Flipping houses is a fast and easy way to start working your way to riches. You buy a house that needs a little TLC, put a fresh coat of paint on the walls, fix a few minor problems, stage it just like the pros, and put it back on the market. Of course, it sells within weeks, and you walk away with thousands in your pocket, what could be easier? Perhaps shows like “Flip this House” should come with one of those don’t try this at home disclaimers, that covers the fact that “flipping is not as easy as it appears on TV.”
There Is Money to Be Made
While it is true, there is plenty of money to be made; itis not as much as you might think on the average sale nor do things typically move as fast as they try to make you believe on TV. Not only do you have to factor in the costs involved in making the house ready for sale, but there are hidden costs you may not be aware of that are going to eat heavily into your profits.
Capital Gains Taxes & Closing Costs
To start with the realtor, you deal with is going to take a commission on the sale out of the final closing price. It’s how they make their money and is typically in the 5 to 6 percent range. If you sell the house for $250,000, the first thing you have to do is pay $12,500 to the realtor. Then, because you have owned the housefor less than 12 months, you will be paying short-term capital gains taxes at your standard tax rate rather than the 20% cap on long-term capital gains.
Loans Cost Money
Along with the mortgage and interest payments you have to make until the property sells, you may have to take out another loan to pay for repairs, any over runs, and issues you didn’t find until you were already working on the house. All of which you will continue paying interest on until the house sells, and you have the money to pay off the mortgages and loans. All of these costs have to be paidout of the money left after the sale.
Paying Too Much
Paying too much for a house to flip is just as bad as paying too much for a house you are going to live in if not worse. When you pay too much for the property and then spend what it takes to renovate the property enough to sell it, your profit margin could shrink to almost nothing or you could end up going in the hole.
These are just a few of the risks they don’t tell you about on the television shows and the ones that are most likely to result in your suffering a significant financial loss instead of having money to reinvest or put away for your retirement. Be sure you know what you are getting into before you start investing your hard-earned money. If you take your time and are careful in your approach, you should be able to realize your dreams.