Question for those doing rehabs/flips - Posted by Michael Wong

import · July 16, 2003, 10:33pm

Posted by Peter_MD on July 17, 2003 at 14:02:37:

Frank:

Your comments here were right on point as with all your posts.

So many times paying taxes is the part that shows you are winning at the games … but employees, tenants, and other investors think completely differently. If only they could do everything it takes to run a successful business and be profitable at investing … but then again, that would be too much like work for them.

Truly missed you at the convention this year…maybe we’ll see each other at next year’s convention.

Take care of yourself … and keep that money coming in and Uncle Sugar’s and New York’s taxes paid to keep them happy.

import · July 16, 2003, 10:33pm

Question for those doing rehabs/flips - Posted by Michael Wong

Posted by Michael Wong on July 16, 2003 at 22:33:13:

I assume the best entity to use for rehabs/flips is a corp. Question is, what if anything can be done to reduce the amount of taxes one has to pay on profits? Doesn’t seem like there’s much you can do. Obviously if you did 20 rehabs in a year and made a bunch of money that would be great, but paying 40-50% in taxes “sucks” for lack of a better word. Writing off things like company cars, etc. etc. would only make a small dent … is there anything else that can be done? I’ve heard of people who do a tremendous number of rehabs/flips per year … 20, 30, 50, 100+ … do they just “happily” pay the 40-50% in taxes and be glad they are making a lot of money?

import · July 17, 2003, 4:35pm

Re: Question for those doing rehabs/flips - Posted by jasonrei

Posted by jasonrei on July 17, 2003 at 16:35:41:

I’m a rehabber. My business partner and I only got into this early last year. We bought 15 properties last year, but most didn’t sell til this past January and February. We had very minimal tax liability last year.
This year we set up 2 corporations, and I know the tax liability will be big. We pay ourselves a salary and leave the rest in the business. I don’t know of any magic to make the tax man disappear, and if I did I doubt I would share that. I figure I’ll take it on the chin (or in the… nevermind). You’re right, the little deductions probably won’t add up to much. We’ll have a meeting with our accountant next month to see what we need to do before end of yr to minimize tax liability.
My goal is the same as yours. Make money now as a retailer, shelter what I can, and be less of an investor.
What is a UBIT?

import · July 17, 2003, 10:06am

Tax as a Cost of Doing Business - Posted by Frank Chin

Posted by Frank Chin on July 17, 2003 at 10:06:02:

Hi Michael:

You have to think along the lines of an entreprenuer as opposed thinking as a wage slave.

An entrepreneur establishes a target “net after taxes for himself”, and goes about building the business up to the level required. For intance, if he targets a net of 100K a year, then target 150K a year before taxes. If you plan to net 25K per flip or rehab, then plan to do six of them.

Just think of taxes as a necessary cost, like RE commissions, costs of contractors, etc. that you have to shell out.

Thinking as a businessman, you’ll set up a system for others to do as much of the work as possible. In this way, doing six rehabs shouldn’t be much more work than doing four rehabs.

One rehabber, Ron(MD) who posts here mentioned that he wanted to ramp up his rehabs from 15 a year to 25 a year by hiring an assistant, and using several contracting crews to do the work.

I’m a landlord and business owner. My tenants think that I do nothing all day, pocket the rent, and it scks. My workers think I sit around all day, take all the money, pay them very little, and it scks.

Now that’s partly true. My job as an entrepreneur is to do deals, run businesses, and leave the work to others. So why shouldn’t I pay for the privilege of sitting around all day WIN at the game of making money. Pay taxes?? That’s part of the game.

Thinking as an entrepreneur, I say to myself “Thank God I’m making all this money and be able to pay all these taxes, and if I need some more money, I just put my thinking cap on to make a few dollars more.”

Keep in mind that after you reach a certain level, making the money is just a game, and the dollars you make are just points in keeping score. Taxes are just another nuisance for your CPA to handle.

Hope this helps.

Frank Chin

import · July 17, 2003, 12:17am

Re: Question for those doing rehabs/flips - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on July 17, 2003 at 24:17:10:

Michael Wong-------------

You have everthing absolutely correct. There are no tax benefits to those who merchandise real estate–buy below market and sell soon for a profit.

If you are looking at reducing tax liabilities, you need to investigate real estate investing. There are a lot of different tax benefits one can get when one is a real estate investor as opposed to a dealer in properties.

Good InvestingRon Starr*

import · July 19, 2003, 5:43pm

Re: Tax as a Cost of Doing Business - Posted by Micheal Wong

Posted by Micheal Wong on July 19, 2003 at 17:43:37:

Thanks for the reply, I agree 100% with what you say. At the same time I am always looking at ways to reduce my tax liability, so I just figured I’d ask since I am not yet familiar with the business of rehabbing and flipping properties. I was just curious if those who are doing a lot of them had any “tricks” so to speak. I don’t mind paying taxes … and I most definitely pay my fair share. Paying 40-50% in taxes is a just a little much if you ask me, which was the basis for my question.