House Flipping (with no taxes)!

[tryan]

Funny to see so many wrapped around the axle .... EVERY flip has utilities and taxes - occupied or not. No one works in the DARK. The heat is on and your taxes come due whether you live there or not.

Maybe the utilities were a little higher because someone lived there ... but it's negligible. Living there for "free" makes sense to me ... to think otherwise is nit-picking.

 

[rodi]

My dear FIL lives in such a house (except that it is not "close to new"); my MIL died a few years ago and FIL is still in the same house where they raised their family starting back in 1955 when they bought it before it was even built. It is now 'updated' with early 1980s decor.

What will have to happen is that DH and I will have to buy it from the estate and save realtor fees. We would also benefit somewhat from Prop 13. DH and I kick this around from time to time. Mostly he is inclined to let it go because it wlll take money and effort to put lipstick on FIL's nice little piggy.

However, I keep reminding him, "This is a Southern California/ Orange County pool home on 1/3 acre we're talking about here, so let's think this over verrrryyy carefully."

FIL is behind me, but no one else is!

We bought from my Father about 10 years ago. 1960's house that had been maintained but not updated. Original kitchen and bathrooms.... 20 year old carpet.

The way we handled it - because Dad wanted to be fair, as did I... we determined market value by exchanging comps and negotiating the price. My sister oversaw this (with a vested interest.) We paid market value - but a 1/3 portion of it was in a loan payable on his death. I'm one of 3 kids. This loan was covered out my share of the inheritance - so I basically got an early inheritance equal to 1/3 the value of the house... and a significantly reduced inheritance when my dad passed. If your dad has other assets he plans to pass on - this might work for you. It won't if the house is his only asset.

This made it fair to my brother and sister and mortgage that we could comfortably afford. That's a rare thing in Southern CA.

The prop 13 tax rate is the biggest reason we had for purchasing the house. It makes a HUGE difference in the carrying costs. You can transfer the prop 13 tax rate if you purchase from a parent/grandparent/child or grandchild. We save about $5000/year in property taxes compared to if we bought from a stranger.

We're 10 years into the purchase and still fixing up - because we're doing it piece meal, ourselves, pay as we go. But we'll end up with the perfect house for our needs.... affordably.

 

[kgtest]

The only way you can live for free is to move into your car and don't drive it (as long as it's paid for).

Or if someone else pays for your living expenses while you cat/house sit. Happened to my sister for 3years and her and her ex-husband were able to reach FI much sooner.

Flip it around, now she owns about 10 rental homes and is targeting her kids financial independence.

 

[ERD50]

Funny to see so many wrapped around the axle .... EVERY flip has utilities and taxes - occupied or not. No one works in the DARK. The heat is on and your taxes come due whether you live there or not.

Maybe the utilities were a little higher because someone lived there ... but it's negligible. Living there for "free" makes sense to me ... to think otherwise is nit-picking.

But in this case, they are promoting the tax free nature of the gains, which means this has to be their primary residence. There is no consideration of living elsewhere.

Correct me if I'm wrong, but AFAIK, with a personal residence you cannot (legitimately) add your living expenses to your cost basis to offset gains. So they are an out-of-pocket expense and not 'free'.

-ERD50

 

[Gatordoc50]

We haven't been able to take advantage of the tax free exclusion yet. I hope it doesn't get repealed as our house has appreciated substantially in the past 15 years. One of our rentals is a block away. It's up in value about 150k. If/ when we need the money from our current home we will sell, take the 500k exclusion and move into the rental. The homes or lots that we have flipped in the past were taxed at 15%. I didn't mind that at all. In fact, I used to question why I was paying 35% plus in taxes for helping people by practicing dentistry but only 15% for helping myself remodeling homes. And now that I'm " retired" , I pay 0%! This country's tax code is ass backwards. lol

 

[Texas Proud]

Funny to see so many wrapped around the axle .... EVERY flip has utilities and taxes - occupied or not. No one works in the DARK. The heat is on and your taxes come due whether you live there or not.

Maybe the utilities were a little higher because someone lived there ... but it's negligible. Living there for "free" makes sense to me ... to think otherwise is nit-picking.

I think that the nit-picking is in the description of the amount of gain....


If the amount of gain claimed takes out ALL expenses paid on the property, then I guess you could say "I made a net profit of X and lived there for free".....

Or, you could say "I made a gross profit of Y and had living expenses of Z"... that would mean Y-Z = X.....

You could not make the statement that you had gross profit of Y and lived for free.... in this case, who paid for Z



I do not think anybody is saying that you are not saving money by living there instead of someplace else....

 

[golftrek]

OP here. Of course I had some expenses like utilities and taxes but no rent expense. So maybe my statement should be that I made $100,000 and lived RENT FREE!

As for the issue of lost opportunity, what other investment could I have invested in and made $100,000 over 2 years TAX FREE and also got a place to live rent free?

You guys just can't believe that money can be made like this. Believe me it can be done.

Jo Ann

 

[Bestwifeever]

OP here. Of course I had some expenses like utilities and taxes but no rent expense. So maybe my statement should be that I made $100,000 and lived RENT FREE!

As for the issue of lost opportunity, what other investment could I have invested in and made $100,000 over 2 years TAX FREE and also got a place to live rent free?

You guys just can't believe that money can be made like this. Believe me it can be done.

Jo Ann

Why do you think no one believes people make money flipping houses?
Can't anyone who has a net profit (after deducting all the costs of housing and remodeling) when he sells his primary residence also claim he lived for free plus made whatever profit? I can think of plenty of people who did that including DD, for whom it was a little more than $100k and it was only 14 months. I will have to let her know.

 

[HFWR]

You guys just can't believe that money can be made like this. Believe me it can be done. Jo Ann

I know several who have made lots of money in real estate, but it usually involves buying, then upgrading to a newer home while renting the other. Lather, rinse, repeat. I've never wanted to be a landlord though. As far as "flipping" is concerned, IF you can buy right, but for much of the country, the [-]rabid[/-] rapid appreciation needed to make big bucks in a short time isn't there.

 

[ERD50]

...

You guys just can't believe that money can be made like this. Believe me it can be done.

Jo Ann

Why do you think no one believes people make money flipping houses? ...

Exactly. I don't doubt that people can make (or lose) money flipping houses, not at all. But if anything is driving any dis-belief, it is the OPs insistence on faulty accounting.

OP here. Of course I had some expenses like utilities and taxes but no rent expense. So maybe my statement should be that I made $100,000 and lived RENT FREE!

Ridiculous. I have a mortgage, others have paid-off their home, we're not paying rent, so I guess we can say we live RENT FREE! True, but meaningless.

As for the issue of lost opportunity, what other investment could I have invested in and made $100,000 over 2 years TAX FREE and also got a place to live rent free?

Doesn't make any difference whether the opportunity would have made more or less after-tax than your investment. The point is that you need to take it into account (whatever it was) for a true picture.

SPY is up ~ 55% over the past 2 years. I think you said you put up $250K - so SPY would have returned ~$137,500 ($117,000 after 15% taxes on gains) but there would be no working, no living in a home being remodeled, no added expenses (those numbers are net of expenses). That doesn't mean you shouldn't do what you are doing, but they are all factors.

You guys just can't believe that money can be made like this. Believe me it can be done.

Jo Ann

Methinks the lady doth protest too much.

-ERD50

 

[NW-Bound]

Accounting issue aside, if the OP enjoys doing what they do for the gain that they get, why not? I know I do not have the temperament to do the same, but people are built differently. It is the same as being a landlord. People can make a good living doing that, I am sure, and perhaps may be pitying office workers who are cooped up in a cubicle all day.

 

[suming]

As for keeping kitchen remodels cost -effective I re-did my daughters kitchen 18 months ago by resurfacing her laminate coutertops with new Wilsonart High definition laminate and they look superb. Less than $500 to do the entire kitchen.

wmc1000
Would you please share more info about this laminate? My 10-year-old kitchen countertops got burnd by heated pot last year. How much per square foot? Are you an experienced craftsman to be able to resurface it? I've checked some website for the Wilsonart High definition laminate. Where did you buy it from?

 

[Sesq]

I don't think my family would go along with this strategy, and my skill set would be a bit lacking. But I admire the OP for pulling it off. The guy who built our house used to move into a new build (basically cookie cutter) in our long expanding neighborhood (coming to an end). Since the floorplans were very similar (they tweak a bit each year) and the schools the same (they have kids) it was about as easy as it gets. I've noticed that they have stayed put the last several years. I assume his wife got tired of it after 3 or 4 of these. At least she didn't have to live in remodels.