We’ve all seen the HGTV and DIY Network TV shows that fit flipping an entire house into one 30-minute episode. But what do you really need to know if you decide to try this form of real estate investing?
- When searching for a house to flip, foreclosures (not short sales) are still the best option. You want the difference between the sales price and actual market value to be at a percentage that you generally won’t find with a standard sale home.
- When calculating total costs, remember to include the cost to sell as well as the cost to buy (closing costs, commission fees, etc). It’s also a good idea to walk through the home with a contractor to get a sense of renovation costs before making an offer.
- When purchasing, consider putting down the minimum down payment (20%) and asking for lender paid closing costs. Though this will raise your interest rate, it is more beneficial in this scenario to keep your cash for updates rather than put it towards the mortgage since you will be reselling quickly.
- When renovating, remember that you will not be living in the home. You don’t need to use top-of-the line granite or put your special taste into the updates. Keep it simple and keep costs down.
- When selling, talk to your accountant and agent about doing a 1031 Exchange. This allows you to apply the proceeds directly into another flip without being taxed on your capital gains from the sale.
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