Keep tidy records when fixing a property you want to sell

Is any special record keeping required for fixeruppers?

You should keep meticulous records if your investment strategy involves fixer-uppers. There are five reasons for this.

1. Some of your rehab expenses can be written off your taxes in the current year.

2. Some of your expenses must be added to your basis - your purchase price. This determines your taxable profit when you eventually sell the property - sales price minus basis equals taxable profit - and will also establish what size your depreciation deductions are each year. (Depreciation is a percentage of the basis.) The higher your basis, the less the taxable profit and the higher your depreciation deductions. Both of these are very good things.

3. Some of your expenses can be depreciated - written off on your taxes - faster than others. This is called cost allocation depreciation. It requires excellent records.

4. Many purchases and repairs may come with their own warranties.You will need to know which things have warranties, know the length of the warranty period, and have a copy of the sales ticket or invoice for the work or products. If you plan to keep the property, keep a warranty calendar. A month before each warranty expires, inspect that item to make sure it has no problems. If you plan to sell the property, this is valuable information for the buyer.

5. Estimating expenses for future fixer-uppers will become easier and more accurate as you develop your own personal database of information.

What is the difference between buying fixer-uppers and flipping properties?

The most common flip involves rehabbing a property and increasing its value for a quick sale. That is not the only type, though. People also buy distressed properties and options. On the other hand, not all people who buy fixer-uppers do so in order to resell.

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