Hello, I have a question about calculating profits and rehabbing profits. If the investor wants to estimate profits that he/she will make after a rehab is completed is it acceptable to:
- calculate the profit based on the bank accepted offer on the property (discount)
calculate the profit based on the Current Market value (distressed condition of the property)
If you buy a distressed property from the bank at a considerable discount from it current market value (distressed condition), can you consider this money created equity?
Bank accepted offer-$90,000
Current distressed condition based on appraisal- $100,000
If you can consider the money created equity based on the discount you received from it’s current distressed condition, the equity created in the example after repairs will be $50,000.
Any feedback will be appreciated
Pre Tax Profit = Sales Price - Total $ Borrowed - Holding Costs - Marketing Costs
Post Tax Profit =multiply the pre tax profit by 15% for federal taxes and whatever the ordinary income tax rate is in your state
Pre tax profit - $50,000
Post tax profit = $50,000 X (15% Federal)+ $50,000 X (state income tax rate)
Multiply each tax rate times $50,000 and then add to get estimated taxes on profit.
Focus on the money you will keep AFTER Uncle Sam has got his money. Pre tax profit assumes that you will not pay taxes on this money and you don’t want to go to jail!
Thanks for providing the information savvyinvestor06. The numbers that you provided in the post helps alot in assisting me to calculate taxes. And you are right, I don’t want to go to jail for not paying the right amount of taxes.
uhm… rehabs are not capital gain properties. they are ordinary income subject to the taxpayer’s marginal tax rates (28%?) plus self employment taxes. figure around 43% total of the NET.
note that this is a Sch C business, and therefore all your other legitimate business expenses can be deducted (cell phone, office supplies, new table saw, accountant) to arrive at NET income.