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Discussion Starter · #1 ·
finally in the financial position to do this. I live in Maryland. Who has done this or does it for extra cash or even for a living. I have some questions and would like some help. thank you
 

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you can start by posting pictures of recent renovations you've made to your current house.
 

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Discussion Starter · #3 ·
my main questions are about taxes on your profit if you dont hold onto the house for 2 years, but you do less than a certain amount of flips per year. I am a builder by trade so I will be doing the work myself. If you make 40k profit how much comes out for taxes-do you pay capital gains?? or a set percent?
 

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Your a builder by trade, do you have an accountant? If so its time for the two of you to go to lunch. If not hire one and then it will time for the two of you to go to lunch.
 

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Get an accountant, a lawyer and someone in the fast lane of real estate.

And unless you are a cash buyer get a mortgage banker or financial backer that moves just slightly slower then the speed of light.

All of these people will be able to give you the advice you need. Without them you don't stand a chance.
 

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You are looking at probably 28%.

One option is a 1031 exchange. This is where you have to buy another property for at least the same amount of the property you sell. You only have 60 days to ID the exchange property and another 120 days to close on it. If you jump through this hoop you defer the taxes.

Get an accountant who does these. If they screw it up, you have to pay the taxes.

The idea with the exchange is to buy a property with the profits and mortagage out your profit so you can use it. Then get a rental rate that covers all your costs with a “break-even” strategy. With rent covering payments and maintenance, the property will still grow in value. Your equity continues to grow. The rent usually goes up, someone else is paying for your investment and you still have most of if not all of your cash. Within a couple of years it becomes a positive cash flow.

Another option is to live in the house for 1 year. (I think it's just one) Then you avoid the Cap gains, under primary residence rules.

Another thought it this, if you make $40K in a quick flip, and you have to pony up $11,200 in taxes, you still made $28,800. Not too bad for signing your name to a stack of papers.

Also all costs associated with your deal are deductible from the profits. This would be closing costs, interest payments, mileage for you vehicle and every penny associated with maintaining or repairing the property.

Here is why real-estate investing is better than stocks: You get to take 10% or 20% and use someone else’s money to invest! If you take 20K and buy stocks and they earn a great average of 10% a year compounding in 10 years you have about $47158. If you were to take that same $20K and buy a 200K house at 10% down and it made the national average of 6% per year (Residential growth) you 20,000 grows to a whopping $337,895 in 10 years! Using other people’s money! If you only look at the growth, you have made $137895 in profit off of your 20K investment. This is ignoring the fact that rents should have paid down your mortgage quite a bit over 10 years.
 

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Scott

i have a rental property at the beach, i dropped 20 grand in renovations

1. how does the 20 grand effect my taxes

2. when i drive down to do stuff to the property is my gas deductable

3, i bough all new beds and furniture is that dedutable.

my accountant is working on this stuff

just wondering what I'm in for.
 

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[Q]worknon10s originally wrote:
finally in the financial position to do this. I live in Maryland. Who has done this or does it for extra cash or even for a living. I have some questions and would like some help. thank you
[/Q]

I know someone who spent 18 mos in Hagerstown for flipping
in Balt.

Educate yourself 1st, and I don't mean the infomercial scammers.

Bert
 

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One thing's for certain. If you invest in the stock market, no one will ever call you at midnight and tell you their toilet is overflowing and the sheetrock in the downstairs dining room is soaked and sagging.[smile]
 

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[Q]captaingeorge originally wrote:
One thing's for certain. If you invest in the stock market, no one will ever call you at midnight and tell you their toilet is overflowing and the sheetrock in the downstairs dining room is soaked and sagging.[smile]
[/Q]

That's the thing I love about raw land!
 

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[Q]Nancy S Lewis originally wrote:
[Q]captaingeorge originally wrote:
One thing's for certain. If you invest in the stock market, no one will ever call you at midnight and tell you their toilet is overflowing and the sheetrock in the downstairs dining room is soaked and sagging.[smile]
[/Q]

That's the thing I love about raw land!
[/Q]Exactly, but not so hot in the "cash flow" department.[smile]
 

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The only way to make money in real estate is you must incorporate. It changes all the tax laws and requiremnets for reinvesting profits in real estate. If you were doing this a couple a years ago I coulda showed you how to get a hummer (the truck) for free.
 

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[Q]stevesea originally wrote:
Scott

i have a rental property at the beach, i dropped 20 grand in renovations

1. how does the 20 grand effect my taxes

2. when i drive down to do stuff to the property is my gas deductable

3, i bough all new beds and furniture is that dedutable.

my accountant is working on this stuff

just wondering what I'm in for.
[/Q]
1. It is a cost that counts against profits, lowering taxes.
2. Yes, but it's better to do it by the mile. You can take off something like $.48/mile
3. yes, if it goes with the house it counts against profits

If your accountant does not know this off the top of his head, you might want to ask around for a new accountant.

ALL costs, right down to grass seed, paint, carpet counts against profits. Anything. Keep all receipts and good records.

CS. The best reason to incorporate is to separate personal liability. Other than that the taxes are pretty close, and if you are the only person in an LLC it does not help a bit.

I love all the reasons that real estate is a bad way to invest. You hear them a lot from renters too. Anyone who thinks stocks are a better way to go is…"reality challenged." 6% of 200,000 is larger than 10% of $20,000…how hard is that to understand?

Here is another bit of free advice, be ready, there is a segment of our society that does not like for others to make money. (Especially lots of money) You will be well served to keep details of your transactions to yourself even with your friends and sometimes family. Many people do not understand that even though the money can be big, you do work for it. You bear the risk.

You also get the knowledge that your work helps others. When you are hiring people to do work for you, buying products for the property, etc. You are creating jobs for others and helping the economy grow. Your money continues to work for others.

One more thing, you need a good short list of great contractors. Find them, check references and pay all your bills promptly and within their terms. If they do good work, pay them FAST. You will quickly gain mutual respect and they will help you when you need it. If they do not do good work, replace them just as fast.
 

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[Q]Scott_nra originally wrote:
6% of 200,000 is larger than 10% of $20,000…how hard is that to understand?
[/Q]??? What do those numbers mean?
And, by the way, a saavy investor has BOTH real estate AND investments in the market.
 

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[q]CS. The best reason to incorporate is to separate personal liability. Other than that the taxes are pretty close, and if you are the only person in an LLC it does not help a bit.
[/q]

There are other corporations then an LLC, and yes the taxes are about the same the advantage exists in what you can do with the profits before taxes. Remember you can depriciate a property down to a 0 cost making the entire sale taxable. A corportation can take those profits and pay for machinery, vehicles, medical insurance, travel... the list goes on and on, where as an individual must either pay tax on the proceeds or reinvest in other real estate.

Ask any good lawyer the advantages of incorporating for liability reasons, if he tells you it's the way to keep your individual assets safe.... find another lawyer. Piercing that veil is covered the first or second year of law school, if you're afraid... get an insurance policy.
 

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bmail me with questions if you like. I flip 6 houses a year on average in addition to building custom homes.

There is a lot of press on "flipping". Newspaper, TV. If it is popular and looks easy it is a sign of a mature market. All the weekend flippers have driven up the cost of the "flippable" homes. So, part of me does not want to help but since you are in an adjacent state I would be happy to answer some questions. Your initial questions show you are a real Newbie at this so be careful.
 

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I'd imagine, since you're a homebuilder, you have a large crew to draw from during "downtime". This must be a major advantage over the average "flipper" and his wife who think they can get rich all by themselves.
 

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Drawing from a large crew is not where the profit is made. With so many thinking they can turn a quick easy buck, finished properties are sitting on the market longer (eating into profits) because prices have peaked, and noobs are paying ridiculous prices for sows ears.

Short story it's hard to buy low and sell high ... there are plenty of deals out there by flippers sitting on insolvent properties right now. Next months payment may be their last gasp.

Best bet now is buying low priced housing and keeping it for rental. When the McMansion class crashes they are going to have to live somewhere.
 
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