Take a stroll through just about any neighborhood across the country and, chances are, you’ll notice a developing trend – in lieu of the once popular lawn jockeys, many homeowners are now choosing to decorate their yards with for sale signs.
This is indicative of a booming real estate market, one that saw the median price for a single-family house rise to just under $210,000 in the second quarter of 2005, up nearly 14 percent from the same time a year ago.
Such a boom in the real estate market has led to a nationwide trend called “flipping,” in which people buy a house and then quickly sell it for profit.
Typically, flippers buy homes that may appear as if they need major repairs when, in reality, all they need is some touching up and light maintenance before they can be sold for substantially more money than what the flipper paid for them.
While the essence of flipping lies in buying a home, making the necessary repairs and then selling it quickly for profit, those who are looking to get into the business of flipping would be wise to take a few precautions.
For instance, before flipping your first house, make sure you have a good understanding of the tax laws pertaining to real estate. Knowing these laws could end up saving you a bundle in tax dollars that could otherwise take a large chunk out of your potential flipping profits.
Should you complete a number of transactions in a small period of time (as many involved in flipping houses typically do), there is a strong chance you will be deemed to be in the real estate trade or business, meaning you would be subject to both self-employment and traditional income tax, where you’ll be taxed at 35 percent.
A way around this, however, is to hold on to the property for longer than 12 months (you could even turn it into rental property).
Should you decide to go this route, the property will be viewed as a capital asset and will be taxed as a long-term capital gain, meaning you could pay as little as 15 percent in taxes.
Fortunately, for those people looking to get into flipping houses, the practice has become so popular that an abundance of resources exist to offer advice or guidance on how to get started.
In fact, the A&E cable network even has a weekly program, “Flip This House,” hosted by flipping veteran and real estate baron Richard C. Davis, which offers viewers an inside look at the ins and outs of flipping houses.
Though flipping has grown more popular and has become more widely known, such growth has also led to greater restrictions, many of which come from developers who find it difficult to sell the community aspect of a new neighborhood if they’re selling to buyers who intend to sell the homes in less than a year.
With that in mind, many developers are now requiring buyers to sign agreements that mandate they will remain in the property for at least a year, making it more difficult for flippers to turn quick profits.
Still, if you remain interested in flipping, Davis offers these tips, courtesy of www.aetv.com:
• Do not get emotional about a property. Flipping is a business, and flippers should not get emotional about any real estate purchase other than their own home.
• First impressions sell most houses. Appearance can be everything, and if a buyer doesn’t want to leave his car upon seeing the house, he’ll never make it inside.
• Change is good. Cosmetic changes can help draw more attention to a house.
• Do not keep carpet and paint. Throw out all remaining carpets and repaint the interior if not the entire house.
• Start simply. Take on only smaller repair jobs at first, while you learn the business.
• Stay away from buying a house with structural problems. You’re in the business of flipping, not construction.
• Activity breeds activity. Pre-market the finished product while you’re still working so people can see the end is near.
• Don’t be greedy. Set a reasonable financial goal, and take the first offer that meets it.
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