Whether you’re totally new to the game of flipping houses or you’re just curious as to what it’s all about, there’s no denying that the prospect of becoming a property mogul is undoubtedly enticing.
That said, the act of flipping houses isn’t as simple as purchasing a property and throwing it back on the market. Between the sheer amount of attention, time and cash that any given property requires to be effectively flipped, it’s easy to overlook some of the hidden costs of purchasing property to either rent or sell.
But what sort of hidden headaches are we talking about? For starters, consider the following four elements of purchasing and selling homes that often trip up unsuspecting newcomers to flipping property.
Capital Gains Tax
Although those investing in real estate are likely no strangers to the tumultuous nature of taxes at large, the capital gains tax on any given sale can be a potentially huge financial burden.
There’s no way to get around a capital gains tax, but there are strategies to bring it down to keep more money in your pocket upon sale of a property. Considering that the average long-term rate of this tax sits just under 30%, finding ways to lower your capital gains tax liability should be a top priority of any real estate investor.
Leaky roof. Damaged pipes. Mold infestations.
Sounds like a nightmare, right? Welcome to the world of buying a home that’s in dire need of repair.
Fixer-uppers and “as is” homes might like bargains, but there are many situations where they’re more trouble than they’re worth. If you’re going to have to dump endless hours and thousands of dollars into a home for the sake of making sure it’s appropriate to sell, ask yourself: am I really getting a great deal?
Loan and Mortgage Fees
There are a handful of tacked-on mortgage fees that can take a seemingly awesome offer beyond the realm of your budget.
Again, the process of flipping a house involves all of the same paperwork and bureaucracy as buying a home for yourself for the long-term. These fees and payments include home inspection fees, appraisal fees and closing costs. When dealing with a house to flip, it’s crucial to understand who’s responsible for these sorts of payments and ensure that you’re not being overburdened by them.
Let’s say you’ve finally managed to score your first property to flip. What happens to the cost of keeping the lights on and dealing with the utilities of the house in question?
That’s right: the responsibility is on your shoulders now.
While this might seem like a no-brainer, paying for utilities such as electricity and water on a property that’s sitting stagnant can be quite annoying and wasteful. You’re likewise responsible for the exterior upkeep of the property when it comes time to give your home some curb appeal to potential buyers.
Attention to detail can be a total game-changer for real estate investors looking to go after properties that make sense for their budgets. This checklist can help you understand what you need to watch out for and streamline the process of looking for homes to flip.