Understanding Home Flipping

Flipping residential real estate is not an easy task. You have to do a lot of leg work plus you need a lot funds to carry out your project. The financial aspect of home flipping should be carefully studied for you to be able to gain the right profit you are aiming for. 

Financing your project

Of course, when you are engaged in a certain business, you need to have your capital to finance your endeavor. But experts suggest that home flippers should use less of their own personal funds when investing in a property and instead, borrow money from lenders. The interest on loaned money is usually tax deductible, according to tax laws. 

Meanwhile, you must understand that mortgage rules as well as the amount you can loan for purchasing second and third properties differ from those when you buy your first home. Remember, too, that you have to continue the mortgage for the house you're planning to flip while it is still being renovated until it is done and you're ready to sell the property. 

Taxes and commissions

Take into account the taxes and real estate commissions you are going to pay as these will eat up your profit if you're not careful. Keep in mind that all profits are subject to capital gains tax when you sell a home that is not your principal residence. If that is the case, half of your profit will be taxed. 

However, you might be able to solve this problem if you live in the home for more than one year while it is being renovated. Doing this will qualify the property as your principal home and therefore, be exempt from the capital gains tax. If you have doubts, though, it's best to consult a professional who can properly guide you on your plans. 

What to renovate

Home flipping normally involves renovating a home bought at a lower price instead of just selling it again "as is." A renovated house naturally looks more attractive and sells at a higher price. Real estate experts say renovating the kitchens, bathrooms and floors are the most basic things home flippers should never forget. These three guarantee a higher selling price for the home and thereby, more profit. 

For the floors in the hallways and living rooms, laminated products are recommended. Some really don't go for the hardwood in these parts of the house. For the kitchens, ceramic tiles are more popular while carpets are a must for the bedrooms. 

Kitchens and bathrooms should also be attractive and comfortable. Big, walk-in showers are great as well as massage showerheads, glass enclosures around the bathtub and Jacuzzi tubs. 

Fresh tiles are recommended for the kitchen and countertops should be replaced, too. It's tempting to purchase new cabinets but you can just replace the cabinet doors and use new materials and handles to cut costs. 

Meanwhile, don't expect a big return for the money you spent in renovating certain infrastructures in the house. Repairs of leaky basements, for example, might only give you half of the amount you invested when you resell the property. The key then is to have the home properly inspected before you purchase and have it renovated. You can hire a professional inspector to be sure that you will only do cosmetic changes in the property you intend to flip. 

Related Articles: Financing Your Flip Want to Learn more about Flipping Houses? Download the Home Flipping Guide