4 House Flipping Tax Strategies by Dave Clabeaux (David Clabeaux)

When you invest in real estate you get to play by a different set of rules than  everybody else.

You get to take advantage of certain tax benefits designed for business  owners and real estate investors.

I wanted to share 4 tax benefits you get when you are flipping houses.

Dave Clabeaux
Dave Clabeaux

1. 1031 Exchange – this lets you defer tax when you flip a house and use the money to buy another property.

I like this because it rewards you for growing your real estate business.

Use this if you intend on becoming an active rehabber and plan on flipping multiple properties.

2. Pay Yourself First – when you receive a normal paycheck the government takes its share from you immediately, as soon as you earn it.

Contrast that with being a real estate investor. You get to use every dollar your earn before sharing any with the government.

Instead of handing it over to the government right away, you can re-invest that money all year long on your real estate ventures.

This can accelerate the progress you make towards your financial goals.

3. Deduct Day-to-Day Items – Even some experienced business owners overlook this benefit.

As a real estate investor you are allowed to deduct many of the normal day-to-day bills that you pay anyways.

Here are a few examples: Home office and the corresponding share of utilities, insurance, and capital improvements, cell phone/computer, mileage, business related travel – even if a portion of the trip is spent doing leisure activities, office supplies and educational materials.

These are just a few of the many deductions you can take advantage of.

(One of our team members even made his spouse a 50% owner.  They get to discuss business over dinner and deduct the check.)

4. Self-Directed IRA – this IRS approved strategy allows you to use money in a retirement account (such as a 401k) to invest in real estate.

In other words, your self-directed IRA becomes your own personal source of lending for your deals.

Remember, I’m not an accountant so make sure to consult with one if you plan on using these strategies.

Do you want to start taking advantage of tax strategies like these?

Dave (David) Clabeaux – Have You Heard of a Cosmetic Flip?

It is basically a flip that requires very little work. For example, a house might need new carpet,

new paint, a couple new ceiling fans and new hardware on the kitchen cabinets.

Cosmetic flips are excellent flips for a beginner. Since they don’t require as much work as a full flip, you can get them done fast: sometimes in just a week or two.

They also don’t require much skill.  You really don’t even need a contractor.  You can call Lowe’s or Home Depot to replace carpet and paint.  And their work is guaranteed.

The best part is they can still have very big profits.

I am still kicking myself today for missing out on a cosmetic flip in our old neighborhood 4 houses down from me.

It took about 11 days complete and the total profit came it at around $62,000.

If you have not flipped a house yet, then a cosmetic flip is for you!

Dave Clabeaux – Why Do You Want to Flip Houses?

People have different reasons for wanting to get into flipping houses.

 

Some get into it to get rich.

 

Some enjoy making an ugly house beautiful and improving their  neighborhood.

 

Some people do it because they love working with their hands and cannot stand desk jobs.

 

 

I did it for several reasons:

 

1.  I wanted to be my own boss.

2.  I wanted to be flexible and be able to set my own schedule.

3.  I wanted to be able to spend more time with my family.

4.  I have always loved real estate.

5.  I was not built for a desk job.

6.  Yes, part of me did get into it for the money ; )

 

What are your reasons?  Why do you want to flip houses?  What motivates you?

 

And what is holding you back?  Why haven’t you started?

 

You can do this!  Heck, if I can do it, anyone can.  After all, I am a former high school English teacher.  

 

I had not background in real estate, and no real skills.

 

I just had a desire to change my life.

 

You can do the same.  Follow my path.  

Dave Clabeaux – How the Rehab Was Progressing

Yesterday I went to check on one of my properties to see how the rehab was progressing.

My contractor was painting the ceiling with a spray gun.

We talked for about 20 minutes about progress, next steps, and then I headed home.

FYI I love 20 minute work days ; )

Some days are of course longer, but this is pretty typical once a project is underway.

When I got home, my wife started laughing at me.  Apparently some of the mist from the spray gun had drifted my way.

I now have small white speckles of paint on my blue North Face jacket and my black  Ray Ban sunglasses.  Pretty dumb mistake ; )

So my tip to you for the day is to make sure you wear clothes that can get dirty or stained  whenever you stop by your rehab project.

Don’t make the same dumb mistake I did ; )

 

 

Dave Clabeaux – 2017 Increadible Year for House Flipping

2017 has been another incredible year for house flipping, and 2018  is shaping up to be another outstanding year.

For example, take a look at this incredible deal that just came on the market:

324 E 42nd St, Covington, KY 41015.  1
bed, 1 bath, 1040 sq ft.

Since this is a smaller house, the rehab cost will be much lower.

Let’s look at the numbers:

Purchase price: $8,500

Rehab and all costs: $29,000

Sell it fast price: $69,000

Total potential profit: $31,500

That’s a great return on such a small, inexpensive flip. If I didn’t already have my contractor working on multiple projects, I would buy this house in a heart beat!

But that’s just it: there is literally so much opportunity out there that you have to walk away from great deals like this.

What are you waiting for?  Take advantage of the opportunity right in front of you and flip your first house!

Dave Clabeaux – What Are Lenders Looking For?

One of the hard money lenders we know of frequently asks that we send them  deals.

They are looking to work with people who are doing lots of deals currently or looking to start rehabbing houses.

he lend to projects ranging from $20,000 up to $1,000,000. There is no minimum score required when it comes to your credit.

Because the deal you bring them is more important than your credit, they use a checklist to help determine whether you’ve found a great potential property to flip.

Here is the checklist they use: – Property must be a single family residential home.

(They also lend if you’re flipping a rental property with 1-4 units).  – Not owner occupied, meaning it is not a house that you personally live in.

– Not located in a flood plain.  – Not have any major environmental issues.

– Not located a high crime area. – Preferably located in or near a large city, in a stable or growing neighborhood.

– Priced within the median price range for the neighborhood.  (In other words, the house should not be priced way above other houses in the same neighborhood.)

Having a hard money lender use a checklist to evaluate your deal is a hidden benefit of using hard money.

It’s another set of eyeballs checking out the property for you.

This can help you spot something you may have overlooked on a property.  Or, it gives you the confirmation you need to move forward on a project.

This lender likes to see a down payment of at least 8%, but is open to other arrangements if you are short on the down payment.

For example, you can “cross-collateralize” another property that you own for the down payment or have the seller carry-back the mortgage.

They also have a program where they lend 100% of the deal for a share in the profits.

The 100% lending program can work if you have experience rehabbing homes or are partnered up with someone with experience.

 

 

 

Dave Clabeaux – Does House Flipping Work Near You?

One of the most common questions I get via email goes something like this:

“Coach Dave, that’s great that you live in Florida, where the real estate market is booming.  But I live in Nowheresville, Nebraska. Are there any good deals near me?”

I can’t tell you how many times I have heard someone say something like this.

For some reason, there is a false belief that in order to make money in real estate, you must live in either Texas, Florida, or California.

But that couldn’t be farther from the truth. The fact is, there are opportunities to flip houses in every city and town in the US.

I’m sure your friends and family are among the naysayers telling you that you don’t live in the “right market” to flip houses.

The fact is, while I get emails from people who seem to be stuck on believing that there are no deals near them, I also get emails from people who are completing amazing deals and sharing their success story with me.

Just this past weekend alone, I received at least a half-dozen emails from people landing deals and selling houses netting  anywhere from $19,000 to $120,000  in profit.

In fact, 2 different people emailed with questions this weekend about how to legally tax shelter $90,000 and $110,000 from the sale of their recent flips.

These are not real estate gurus.  These are common folks just like you and me. They simply found a good deal near them, made an offer, rehabbed it, and sold it for an honest profit.

Does this excite you?  I hope it does. My goal in writing this email was to give you that “nudge” you need to get out there and flip your first house.

I want to let you know that if other people can do it, so can you.  Common folks all across America are successfully flipping houses every day.

 

Dave Clabeaux – I Hope This Inspires You

Some people are easily discouraged when they get into flipping houses.

They see the price of houses on the market and think…

“I can’t buy a house for that price and
still make a profit. All the houses around me
are just too expensive.”

Here is the mistake they are making:

They look at a seller’s ASKING price. Many sellers will accept far less than asking price.

Case in point:

Last week a lady came to us looking to sell her house. She needed to sell quick because she owed back taxes, and the county was
about to foreclose on her house and take everything. (This is what happens when you refuse to pay property taxes for 5 years
straight).

Her asking price was $159,000. We offered $90,000.

She accepted.

We get a deal with a huge equity spread and the home owner gets cash out of a house she would have lost to foreclosure.

It’s a win-win.

Question for you:
Do you know of a house right now that’s perfect for a rehab but the owner is asking too much?

Make an offer that works for you. It might be 50%, 40%, or even 30% of asking price.

You never know what somebody will accept for a house until you make an offer.

Here’s the big takeaway:

Don’t be afraid to make low ball offers. You may get a dozen “no’s” for one “yes” that leads to a $50,000 deal.

What is it Like to Flip Houses?

Have you ever wondered what it is like to flip houses full time?

Here is a snapshot of a typical day in the life of a rehabber:

Morning: This is usually your “deal hunting” time.

Fortunately you can do most of your research online.

New properties hit the market daily.  Make sure you’re one of the first to know.

Websites you will use include Zillow, Realtor.com,

MLS (if you’re an agent), HUDhomestore.com, Homepath.com, and Hubzu, for example.

Don’t worry if you do not have access to MLS: every house listed on the MLS appears on Realtor.com within minutes.

Identify 2-3 properties that you would like to see in person.

Afternoon: This is when you go out and look

at the properties you identified in the morning. For each house, a good walk-through should take you about 20-30 minutes.  Some will take much less, particularly if they look much worse than the pictures.

Remember, the purpose of a walk-through is to get a general idea as to whether you should pursue a particular deal.

If you like a house, your contractor and home inspector will help you identify problems and things requiring repair.

During the afternoon you will also be checking on the progress of houses that are currently in the renovation process.

I recommend you stop by an existing rehab at least 3 times a week, on Monday, Wednesday and Friday.

Late Afternoon: I like to use the late afternoon to return phone calls and handle office work.

Of course some things can’t wait and you have to take emergency calls when they happen.

For everything else I prefer to handle calls while sitting at my desk.  This way I am not distracted and am able to focus on the task at hand.

Tasks include: reviewing inspection reports, talking to real estate agents, budgeting costs/calculating profit on potential deals, etc.

Evenings/Weekends: Do what you like. Do what you enjoy.

In addition, I like to take a half day off during the week to spend time with my wife and 4-year-old son.

That is what I love about real estate.  It provides you with tremendous flexibilty.

I have to be honest: it is a great feeling to be riding the roller coasters at King’s Island on a random Tuesday afternoon ; )

Don’t get me wrong: flipping houses is not a do-nothing business.  There is time and work involved.

However, the upside is that your schedule is flexible.

If you can see yourself flipping houses on a part-time or even full-time basis, make sure you are prepared.