Yes, the $10K profit on this one would be considered ordinary income, and would be taxed at whatever rate we (my wife and I) personally would be taxed, since the income flows through to us (our business is taxed like an S-Corporation, where the income flows through to the owners).

Given the deductions we have, I imagine that we’ll lose about 25% of the income to taxes. But, in general, the taxes could be anywhere from 0% – 45%, depending on the person’s individual tax situation.

Purchasing houses in the $30-60K range and doing $30-60K rehabs is pretty typical for our business. We’ve found that for the properties that require very little rehab, there is a lot of competition from other investors (and owner occupants), and it’s difficult to get great deals. But, with the houses that require a lot of work, we can generally buy the properties for very cheap.

Since we have a great crew of contractors, it really doesn’t matter to us if the rehab is $5K or $50K — the amount of work for us is about the same either way.

Plus, we really like seeing our houses transformed, so doing the big renovations gives us a nice big sense of accomplishment…

We’re pretty dead here too. Not much hitting the market in terms of REOs, and what is hitting the market is seeing a lot of competition from owner occupants and desperate investors.

Hopefully things will get better towards the tax credit deadline next month…

You guys hitting any offers yet? The market is pretty dead out this way.

Earnest money (EM) is the amount you put down as a deposit, and typically banks are looking for a minimum of $500-1000. I’ll generally start at about $2-5K with my initial offer. If it comes down to additional negotiation, I will often raise my EM deposit as part of my negotiations, because it ultimately doesn’t impact the final price (important to me) and it makes the bank more comfortable (important to them). If I can raise my EM without raising my offer too much, I’m happy to do so. In the case of this house, $10K was about a third of the total price, so with that sized EM, the bank was okay giving me a great purchase price.

As for financing, I get rehab loans from a local bank in my area. They finance the purchase price plus the rehab costs, and I just put down 20% of the total. So, if I wanted to buy a $40K house and do $40K of rehab, the total price would be $80K. I’d put down $16K and the bank would finance the other $64K.

If you want to find a rehab lender, start by visiting all the very small, local banks in your area. The banks that literally have only 1-3 branches. They make their own lending decisions (as opposed to having a big corporate office that sets the guidelines), so if they like you and your business plan, they will lend to you.

Hope that helps!

Thanks so much. Keep warm.

Yup…and that was our original basis for the $10K…we said we’d basically just keep the commission, and then we rounded up…

And not just helping family…also helping an awesome employee who has worked his butt off this past year!