My situation is I want to Start looking for properties to flip, But im networked with zero investors in Minnesota, do HML’s also lend to flippers? For instance purchase a property 50k under FMV list it with a realtor sell it pay HML back and keep profits? BUT i have another question with tax issue, would I have to pay taxes? Because lets say you purchase a home for 100k its worth 150k, you get lended full 100k, You sell now you have 150k Pay them back there 100k + % intrest they aquired, and the government takes 35% of the 150k in taxes, How do i cover everything??? money will run out it seems like, Or is a 1030 exchange the only way to avoid paying the 35% taxes or whatever it is?
You will only pay taxes on your “profit”, which would be the $150k minus the loan ($100k) and any expenses (interest, carrying costs, etc.) The net effect is that you would pay taxes on something less than $50k in this instance probably closer to $40k.
Would anyone suggest using a HML to do a flip? or would assigning the contract to another investor be the best option for flippers, I want to start out investing in the least complicated real estate investment for a first timer any advise would be appreciated
Most HMLs have lockouts or yield maintenance in lieu of lockouts… if exiting early for a “flip” is important to you, just negotiate for yield maintenance with your HML. Most HML’s typically want a year’s worth of interest on their deals and if they get that then they will allow you to flip it. Just factor it in to your cost and you’ll get it done. Flexibility always comes at a cost.
I always opt for YM on my deals and then I can just look and see the cost/benefit of waiting vs flipping now.
My experience has been, most of the time, that’s it’s better to wait for the one year anniversary of the deal to sell because my taxes are lower and my prepayment/YM fees go to zero, not to mention my asset value goes up too. It’s all up to you… but if you need to recycle the cash or you have another opportunity or if you believe the market is going south, then you just need to pay the piper.
Hope this helps and best of luck!
I would use hard money when you want to fix and flip to make a more money and you have to take into consideration the cost of doing the loan verses getting an assignment.
Now if you were going to assign the contract you must work with a Loan broker that knows lenders that will alow this plus you have to put it on the hud so that is a sensitive nerve to lenders.
How I usually get around that is to show it on the orginal sellers side to pay you like a lien most lenders don’t care what is on the seller side just the buyers side.