The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: xpost - flipping a house?||Date: 1/16/2012 7:16 PM|
|Author: 2gifts||Number: 114592 of 122849|
It has been suggested that I cross-post my question here from the Buying and Selling a Home board.
DH is a General Contractor, but there's not much work around right now so he is thinking he wants to buy a house and flip it. He's started to look, and there are definitely some possibilities in our area so this is something we are seriously considering doing.
Has anyone here done that? Any advice for us as we embark down this path?
Here's what we are thinking, and I could really use some critiques to see what we are missing.
- I'm thinking that I'd like to do a construction loan instead of selling stock to have the cash to pay for the house. Is that the way to go, or should we be looking at a regular mortgage and I use cash to fund the improvements?
- Does it matter that the house is intended to be flipped and will not be our personal residence? I’m thinking that means it is a non-owner occupied loan.
- When we sell it, I am thinking that the profit will be straight capital gain because we are not in the business of flipping houses. I’m thinking that’s true if we do one or two houses in a year, but at what point would this be considered a business and perhaps have different rules?
- If it is done with the intention of flipping, how do I treat the interest paid? Is that deductible on Schedule A, or is that added to the basis of the house since it is part of the project? I’m thinking that also depends on if this were considered a business.
- He plans to do his usual spreadsheet to estimate how much work is involved and what that will cost. We can use that to figure out how much profit he might expect based on an estimated selling price. What is a good ROI on this sort of thing for us to decide if this is worth the effort? He seems to be thinking if he could make his usual weekly salary, that would make this a good deal because it would give him income, but I’m wondering if that’s actually too low and we should be looking for a premium above that. What’s a reasonable guideline to use when determining this.
- He is looking at comparables in the area, so we will have an idea of an expected selling price when the house is finished. We’ll use that in our analysis.
What else should I be looking at? He is thinking of doing something in the starter home or low end market so there won’t be a lot of cash outlay and we won’t have a lot at risk here.
Is this even the right board to be asking these questions?
Any help anyone can give would be appreciated.
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