Posted by Natalie-VA on January 06, 2010 at 20:07:12:
Oh, it was helpful. I like to read up on the subject. Thanks again.
–Natalie
2010 - - - Buy-Hold-Sell and Beyond? - Posted by acw
Posted by acw on December 26, 2009 at 09:17:58:
“To be…or Not to Be…that is the Question…” (Hamlet,1600)
Catching my breath after those TWO belly busting holidays…then asked myself "self…what will 2010 bring the re markets…continued value decline or stabilizing…if so…then why?
Steve Moyer seems to think that the WORST prices are yet to come…meaning values will continue to plummet…across the board. Moyer seems to think that the continuing eroding commercial markets will drag down all markets with it. This tells me to sell…and flip fast.
If prices are to stabilize, then buy and hold strategy would make sense. Banks are continuing to take back property and Hedge funds are purchasing blocks of property from banks. This tells me that prices should stabilize and buy and hold might be the best strategy.
Of course everyone KNOWS that RE is a local dependent commodity. However, with production, output and employment continuing to decline, evidence suggest that prices will continue to drop everywhere…
What say You?
~T
Re: 2010 - - - Buy-Hold-Sell and Beyond? - Posted by john
Posted by john on January 04, 2010 at 22:42:46:
Steve Moyer is wrong on the commercial markets. The commercial market will be a soft landing. Yes rents will decline and cap rates will rise but the institutional properties are well diversified and have enough cash flow to handle tenant losses. Where commercial hurts the most is the suburban strip mall with the ma and pa tenants, but this is due mostly to the economy, not debt…These are the independent properties. The banks are more likely to work through the commercial debt than the residential because there is more skin in the game for them…I.E. it’s a larger business transaction.
Re: 2010 - - - Buy-Hold-Sell and Beyond? - Posted by Natalie-VA
Posted by Natalie-VA on January 03, 2010 at 11:27:36:
I will stick mainly with flipping. Rentals are really no fun to me, especially since the long term capital gains rate is likely to increase.
Tye brought up one VERY important point. There is a LOT of REO inventory that has not hit the market. I go to foreclosure sales almost every day. I see dozens and dozens of properties going back to the banks and not getting listed. That “shadow market” is growing, and when it hits the MLS, inventories will be much greater than they are now.
–Natalie
flipping will make you rich… - Posted by David Krulac
Posted by David Krulac on December 28, 2009 at 19:53:42:
http://www.creonline.com/wwwboard/messages/arc_2007/arc_41/41438.html
I think that Buy and hold is - Posted by David Krulac
Posted by David Krulac on December 28, 2009 at 19:49:55:
http://www.creonline.com/wwwboard/messages/arc_2007/arc_38/38972.html
Re: 2010 - - - Buy-Hold-Sell and Beyond? - Posted by Dave T
Posted by Dave T on December 26, 2009 at 22:21:11:
Buy, Hold, or Sell? Why not do all three? If you get the right deal, you should be able to do all three.
There will be some distressed properties you can purchase cheaply for rental income.
There will be othere that you can wholesale flip.
If you have a rental property in your portfolio that is only a marginal producer or beginning to go negative, then why not sell? Lease Option may work very well in this tight credit market. Sell on CFD and collect interest income for several years on top of your sale price.
Re: 2010 - - - Buy-Hold-Sell and Beyond? - Posted by -Steve-
Posted by -Steve- on December 26, 2009 at 10:11:12:
Inflation is evident and interest rates are poised to rise add that into the equation.
jusr read articale today… - Posted by David Krulac
Posted by David Krulac on January 03, 2010 at 19:00:31:
that said 2009 forecloures were 2 million and 2010 will number 2.4 million.
Flipping and buy and hold can be done together as well as other aspects of real etsate, they are not mutually exclusive.
Some properties are better suited to flipping some to buy and hold. And yes this is the last year for 15% capital gains rates, but it also might be the last year for ordinary income tax rates at the current 35% max. back in the 60s, I know thta is ancient history the rtaes went up to 95% and as recently as the 1980s the rates were 50%.
Add you social security of 15.3% and your state and local taxes, and its not inconceivable that ordinary rates at 50% plus the extras could total 70%. Even today flipping is subject to the FICA 15.3% which long term investments are not. I figure that when total taxes exceed 50%, which the can now, it becomes a dis-incentive to work and have others get more profit than you the originator of that profit. But that’s just me.
Replica Wholesale - Posted by Ariana Jolly
Posted by Ariana Jolly on September 09, 2010 at 23:18:08:
Replica Wholesale
Replica Watch
Replica Patek
Watch Replica
Wholesale Replica
Breitling Replica
Replica Breitling
Omega Replica
Replica Tag
Best Replica
Replica Omega
Tag Heuer Replica
Hermes Replica
Panerai Replica
Mont Blanc Replica
Iwc Replica
Replica Designer Watch
Replica Fake Watch
Re: jusr read articale today… - Posted by Natalie-VA
Posted by Natalie-VA on January 04, 2010 at 07:52:42:
I hear you David. The taxes do kill us, but we try to manage it using a S-corp and pay salaries. As you know, I’m only paying the self-employment tax on the portion of income that is considered salary.
No argument about LTGC treatment being the best (tax) way to go, even if the rate goes up. I just don’t like having rentals, and the lower rate was just an incentive to me.
Flipping is just plain FUN FUN FUN!
–Natalie
Re: jusr read articale today… - Posted by randyOH
Posted by randyOH on January 05, 2010 at 12:04:15:
Natalie,
I always pay attention to your posts. I think you are one of the best posters on this board. Thank you for your contributions.
However, I have a question about your S corp strategy. Are you taking money out of the corp in the form of tax-free distributions? If so, are you aware that the IRS can reclassify these distributions as compensation subject to SS taxes?
Just wondering how you are dealing with this issue. Thanks for any insight you can provide.
Re: jusr read articale today… - Posted by john
Posted by john on January 04, 2010 at 22:34:02:
Natalie,
I have experience in commercial NNN properties, but I am new to the residential flipping game. What kind of gross profit or margin is acceptable to you when you analyze a deal? How soon do you turn these properties around? My concern in this market is that the buyer may be sitting on the property a while before a qualified buyer comes along.
Re: jusr read articale today… - Posted by Natalie-VA
Posted by Natalie-VA on January 05, 2010 at 14:19:36:
Hi Randy,
Thanks for the compliment. I’m not sure exactly what you mean by “tax-free distributions”, but money comes out of our S-Corp in two ways. One is by salary, which is subject to income tax and SE tax. The other is through owner draws, which is not subject to SE tax, but is subject to income tax. We also leave quite a bit of operating money in the corp, so I don’t think the IRS would have an issue with us at all. I think they’re looking for S-Corps that pay really low salaries and take really large draws. Our CPA prefers us to keep our owner draws less than our salaries, although I’m not sure what the IRS uses to flag for audits.
I hope this answered your question.
Re: jusr read articale today… - Posted by Natalie-VA
Posted by Natalie-VA on January 05, 2010 at 07:58:45:
John,
I can’t really answer the question about profit, because each deal varies based on location, work needed, etc. I will say that I like to make at least 30k per deal.
As far as carrying costs are concerned, when the market first slowed a few years ago, I calculated in additional carrying costs. I found that it was better to make your product the nicest and best priced one in the neighborhood. So, now, instead of assuming the additional carrying costs, I base my resale price lower so it will sell faster.
–Natalie
Re: jusr read articale today… - Posted by randyOH
Posted by randyOH on January 05, 2010 at 14:49:37:
OK, that is what I thought. So just a heads up that if you are audited, the IRS will almost certainly reclassify those “draws” as compensation. Then the burden of proof will be on you to show that your compensation is not unreasonably low. This will be very difficult to prove and the IRS will not likely agree with your numbers and they will tax you based on their numbers. Then, of course, the only way you can fight the IRS numbers is to go to court which will be very expensive.
But, of course, you have nothing to worry about if you are never audited.
Re: jusr read articale today… - Posted by Natalie-VA
Posted by Natalie-VA on January 06, 2010 at 08:18:47:
Do you know someone that this happened to? If so, I would be curious to know what the entire picture was with regard to total income, salaries and draws.
To have everything reclassified as salary would defeat the purpose of using an S-corp.
–Natalie
Re: jusr read articale today… - Posted by randyOH
Posted by randyOH on January 06, 2010 at 11:02:58:
Sure, take a look at this article. Apparently, the IRS is finally starting to crack down on this well-known loophole.
http://www.cpajohn.com/business-taxes/s-corporation-officer-wage-trap/
Here is the part of the article that would scare me to death if I were in your position.
>>Since there was really no evidence that could be found to support the low salary originally paid, the IRS recharacterized almost all of the net income of the corporation as wages for this shareholder/officer. This resulted in penalties for failure to withhold and pay payroll taxes. The end result is the client ended up paying about double in taxes, interest and penalties over what would have been owed had the income been classified as officer wages from the beginning.<<
Keep in mind that if you are audited, they will audit three years. So you could be looking at a huge IRS assessment. And, by the way, the purpose of the S corp is not to enable people to avoid the self employment tax.
Re: jusr read articale today… - Posted by Natalie-VA
Posted by Natalie-VA on January 06, 2010 at 15:37:02:
The guy should have been penalized. He was only paying 15-20k to himself in salary and clearly took advantage of the loophole.
As I mentioned earlier, our salaries are not low, and our draws are not high. As a matter of fact, my salary is significantly higher than the one mentioned in the article, and we leave a lot of operating money in the corp. I won’t lose any sleep over my numbers.
I thought the main (tax) purpose of using an S-corp election was to avoid double taxation and to be able to manage SE taxes. That’s why our CPA initially advised us to use one. Of course the legal advantages add to that.
Thanks for sharing.
–Natalie
Re: jusr read articale today… - Posted by randyOH
Posted by randyOH on January 06, 2010 at 17:34:28:
Well, obviously I don’t know what your numbers are. But I would guess that you are at much greater risk of an audit than the taxpayer in the article. The main thing the IRS considers when they look at a tax return is the potential to collect additional taxes. So I am just guessing that when they look at your return, they will see much more potenial tax revenue than the one in the article. Am I wrong?
As to S corp:
- Avoid double taxation, yes.
- Manage SE taxes, definitely not. This is exactly what the IRS is starting to crack down on and why you may soon be getting a letter in the mail from them.
But, hey, I hope you are right and you don’t get audited. I certainly have no axe to grind in the matter one way or the other. I was just trying to pass on some information that I thought might be helpful.