What is Rehabbing?

[philmiller]

the last post is exactly what i was wondering.  At some point i guess i was going to ask my lawer and hope he knows, but hey this would be free advice, I'll just double check with him later.

[WilsonTaylor]

Any profits on the sale of property that is held for less than 1 year should be taxed as ordinary income (unless I have misunderstood my accountant).

Wilson

[kdhastedt]

That is my understanding, too WT!  If you hold it 1 year and 2 seconds, you get the lower 'capital gains' rate...

Keith

[aak5454]

unfortunately, you can not "expense" your time again the project for tax purposes.  the gain from your labor is taxable whether you are rehabbing a house for resale or collecting a paycheck from your employer.  its all the same.

[shadowmaster]

To go a bit further, how do taxes come into play?    You can claim expenses, such as contracting fees, but say you did some work, you can write off the supplies as an expense, but isn't there some way to also write off the time (aka pay your self) for the work done.  

Just curious how the whole picture comes into play.

Thanks in advance.

This may sound like a dumb follow up...  but:  If you pay your self for your work, or you have money left over that goes into your pocket..  What's the difference?  The money still comes your way.

If you were to pay yourself (perhaps as a corporate company for example), you would have all the wages taxed as straight wages.  If you deal with the profits (that are higher because you didn't have your labor expense), then you will either break even, or perhaps have less taxes because capital gains are usually cheaper then straight income tax.

[CCC]

Fancypants,

"There are some pay websites that supposedly offer current REO listings. I had very poor success with those starting out. Plus, they were expensive. Now I search listings on the MLS and then take that address to my on-line tax appraisers office. If it says "foreclosure" on MLS, then you know it's been repossesed by the lender. If you see a banks name under where it says "owner" on the tax appraisal, you know it's been repossesed. Those are my 2 tricks."

Good thread, so FP, when you search MLS, what do you look for to give you the clue necessary to determine house listed may be in foreclosure or repossesed by bank?
- - - -
Mortgages.

"Also good rehab loans will allow you to escrow Mortgage payments so that you don't pay a dime during construction."  

Can you actually get such terms?  Guess, during my research I'm only finding hard money types, and they are EXPENSIVE! from an interest standpoint and other fees & charges.
- - - -
Ivseenproof

"Do you mind sharing which financial institution you've been working with to get your 80% ARV, no down pymt, low interest rate and no prepayment penalty.  I have a pretty strong debt to income ratio, solid credit history and nice amount of cash reserves and the companies I've talked to act as if I'm speaking a foreign lang. when I start mentioning the conditions of the loan I'd like.  I've only talked to 4 institutions so far but they all act as if these terms are impossible and I'd like to save myself any unnecessary wheel spinning."

Goes to above ... who are these loan companies who are so nice to work with??
- - - -

As for taxes and such, have a handle on this.
- - - -

Anyone  . . .

I seem to live in a community where sellers are somewhat sophisticated.  Meaning deals are apparently hard to come.  Appears I may have to go out to smaller towns to find rehabs.

I've gone to several local REI Club meetings and was surprised that many find dealing and finding deals in the city much harder to come by.

Has anyone else run into this phenomenon in a larger town, city?

[CHIRODOC]

 

I'm no Fancypants but something I would add is if an REO is listing with a lazy realtor.  We just bought a foreclosure that is really a nice house for $30K under market for ourselves just because the realtor was too lazy to even stick a sign in the front yard.    

I'm sure it was listed on the mls but I don't think they had it listed as a foreclosure, according to my agent.  I spotted it on a drive by with the usual (this house has been winterized sticker) in the window...It's JULY.  Lights went off and I knew that puppy was sitting for 7 months.   They dropped over $28K on their asking price with just my 1st counter offer so it needed to move.  I wouldn't call this an investment, per say, b/c we want it to live in it but it does show nobody needs to pay retail EVER for anything.    

My first house was a HUD foreclosure (didn't seem like a great place for REI) but we pocketed $20K in equity and $7K off of the rehab loan.  Basically, like the other guy said do the work yourself (subcontractor) and find someone to o.k. the work.  I bought our "GC/Electrician" lunch every now and again and he signed EVERYTHING.  In a nutshell we bought all our furniture with the rehab loan money-technically I guess we didn't pocket that money but hey it worked.   I'm not sure how to become a GC yourself (maybe it's complicated-I don't know) but you may want to do that or find one that's semi retired who might just "direct" you on what to do.

The websites were kind of helpful to me but another way is to just do a "name search" on the tax appraisal websites for bank names, fannie mae etc. and it will list every property where the title has changed over, ie. it is now bank owned and will eventually be listed.  Maybe you can approach them directly at this point, again I'm not sure.   ???  At least it's free.  

Or better yet find out what property management company cleans these houses (winterizes) them and see if you can get a contact on which homes they have done and reverse search back to the bank, etc. Other contacts, appraisers, small town (who ever handles the lis pendens stuff) etc.

I was suprised when I talked to one guy about a foreclosure house how much he knew about everybody in the neighborhood's business (pre foreclosures).