All Forum Posts by: Bao Vu

@Bao Vu I know the property you're talking about based on the price. 

Overall the numbers are okay on paper if you can get average/above-average rents within a year. Your market rent estimates are realistic, maybe a bit conservative which is a good expectation to set. 

My calculations showed this deal breaking even around 30% down with average rents. The market can support higher rents with updated units IMO -- plus there's some value-add upside in the equity growth through improvements. I'd lean towards lower down, saving cash for renovations at the turnover of each unit. This one will need it.

Personally, I looked into the details of this deal and decided to pass on it for a few reasons besides price & rents - happy to share my findings.

I'd treat this as a value-add opportunity only if you can raise rents within 12–18 months and have the capital to do it without bleeding cash. If not, it’s smart to keep looking or renegotiate. 
Let me know if you want help modeling the scenarios in more detail.

HI @Bao Vu I feel like I am missing something here.  Best case scenario rents would be around $6000? Seller asking $788K of which 1% would $7880 per month.

If in the best case scenario the building would not pay for itself, how is this a deal at all? 

I don't know anything about the Seattle Washington market so hoping you can explain to me what it is that I am missing? Is there huge appreciation upside in the market? Are you looking to house hack?

On face value, unless it is a new build with all major systems being in pristine condition, I just don't see where this deal even makes sense.

Taxes are calculated on the gain (e.g. sale price - purchase price + expenses, broken down fairly clearly by @Jake Baker) not just on the sale price.

The tax treatment on sale of a Primary Residence vs. Rental (buy and hold) vs. Flips can be significantly different depending on if you meet the IRS requirements for the property to be considered a Primary Residence vs. Dealer vs. Investor.

• Primary Residence is taxed as short-term or long-term capital gains on sale and it may qualify for Sec 121 Exclusion
• If you are classified as a Dealer you will pay ordinary income taxes on sale. This may include self-employment taxes as @Kevin Gonzalez mentioned, but this can depend on if you have S-Corp or not.
• Investor pay capital gains taxes. Generally lower than ordinary income taxes on sale depending on your tax bracket and holding period.

Whether or not you are considered a Primary Residence vs. Dealer vs. Investor depends on a number of factors including a.) Did you live in the property during renovation b.) how frequently you renovate and sell properties b.) your intention at the time of purchasing the property.

I can’t tell from your post if you lived in the property during renovations, if this is your 1st flip, if you rented it, or your intent at purchase and these are important details that have significant tax implications.

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*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

@Bao Vu 

From a bookkeeper's perspective, here's how this should be reflected:

Tax Basis for the Flip:
For tax purposes, the purchase price of the property you flipped (bought in 2023, sold in 2024) will count as part of your cost basis. This includes:
- Purchase price
- Renovation costs
- Closing costs (buying and selling)
- Holding costs

These expenses offset the selling price to calculate your taxable gain. 

QuickBooks Setup:
For flips, I’d use the following accounts:

Flips in Progress (Inventory)
FIP - Purchase Price
FIP - Buying/Closing Costs
FIP - Rehab Costs
FIP - Holding Costs
FIP - Selling/Closing Costs

Real Estate Cost of Goods Sold (COGS)
COGS - Purchase Price
COGS - Buying/Closing Costs
COGS - Rehab Costs
COGS - Holding Costs
COGS - Selling/Closing Costs

At year-end (e.g., Dec 31, 2023), move flip costs to inventory and back into COGS on Jan 1, 2024. This ensures your books match the timing of your taxable income.

It sounds like you're off to a great start—make sure everything is categorized correctly and consult a CPA to confirm your setup.

Quickbooks most likely isn't pulling in the purchase price of the property. You're in the business of flipping houses, so any self-employment taxes on the ordinary income most likely aren't being calculated in QB. I honestly wouldn't even trust anything QB is telling you when it comes to taxes.

You're in a partnership, which acts like a conduit to pass through the income/loss of the activity to the individual owners. So the actual tax bill is going to be impossible to predict without looking at the individual owners' personal tax situation.

How much of a gain do you think you made on your first flip?