20% max for a rehab?

[Roger J]

Natalie,

If you doing this as an individual, you cannot use paying yourself for labor as a way to reduce your profit for tax purposes.  Whether it's done as resell profit or labor income, it's all taxed the same.  If you're operating as a business entity, then it might be possible to reduce taxable profit that way, but it's a tax nightmare, and definitely something that your CPA would have to explain in detail.

What I did was this:  Based on your figures that you provided, you made a profit of $6200 ($108,000 - $101,800).  Assuming that you were in a 28% tax bracket, you should have paid about $1735 in taxes (that's Fed, not state) and you should have paid about $950 in self-employment taxes.

If you're doing labor, you need to keep up with that because, as stated, many lenders want to know exactly how much you're making on a flip property and don't want you making over 20% of your total rehab expenses.  If you don't keep up with it, then your hurting yourself.

Also, need to know your profit as an investor, not a general laborer.  If you don't include your cost as a worker, you're not getting your real profit.

No, acting as the general contractor would not be a valid cost, in my opinion, because that is part of being an investor.

Raj