It is not that I would offer any more or less and it may well be the cash offer in a multiple offer approach. The seller may well take the offer depending on his equity position. But as reality has to come in there are fewer of these in a sellers market. If I were the only one that was interested I may get the property. But the seller usually does not have enough equity to not get a good portion of it or he is able to market to homeowners who by definition, if they can get by the mess, are willing to pay more. If I can get it I’ll take it but I may go hungry waiting for a lot of these.
Your question on capital gains infers short term gain. That rate is the same as your regular income tax rate.
You can avoid taxes completely if you utilize a Roth IRA to do the deal.
About the only thing I agree with in your example is the profit. Expense incurred to make income are deductable against the sales price. There should not be a need for $5500 sales cost. I would also not pay 63K cash to fund this deal. In sellers markets to be able to find these under every bush is not going to keep you in business. A homeowner is going to out bid you.
It looks like he is using a formula out of Kevin Meyer’s book, “Buy It, Fix It, Sell It, Profit!”
In fact, the figures are identicle except in the book (on page 60) the max retail was 90k leaving the max purchase price 53k.
Understanding that the figures in this example are somewhat bloated, what would you offer on a house such as this?
After reading Myer’s book, I was left with the thought: “It’s sounds good, but who in my market is going to take that kind of offer when owner occs. are willing to pay more?”
I am curious to know what kind of offer would you make for a cash deal and still make it work?