Closing On 1st Deal!! Age 25
We bought our first Investment house in October. It took us 1 month to fix it up. (we went after work everyday and on the weekends). We tried to sell the house ourself, but it did not work out in the winter. So we decided to sign with a realtor. We used the same realtor that we used to buy the house (HUD Home). We talked him down to lower his commision rate and he added a home warranty to the deal.
The house has just went under contract and we should close the middle of June.
(as long as everything goes alright).
After repairs and realtor fees, we will net around $12,000, but then we have to pay the Capital Gains Tax. (Yeah)
Here is my questions: How long do you have, to roll your profit into another investment?
Anyone else out there in my age braket starting RE? If so, how is it going?
NCrehabber
Nice going at 25!
I'm 25 myself and trying to get started in REI but it's a bit challenging here in NY (metro area) since RE market is *red hot*.
How did you get around down payment and closting costs?
Nice Job w/the first at age 25. I'm also 25, got my first last year when i was 24. I'm currently working on getting approved for a small apt. complex and using my homes equity as the down payment. I bought my primary house w/no money down so hopefully I won't ever have to use any of my own money.
We got a home equity line on the house we live in (we bought it in 1999) . The property value has sky rocketed. It has went up 25% since we bought it 5 years ago.
So we used our home equity line to put the 10% down and to fix the house up and make the payments on the house. I think we used $650 out of our pocket for this deal.
The type of loan we got on the property was an equity line also (don't ask me how, but the bank did it) So we only had to pay interest each month on the house. Which made the payment affordable. This loan required the 10% down. The interest rate was prime + .01
Our credit is very good, so it helped up get a good loan.
My advise is: Keep you credit in good standing, it helps you in the future.
NCrehabber
If you hold it for less than a year it will be taxed as ordinary income (short term cap gains)
If you hold it longer than a year (e.g. sell on a lease option) it will be taxed at long term cap gains rate (15%).
I don't think you can use a 1031 exchange when flipping properties, only when buying and holding. Please correct me if I'm wrong. To get around the cap gains, I think you'd have to hold it as a rental or sell it on a lease option and close on it 12 months after you bought it, and then use a 1031. I know of no other way.
btw, I'm also in your age bracket. Bought my first multi-family just after I turned 27 last year. Have $400K+ in equity and positive cash flow. Did it with no money down. Welcome to the party![ Edited by hibby76 on Date 05/18/2004 ]
Hibby76,
How did you acquire so much equity ($400k!) in only a year or so. That's an incredible deal! Could you give us some details? I'd love to hear about it.
Thanks.
Hey ncrehabber. What part of NC you live in?
What's up guys?! Great Conversation! My partner and I are both 24 years old and we are just getting into the business. I am a civil engineer and my partner is a financial analyst so we have a few different aspects of the industry already going for us through our current jobs.
As of right now, we are looking at getting a company name set up, getting listings of different properties, and determining what financing method to go with. A few questions that I have that I need help with are:
1. Would you recommend going with an LLC or S-Corps?
2. My lawyer's fee is $500...that's seems a little high...is it?
3. The only method we are using for finding properties is through realtors...do you guys suggest doing it differently...is there a better way (since this is our first project, we are not going to use the auction method right away)?
4. What is the best way to finance something simple like this? We want to hold the property for not more than three months.
Any input is definitely appreciated! Thanks for the help and I look forward to many more conversations on this forum!
Chicago Rich
I live in King, NC but purchased my investment property in Winston-Salem, NC.
Does anyone else, have any new information concerning the Capital Gains Tax?
Please reply.
THanks
I would checkout doing a 1031 exchange as far as I know the law there is no limit on the time you have to hold the property before you can sell it and re-invest it. I think you then have 45 days to identify another property to invest in. I would ask my lawyer/title company.
If the cash came to you as income you should be able to write of most of it against your "business" expense like fuel and accountants/legal/travel etc. Unless you make over 100K...I would be surprised if your accountant can't make sure that don't pay any taxes.
Also you 7 months to reinvest the money and create paper losses to offset against the income. Hope this helps!
I believe hibby76 is correct, since I wasn't able to 1031 my last rehab property, although I had wanted to. I always heard about how horrible short term capital gains were, but I honestly didn't notice since it was taxed at my normal rate.
I'm currently working on number 5 and hopfully will own 40% of the world someday 
Congrats on your first completed deal!
I'm 25 and things are going well. I've been at this for about a year and a half and completed 4 deals
-Chris
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Live long and be profitable! [ Edited by c-brainard on Date 05/18/2004 ]
Cheers! on your first deal!
I'm a wholesaler in Greensboro NC (also 25), and been doing it for the last six months or so, and it's been a blessing. I have not had any experience with the capital gains tax issues although I have done some meaningful reading on the subject. i would do a 1031 . Pls get professional advise regardless.
Many blessings!
Congratulations. You are doing well to start at your age. I just wish I had started at an earlier age.
robert
Aw man! you guys are doing great. I'm 24 and I'm waiting for a guy to accept my offer, I hope this turns out to be my first deal.
Congrats to all.
Congrats on your first.
With $12K in profit, a 1031 is probably not worth doing, since you need to pay for the escrow and intermediary, plus the time restrictions and loan/value requirements on a 1031 may cause you to rush the next deal.
You should easily 'spend' that money on your company's expenses, and finding/funding your next deal. Remember, you don't write the check to the Uncle Sam when you close. By the end of the year, you can find lots of expenses to offset your profits.
Good luck and congrats
Peter
thanks, moveitnow!
I was just reading up on the 1031 exchange and saw that it would be at least $600.00 to do a 1031 exchange.
So I think you are right, it is not worth doing a 1031 exchange.
Thanks for all of you replies.
NCRehabber