Love Austin Homes Investing Blog

Do you ever feel compelled to hold a reno project for a full year so you only have to pay cap gains taxes on the property? Or do you just plow ahead and sell when its finished, incurring taxation as regular income? Anyone have thoughts on this? It appears the difference is so substantial, it’s pushing me towards year long holds, but wondering if there are any problems with this option – other than the fact the market could go down during that time…

Robert

ANSWER

Robert,
Usually the cost of interest payments on the money and/or the real-time value of money (in other words the opportunity to put the money to use on other projects) outweigh the benefits of long-term capital gains vs. short term capital gains (income). I’ve got one huge project that is pushing a year in scope that I may push the close on so that it pushes me over the 1-year mark, but this is just because the project already took 10+ months. If I weren’t right near the 1-year mark anyway, I wouldn’t hold out.

I also consider strategies such as renting a property out and later selling. For sub-$125K ARV renos, I often offer them for sale and for rent, and take whatever comes first. If I rent them, I get long-term financing in place and plan to continue to rent for several years. For >$125K ARV properties, this would usually have negative cash flow, and put my beautiful remodel at risk of being just another used resale down the road, so I don’t bother offering to rent.

Also be aware that depending on how you structure your business and your personal finances, you may be at risk of being classified as a ‘real estate dealer’ by the IRS. I’m getting a little outside of my expertise here, however, my CPA has warned me that this classification would make someone ineligible to claim long-term gains on properties flipped pasted the 1-year mark. You also lose other tax benefits such as the ability to depreciate properties. For this reason, you may want to take steps to avoid this classification.

Phill

I need some names of good rehab contractors to get bids on a project.
Also, this is my first rehab project, so if any seasoned rehabbers
want to partner up on a potentially very profitable project, let me
know and we’ll discuss.

ARV $230k
Asking $110k
Repairs ~$50k

Andrew

ANSWER

Andrew,
As you probably know, I do a lot of rehabs in Austin. I normally use HomeFixers (I’m their largest customer having spent hundreds of thousands on rehabs last year).

The numbers on this deal look promising. If you are interested, I do about half of my deals with partners. Normally, I put up all the money, contracts, and my expertise. You will learn and help manage the project. Give me a call…

Phill

Do you use Buy Direct? Is it a scam, good deal? Any feedback would
be appreciated. Thanks.
David

ANSWER

David,
I used to be a member.

Here is the deal – they have all of the wholesale price lists and catalogs for hundreds of manufacturers of clothes, appliances, furniture, etc. etc. and you can order direct at those prices.

For items with high mark-ups, like furniture and clothes, the deals can be remarkable. Even some home fixtures (like jacuzzi’s) have mark-ups up to 80%. The catch is that you have to pay for shipping and handling which can be steep. For example, I found that I could always find electronics heavily discounted at local retailers for the same price or less than I could buy wholesale when you added in the shipping and handling. However, I did get a really good deal on a cook-top, and some furniture. I also got a great deal on some counter-tops, a water purifier, clothes, some fixtures, golf clubs, and various other miscellaneous items.

The other catch is that even though they have hundreds or even thousands of price lists and catelogs, they don’t have everything, and nothing is in stock – you buy from catalogs.

I joined when I moved to Austin and was setting up a house. I probably saved $2-3K on $8K worth of purchases, and it cost me about $1200 to join. When it came to renew, I passed because I did not expect to spend enough to justify going forward.

At times I which I still was a member – or perhaps I would be interested in joining with someone else, but you have to spend a fair amount to justify it.

- LAH

Does anyone have a contact for a cheap load of dirt that could be delivered to a house? We have a hole that needs to be filled in the backyard on a rehab.

Thanks!
Damon

ANSWER

Bert’s Dirts is pretty cheap – (512) 272-5109 . They deliver all over town.

The catch is always that the dirt is cheap, but the delivery is expensive. If you have a pickup or trailer, they will fill it up for about $25, and you can then dump it out anywhere you want. If you need more than a truck loan and/or have them deliver it, it will probably be over $100 and they usually just dump it in the street or front yard (unless the back is easily accessable), and you have to then pay someone to painfully shovel it into a wheel-barrow and move it to where you want it….

Phill