Simple question I think

[comicguy]

Looking into possibly purchasing a unpaid property tax sale home as a fix up and flip project. I can do most of the work myself (will hire a bit out mostly finish stuff like taping, trim, and tile Finish work is not my forte but can I do carpentry, roofing, electrical, plubling, and sheetrocking all the "big stuff"). I would do it over probably a 2 year period so we can cash flow the renovations

So my question is, If I buy it say at 10K and put 40K into it and then sell it for 100K would I only have to claim the 50k "profit" this is just an example as it will be going up for auction but after looking at it I can see what needs to be done (basically has to be stripped down to studs as it has been vacant and unheated for a few years nothing is salavagable on the inside) but it is on a 1 acre wooded lot with electric, sewar, well, and actually a nice paved driveway.

[bjl584]

You'll be taxed on the net profits.
From what I understand, the IRS considers house flipping active income, so you would pay ordinary income taxes on the profits.
You might also be subject to capital gains if you hold the property longer than a certain period of time.
This link might help:

https://newsilver.com/the-lender/how-much-tax-will-i-pay-if-i-flip-a-house/

Seems like you will want to consult with a professional before jumping in.
Flipping is a good way to make a quick profit.
It can also be a good way to lose your shirt if you don't know what you're doing.

[comicguy]

You'll be taxed on the net profits.
From what I understand, the IRS considers house flipping active income, so you would pay ordinary income taxes on the profits.
You might also be subject to capital gains if you hold the property longer than a certain period of time.
This link might help:

https://newsilver.com/the-lender/how-much-tax-will-i-pay-if-i-flip-a-house/

Seems like you will want to consult with a professional before jumping in.
Flipping is a good way to make a quick profit.
It can also be a good way to lose your shirt if you don't know what you're doing.

Thanks for the link. Good info in it. Everything is pretty much what I was thinking/expecting other than the self employment stuff. remodeling is not the issue it is more of the tax end I need to worry about. But the link is a good jumping off point. Of course this all dependent on if I can get the house for what I want to pay, it has also seen a number of people looking at the property as well, so who actually knows?? Just an idea for something to do on my school vacations to make a decent chunck of money to pad retirement.

[riverwed070707]

Two years is a long hold for a flip. As you're calculating potential earnings, make sure you take into consideration holding costs like utilities, property taxes, insurance (higher if the property is vacant than inhabited), etc. You mention school vacations so I'm making a broad assumption you're young and single... any possibility you can make it your "primary residence" even if you are away at school part of the year so that when you go to sell you don't have to pay capital gains?

Other food for thought... instead of making a quick flip with a moderate payout, look into the BRRR method for how to fix it up, make it a long term rental and tap into the equity you've built to buy another. Great way to get started building a portfolio that will create long term passive income!

[comicguy]

Two years is a long hold for a flip. As you're calculating potential earnings, make sure you take into consideration holding costs like utilities, property taxes, insurance (higher if the property is vacant than inhabited), etc. You mention school vacations so I'm making a broad assumption you're young and single... any possibility you can make it your "primary residence" even if you are away at school part of the year so that when you go to sell you don't have to pay capital gains?

Other food for thought... instead of making a quick flip with a moderate payout, look into the BRRR method for how to fix it up, make it a long term rental and tap into the equity you've built to buy another. Great way to get started building a portfolio that will create long term passive income!

We want ot cash flow it, so don't mind holding a bit longer than someone normally would especially if I can get it for under 10K and currently nothing on the street is less than 144K. Other than my intial investment and taxes/insurance plus reno costs (which we will cash flow so no loans involved). As far as school vacations, I am teacher so it would 1) give me something to do, 2) generate some positive cash for retirement as I am looking at that in 5-7 years, and 3) I have a background in building, just not good at the finishing touches like trime and tile, at least I know my limitations.

[riverwed070707]

We want ot cash flow it, so don't mind holding a bit longer than someone normally would especially if I can get it for under 10K and currently nothing on the street is less than 144K. Other than my intial investment and taxes/insurance plus reno costs (which we will cash flow so no loans involved).

Totally understand cash flowing the reno (been there! I spent 4 years renovating a 4 plex!). My point about holding costs is that every month/year eats profit so just make sure you know what you're getting yourself into. Example: I'm flipping a small 850 sq ft single family right now and my gas costs just to keep the pipes from freezing through the winter were around $160/mo with the thermostat set on 50.... my monthly water/trash/sewer charges are around $60 even though its vacant. Over 2 years those kinds of costs add up so include them in your calculations

[kork13]

We want ot cash flow it, so don't mind holding a bit longer than someone normally would especially if I can get it for under 10K and currently nothing on the street is less than 144K. Other than my intial investment and taxes/insurance plus reno costs (which we will cash flow so no loans involved). As far as school vacations, I am teacher so it would 1) give me something to do, 2) generate some positive cash for retirement as I am looking at that in 5-7 years, and 3) I have a background in building, just not good at the finishing touches like trime and tile, at least I know my limitations.

I just need to jump in to potentially save you from yourself... You need to educate yourself about title work. Does the county hold the first lien position on the property? This would indicate that there is no mortgage. Under these conditions (and those alone) would I suggest that you proceed with your plan as-is.

However, those circumstances are rare. Why would someone abandon or stop paying $10k in taxes on a $140k+ property they owned outright? The far more common case is that someone fell behind on their mortgage, stopped paying taxes, and the city issued the lien way faster than the mortgage company could foreclose. You would see this with a mortgage company in the 1st (and often 2nd) position on the title, then the city is 3rd position or lower (perhaps behind an HOA, maybe a contractor or lawyer, or otherwise). What this means is that the city can't auction off the house free and clear -- they're only auctioning their interest in the property, which comes after the mortgage companies & anyone else who placed a lien before the city did. So if you "buy" this property for $10k from the city, you'll still need to purchase the interests of all higher lien holders (mortgage companies, maybe HOA, or whoever) before you can get clean title to the property -- typically that means paying off the remaining mortgage or anything else. Without clean title, you'll never be able to resell the property after your renovations. You will have simply done free renovations for the bank, who will take you to court for possession of the now-improved property, and they will win 99.9% of the time. (Only exception is if you manage to personally live in the property long enough to successfully claim squatter's rights according to your states laws without first getting evicted by the mortgage company -- typically 7+ years while personally living in, maintaining, improving, and paying all taxes & other obligations for the house).

BL: Pay for a title search before you buy any home from a county auction. If you can't get clean title (or are not willing to pay off the former occupant's mortgage & other obligations), then DO NOT BUY IT.

I know all of this because my father made all of these mistakes in 2009-2010 thinking he could rapidly become a real estate mogul. He bought 4 properties at auction, and successively lost each one to mortgage & HOA companies.

[comicguy]

I just need to jump in to potentially save you from yourself... You need to educate yourself about title work. Does the county hold the first lien position on the property? This would indicate that there is no mortgage. Under these conditions (and those alone) would I suggest that you proceed with your plan as-is.

However, those circumstances are rare. Why would someone abandon or stop paying $10k in taxes on a $140k+ property they owned outright? The far more common case is that someone fell behind on their mortgage, stopped paying taxes, and the city issued the lien way faster than the mortgage company could foreclose. You would see this with a mortgage company in the 1st (and often 2nd) position on the title, then the city is 3rd position or lower (perhaps behind an HOA, maybe a contractor or lawyer, or otherwise). What this means is that the city can't auction off the house free and clear -- they're only auctioning their interest in the property, which comes after the mortgage companies & anyone else who placed a lien before the city did. So if you "buy" this property for $10k from the city, you'll still need to purchase the interests of all higher lien holders (mortgage companies, maybe HOA, or whoever) before you can get clean title to the property -- typically that means paying off the remaining mortgage or anything else. Without clean title, you'll never be able to resell the property after your renovations. You will have simply done free renovations for the bank, who will take you to court for possession of the now-improved property, and they will win 99.9% of the time. (Only exception is if you manage to personally live in the property long enough to successfully claim squatter's rights according to your states laws without first getting evicted by the mortgage company -- typically 7+ years while personally living in, maintaining, improving, and paying all taxes & other obligations for the house).

BL: Pay for a title search before you buy any home from a county auction. If you can't get clean title (or are not willing to pay off the former occupant's mortgage & other obligations), then DO NOT BUY IT.

I know all of this because my father made all of these mistakes in 2009-2010 thinking he could rapidly become a real estate mogul. He bought 4 properties at auction, and successively lost each one to mortgage & HOA companies.

Thanks, this is all good info. we are still in the research phase of figuring all of this out. some good points above. What we do know (as the house is down the street form my in-laws) The house has been vacant for about 10 years (the older couple that lived there wintered in Florida, husband died while in Florida, wife moved back to Canada (house is in northern NY state), she died a year later, son's inherited the house (who both live in Canada) and never did anything with it, and finally just stopped paying school and property taxes. County forclosure now (should have been two years ago but they put a halt on those due to the pandemic and now are getting back to them. Have an appointment next week to have a phone conversation with the auction people about the whole process. A collegue of mine said they did the same thing and the company was more than happy to help them understand the entire process. So looking forward to that information as well.

All of the above being said,If we are uncomfortable with any aspect of the process (lein, costs, timeline, etc..) we will not proceed. If anyone can think of anything else I might not have please feel free to post it! More information that is shared can be helpful, even if it is not me moving forward maybe someone else on the forums is thinking of doing the same thing and will need information as well. I will keep everyone posted as the process unfolds and are willingness to move forwards.

Again thanks for all the info, I really do appreciate it.

[Fishindude77]

Spend some tome and a few dollars with your local title company to clearly understand the process, do lien searches, etc. before you purchase.

I think your plan to drag this out for two years is a very poor plan. The only way you can make any decent money on a flip project like this is to do it very rapidly.
Dragging it out two years means; taxes, utility bills, mowing, snow removal, insurance, etc., etc. that will all chew up your profit potential. Four to six months would be a much wiser turnaround goal.

[comicguy]

Quick update:
We did not get the back taxes/county forclosure house we were looking at. It went way above what we willing to pay. I was willing to go to 10K but it ended up going to 53K! so I was out early in the process! Anyway will keep doing my regular investments.

[madal38089]

I think the net profit here won't be 50,000, but about 35,000, because you have to take into account taxes as well as user purchase commissions from the platform where you placed your lot.