I just got my first house under contract for a great deal after 2 mnths of studying and reading all day and nite. I can’t decide weather to try and sell or rent out. Is there a difference as far as taxes go like which one will cost us more? Renting or saling for a profit? Thanks for all the help I have had on here and trust me you gys were right this is not easy at all, now if I could find another steal. :} 
Well, what does the deal look like? We cannot really help w/o some more info…
I gave 7,200, probably could have sat on my 1st bid of 5000, but i guess I wanted it and I think it will make money at that. Its a house that could use 10,000 if selling and maybe 5,000 if renting in repairs. It has new siding and a new roof. It also has an old bungalow someone used to rent out. 1100 sf,3br/3ba. Tax value is 40,000 however good that is. Not su which way to go as far as taxes or long term. It was on the market almost a year. It had water in the basement 3 foot. The person who got foreclose took the sump pump that was always in there and no one would touch it w/ all that water. Water heater was floating. We are putting new water heater and window panes,carpet,paint if renting, french drain around house.
Your answer is full of “probablies” and “maybies” which tell me you don’t know enough. When you get into a situation like this, you need to get solid numbers as close to actual as you can:
Current “As is” price - or a good, solid, number for what you could sell it for with little or no work to a rehabber who would do the work themselves.
Current Retail Price if it was fixed up - including how long you could expect it to stay on the market. Include a good review of houses like it (in rehabbed condition) that are currently on the market. You should do enough research to be able to say “ARV will be $55k after $12k rehab costs”
Solid numbers for cost to rehab.
Solid numbers for what you could rent it for.
It sounds like you have made a classic mistake - in that you have bought a property with no clue as to how to make a profit out of it. That doesn’t mean you will lose money. It just means you did not do your homework, so there can be a lot of problems which could cause you to lose money. Maybe this is in an area where it is impossible to rent profitably because it is center of a drug-blighted war zone? Maybe the rehab costs are more than you think - with hidden plumbing and mold problems you haven’t accounted for. Have you done a thorough inspection - and had it thoroughly inspected by a home inspector or preferably a good contractor to get the full list of what needs to be done? If you haven’t done a rehab before, it is generally a good idea to get 2-3 contractor bids anyway - partly to see what they would charge, but also to see if they point out things you didn’t consider.
Overall, generally keeping and renting is a far superior long term choice. That is because - so long as you get an adequate, positive cash flow, you get a lot more tax advantages - since you get a lot of tax deductions from the operation of the property, as well as long-term passive income.
After all, with flipping, you make one profit - then have to run to find another. As soon as you stop running, you stop earning. With rentals, there is still work, but the money comes in for years, even decades if you do it right. In today’s market - I would lean much stronger to the “Buy it cheap and rent it out” crowd.
However, if you are light on cash - then selling either as a wholesale or for retail is best for now so you can leverage your profits to reinvest in other properties.
Good luck
Your answer is full of “probablies” and “maybies” which tell me you don’t know enough. When you get into a situation like this, you need to get solid numbers as close to actual as you can:
Current “As is” price - or a good, solid, number for what you could sell it for with little or no work to a rehabber who would do the work themselves.
Current Retail Price if it was fixed up - including how long you could expect it to stay on the market. Include a good review of houses like it (in rehabbed condition) that are currently on the market. You should do enough research to be able to say “ARV will be $55k after $12k rehab costs”
Solid numbers for cost to rehab.
Solid numbers for what you could rent it for.
It sounds like you have made a classic mistake - in that you have bought a property with no clue as to how to make a profit out of it. That doesn’t mean you will lose money. It just means you did not do your homework, so there can be a lot of problems which could cause you to lose money. Maybe this is in an area where it is impossible to rent profitably because it is center of a drug-blighted war zone? Maybe the rehab costs are more than you think - with hidden plumbing and mold problems you haven’t accounted for. Have you done a thorough inspection - and had it thoroughly inspected
Well if I don’t try I might never learn. I did do homework its just I’ve never actully did either one so I was just curious as to what others would do. My husband has worked in construction 30 years and can do anything and he says he can do all repairs for under 10,000 including plumbing. I was thinking i could do more cosmetic if I was going to fix up to look better for resale or I could not make prettier for a rehabber and sell quick or do a little work and rent which I’ll have it paid for in 2 years and will make 100. mth until then. Thank for help, ps I do have a clue how to make money just was wanting other opinions but thanks anyway. :}
Ruready
Sorry if I came off as abrubt, I don’t mean to be negative. I am happy you are in the game and are doing something to improve your future. Taking the first step can be the hardest.
However, I think experienced investors on this site will agree with me that the biggest mistake new investors make is not doing their due diligence on a property. They read the books over and over - listen to the audios until they go bad - but then don’t use the same diligence in evaluating their first deal. As a result, they breathlessly find a “motivated seller” and sign a contract - then go about trying to find out how much things cost, how much it would rent for, how they can make a profit out of it - only to find when they do their due diligence - the stuff they should have done before the contract - there are problems that make the property decidedly unprofitable - or at least much less profitable than they thought. This is a shame, because a lot of investors stop after their first deal.
I made the comments I did not understanding the situation, and I’m sorry for that. However, in the future, the more details you can provide - the better the feedback can be from the posters.
And it is fantastic that you have begun. God Bless.
Whats the ARV on the house?
what is the total aquisition cost in its AS IS?
what is the rental market for similar house in that area?
how will you recover your downpayment and repair costs if you plan on renting?
The Arv is 40,000. I gave 7,200. The rental market is 550. for this size or 670. for section 8. I paid cash and will finance when I decide how much I want to borrow against it.
My banker said she’d give me 32,000 for as loan if I needed it. I am still working it over.I was so concentrating on finfing a house that I could rent and not pay the .o2 formula on.
So I figured that if I have a arv house for 40,000 and I have 17,000, maybe in it I did okay along the guidelines of finding. Now I am on to the other end of this adventure. Thanks for any imput. I have pretty broad shoulders so you can hurt my feelings I can take it. smile Ps The last person I know had the house under contract for 12,500 and didn;t get the money.
Good for you for taking action…I am a bit surprised however that part of your reading did not include “knowing your exit strategies/options” before putting a property under contract (as this is an essential part of the process). Hopefully you bought it low enough to have several options available to you.
Yes, there are different tax consequences for each of the two strategies you mentioned; you need to seek advice from an accountant who knows your whole financial picture.
In terms of finding your next one…do what you did to find this one. Don’t reinvent the wheel. Do what you know already worked. Find a deal…wash, rinse, repeat!
ruready,
ignore the noise and concentrate on the deal if you know what I mean…
Now back to the deal, you said the ARV is $40k, your investment in it is $17k plus?. How much financing will you get? Here is what I am getting at…
If the ARV is $40k, and after you finish the fixup, pay the holding costs…etc you will end up paying close to it, then you are better off just buying fixed up one for $40k. Remember, refinancing costs money as well, although at this price it won’t be much.