Home Flipping Guide

Ever since the hit TV show “Flip This House” aired on A&E TV, there has been an unprecedented increase in individuals who want to cash in on the concept. “Flipping homes” is now becoming a trend in real estate and, though it could be considered a lucrative business investment, it is one that is not without risk and possibly substantial loss. Contrary to what is shown on screen, flipping homes actually involves a lot of hard work and, if you are inexperienced in this sort of business activity, you may find yourself losing more than what you should have gained.

To the uninformed, flipping homes is when a relatively “run-down” property is purchased and subsequently subjected to major renovations. Renovations must be completed within a minimum of three weeks to a maximum of four months. After the house has been given a face-lift, it is then marketed to prospective buyers, and hopefully the investors, after deducting the cost of the house and the renovations, would make a profit from the sale. It may sound fairly simple but, in reality, it is not. It is tedious, it requires a lot of legwork, it is capital intensive and, with reference to tax procedures, it can be quite complicated.No matter how simple the entire process appears on the small screen, you have to remember that flipping house is, more than anything else, a business venture. You will need to pour in substantial amounts of money, both for the property and the changes that need to be done. If you have not planned for this investment properly; or if things do not go as planned (construction drags on and on; house does not sell quickly, over-extended your budget) – there is a chance that you may not recover your initial investment and make the anticipated profit. In the eventuality that you do make a profit, you will gain a very small margin – one that would not be enough to compensate for your time and effort. Apart from the expenses on the property and on renovations, you also have to contend with tax issues. Profits from homes that are not your primary residence are subject to what are called as “Capital Gains Taxes”; thus, expect to shell out a big chunk of your profit to cover this. In addition, if the Internal Revenue classifies “flipping houses” as your main occupation, you will most likely fall under a different tax bracket. If you really want to be involved in this kind of real estate business, you need to understand the complexities of real estate transactions. You should, not only, be familiar with the intricacies of purchasing and selling real estate properties you should also be able to immediately notice market trends. You should also have a reliable support group composed of lawyers, contractors, building inspectors, and the like. Most importantly, since interest charges on money borrowed to finance a business is tax-deductible it would be to your best advantage if you had investors to back up your business. Home Flipping is quite tricky, but it is do-able. Your first flipping house venture may not be a walk in the park, but with practice and as you gain more experience, flipping homes will be easier and, hopefully, involve less problems and a lot more fun.

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