forever" if I though the neighborhood is great or is improving. In the Twin Cities, many areas are improving a lot.
Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
9y
I basically don't sell any property until a year and a day later. As a flip you pay federal, state, and both sides of social security. For me, that's 46 percent. If I hold for a year and have it rented, it's long term capital gains for 23 percent so keep 50 percent more profit
Investor · Excelsior, MN · Member since 2017 · 85 posts · 37 votes
9y
@Bruce Runn pretty much laid out the tax situation for you right there. You might not be in the same tax "bracket" as Bruce but that shows you the benefits of holding it for at least a year and one day. If it were me, I would do 1 of two things:
1- Hold it, pay it off after a few years with the cash flow and then its all profit to you.
2- If there is a larger unit available that caught my eye, I would use the equity to facilitate that purchase. The benefit of #2 is that you can protect a certain amount of the profits by rolling it over into another investment and avoid paying full taxes like you would if you were just putting that money in the bank. For information on that, contact your tax guy or do a little reading online.
I'm in the exact same boat right now on one of my properties. Bought for 31K, rehabbed for 12K, now worth 90K. My realtor says the market supply is tight and time to list. I decided against selling based on what Karen Rittenhouse said in podcast #2. These rentals are like little oil wells. The check keeps coming each month. I find the amount of time I use on SFR versus mfr makes SFR continue to be attractive. If I sell the oil well now, I get the short term benefit, but I could likely sell it in 10 years for the same amount.
@Bruce Runn - thanks for that nugget. That is good to know.
Your question, to me, indicates you have absolutely no business plans what so ever, your investing by the seat of your pants. You need to sit down and take the time to determine the direction you want your business to take and not be asking strangers their opinions on what to do with YOUR MONEY.
What you are contemplating doing is no more thought out than flipping a coin. This is not the way to be a successful investor. Stop and think about what you want.
From last time we saw each other, I've picked up 3 more places so I'm not necessarily looking to sell anything as I'm a 90 percent buy and hold guy and adhere to the oil well concept. Stream of income always trumps (sorry for the pun) a one time cash out money.
I have to ask your advice. I have a property I bid on and the 200 square foot lot needs a tear off and replace. I got a bid for $24K, but the seller won't kick in for it. I keep thinking the 24K will be a cash flow killer. The property is an 8 unit, that will cash flow about $200.00 per door. How would you approach it?
Sorry for this off topic question everyone. A lot of good posts on this thread.
Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
9y
What neighborhood is this in. Seems very cheap for Minnesota. I'm big on desirable neighborhoods with young renters with good jobs. These are going in the 200k to 250 k range.
Investor · Minneapolis, MN · Member since 2012 · 187 posts · 117 votes
9y
I want to add to Bruce's comment about keeping for a year and a day. There is one more IRS test you need to ensure of if you are keeping for a year plus a day. You need to have had the INTENT to buy this as an rental investment. If your intent was to flip it all along and you cannot prove intent to rent it for cash flow, then IRS could rule it was a flip even if you kept it for 366 days. Prove intent by actually renting it out for some months, or at least having some advertising it for rent. You need to supply the burden of proof if ever you get audited on this issue.
Investor · Park Rapids, MN · Member since 2016 · 8 posts · 0 votes
9y
All very good points. I appreciate the input. This was my first "rehab" rental. I own 45 rental units currently and I'm sold on keeping this as my 46th. I was unsure of the tax implications on "flipping". I've never sold a property, just purchase often. I saw some short term pros to selling this one... I'll keep it! Thanks again for all the good advice!
Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
9y
I base my rent or flip strategy based on the market conditions. I primarily invest in rehabs, some properties are purchased with a flip goal in mind and others are for rental purpose. Part of what helps me determine rent/flip this is how expensive the housing market is, my time availability to tackle another project, and the availability of houses to invest in.
Isanti is a market I determined was near the top in pricing so I sold one in 2015 to purchase two cheaper rentals and I sold my other Isanit house in 2016 to fund a flip and create more working capital.
The housing market moves in cycles so I try to change my investment strategy to account for these changes.
Investor · Park Rapids, MN · Member since 2016 · 8 posts · 0 votes
9y
Excellent point... I'm up on northern MN and the market has little inventory which made me think I'd be getting a good price be to sell this flip instead of renting in. Thanks again for your input.
Wholesaler / Investor · Hastings, MN · Member since 2015 · 58 posts · 32 votes
9y
Hi @Chris Knapp my first question is whats your end goal. Start at the end and work back to figure out what fits into your plan. Can you sell and roll that into more money, is this a great deal on a property that cash flows. Do you have the reserves to cover any CAPX as a rental property.