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5 Things You Need to Know Before Flipping a House
Flipping a House, 5 Things You Need to Know Before you Get Started!
If you spend all day watching real estate programs on TV, you might think that Flipping a house is a road to easy riches. In the real world, however, things are a bit more complicated when Flipping a house.
While real estate investors can, and do, make a lot of money, there are some things you need to know before you dive in. Here are five vital things you must consider if you are thinking about flipping a house.
#1. The Real Estate Agent is Thinking About Their Commission – Not Your Profit
No matter how friendly and helpful your real estate agent is, he or she is probably thinking more about the commission than your potential profit. While a good realtor can guide you to the right properties and help you find good bargains, simply assuming that they have your best interests in mind is probably a mistake.
You can tip the odds in your favor by talking to other, more experience, real estate investors. Flipping houses is a specialty in the real estate business, and investors who have been there and done that are often a great source of information.
#2. Outsourcing Will Substantially Drive Up Your Cost
The best house flipping bargains are often the ones that need the most work. If you can do everything from the woodwork and finishing to the plumbing and electrical work, chances are you will be able to turn a healthy profit on that fixer-upper. If not, you may make a lot less than you think.
Every time you outsource work, you cut into your profit margin. If you need to hire an electrician to fix the wiring or a plumber to repair the pipes, you will see your profit erode. Think about how much work that diamond in the rough will really need – and make your offer accordingly.
#3. The House May Sit on the Market for Months
In a perfect world you would buy the home, do a few simple repairs and resell it for a hefty profit. Unfortunately for first-time home flippers, things are rarely that easy or straightforward.
The reality is your flipped home may sit on the market for months, racking up costs and possibly forcing you to make additional mortgage payments. Those costs can really add up, and you need to be prepared for them.
#4. What You Will Do if the House Does Not Sell
While you obviously hope your investment home will sell quickly, you need to have a plan B in case it doesn’t. Are you prepared for the responsibilities of renting and ready to be a landlord if the home sits on the market for months without attracting a bite? Can you handle the cost of the mortgage and real estate taxes while you try to sell the home?
The answers to these questions is critical. If you are not prepared for these potential contingencies, you are simply not ready to be a house flipper.
#5. There Could be Significant Tax Implications
Even if everything goes perfectly and you end up with a significant profit, you could still be in for a big surprise. If you do make money on your flip, the IRS will want a cut of the action.
You can reduce your tax bill by writing off the cost of repairs and renovations, but you will need to keep meticulous records and make sure you can defend your numbers in the event of an audit. You may also need to hire a professional to do your taxes, and that will add to your overall costs.
Flipping a house can be a great way to diversify your investments into real estate, make some extra money and profit from your carpentry skills. Even so, it is important to go into the deal with your eyes wide open – and to be well prepared should something go wrong Flipping a house.
If you are thinking about buying or selling in Hagerstown or surrounding areas, please give me a call
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