I stopped by my agent's office after work yesterday, and delivered the docs and option consideration check for Offer #18. I also had to drop off some resigned paperwork for Offer #6. When I got home, there was a message on the answering machine from my agent saying the listing agent told her that two other offers were on the table for Offer #18, and if I wanted to increase my offer since I am now in competition. My MAO for this property is $45,000, but I didn't really feel like having to go through the resigning crap again. So, I called her back and said to go ahead and submit my offer "as-is". I doubt my offer will be accepted, but you never know in this 'game'.
I also had another talk with my wife about exit strategies for Offer #6. I have long held that I would try to flip this property retail ASAP. However, recently I've thought that maybe for tax benefits and long term goals, it may be better to do a L/O. Well, she is all in favor of selling it to pay off some of our debt. The downside to this is the short-term capital gains taxes we'll have to pay if we go that route. Potentially, we could get something like $10k-$15k from the sell of this property, but have to pay something like 28-34% in short-term capital gains. So, we could pay off some immediate debt, but then turn right around and pay Uncle Sam around 1/3rd of it back. Now that would make my ROI negative on this property.
3 comments:
Um.. how can it make your ROI negative? If you have a loss (negative ROI), you won't owe any taxes. If you have a profit, you will be taxed, but the tax is never 100% or greater, so it can never change a profit into a loss. Hence, it can't make ROI negative. It will definitely reduce the ROI though.
Personally, I don't look at taxes when figuring ROI simply because there are many things that can be done to reduce taxes. For instance, if you buy another property to rent this year, you can take a depreciation expense for that property. That will likely offset any tax you'd owe on the sale of this property.
Thanks Shaun. It's probably my misinterpretation of how ROI works. In my example, I assumed $10k in profit. If I pay 33% in STCG, I now only have $6,667 in net profit. If I had out-of-pocket costs exceeding that amount, I thought the ROI would be negative? But you're absolutely correct about offsetting - I completely forgot about it! I just hope with each property I pick up, my wife doesn't want to pay something else off (and then wants to use it for new "stuff"). :-(
Your logic is flawed. If you had $10K profit, then by definition, all your expenses have already been paid and you have $10K left over. So then you pay 33% of that, leaving $6.6K profit.
You were deducting expenses twice - once before paying taxes and once after.
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