Are you an investor that buys property, fixes it up and then sells it again as quickly as possible? Let me show you why you are throwing thousands of good dollars down your brand new drain.
First of all you bought the property for somewhere from 50-70% of the ARV. (After Rehab Value) This is a wonderful start. Now you will put 10-15% average in to the property to bring it up to 100% market value. This is where most investors make their mistakes and throw away thousands of dollars. It has been usually between 3-6 months since you bought the property and it is now ready to sell.
But wait! You don't want to do this! I suggest you put it up for a lease with an option to buy at the end of 2 years. Here is my logic and why you should do this every time you buy a rehab property. By putting you rehab in a lease option you can make somewhere around $1000 to $2000 per month on rent every month for 2 years. That is usually an extra $12,000 to $15,000 after your mortgage and taxes in that 2 years time. Then you also have the tax advantages at the end of the 2 years. Now, since you have owned the property for 2 years you are now eligible to do a 1031 exchange and have no tax implications. You can take all your profit and put it in to one or two more fixer up properties and start the process all over again.
Avoiding the taxes on the profits from your rehab can save you thousands of dollars every year and as you get more and more properties, they will start to pay for themselves without you having to take out loans for future properties. Why lose 5%-10% of your equity to taxes when all you have to do is lease option it to the next buyer for even more money.
For more information on Lease Options or Rehabbing properties, Feel free to contact me anytime.
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