With the many reality shows today on flipping houses and the incredible profit that can be earned in doing so, many people are seeking to try flipping houses on their own. However, while TV shows and house flipping success stories can be very encouraging and make things seem relatively easy the truth is there are a lot of important factors to consider before looking to start your own house flipping side hustle.
Is Flipping Houses Profitable For Everyone?
There are two types of house flipping journeys investors can look to embark on. The first involves buying property with the intent to perform repairs and upgrades before selling for a profit. The second type involves purchasing property and sitting on it (or renting it out) until the market value increases and then selling it for profit. While both can be very profitable most looking to flip houses opt for the former of the two. But in order to buy any type of property for whatever reason, you first need the capital, and unless you’re paying cash and a pretty good credit score. You may have seen many success stories documented on social media, YouTube, and so on people who have started out with zero dollars of their own and ended up making the big bucks in flipping houses. While there are stories that are true like this there are not many.
70% Rule – Live By It
The first thing to put into place after figuring out where you will get capital from is the 70% rule. This rule is formed around the concept that the price of the property you purchase should cost 70% of the home’s value after repairs/upgrades have been done and factored in.
Utilize A Trusted & experienced Appraiser
Witty the 70% rule in mind you will want to get each property you look to purchase appraised by an experienced and reputable appraiser. Once you have received the value of what the home/property is appraised at you can then figure out if the profit is worth the output….but this also means that you need to factor in the time and the labor you put into the project.
Accounting For Time & Labor
After you figure out the profit you can potentially make after repairs & whatnot you will then need to take into account the time and labor the project demands. If you’re making an $80,000 profit but it takes 2 years for the repairs/upgrades to be completed you are then really only making an extra 45,000 per year and it’s not gained until the end of that two years. Just a little food for thought there.
Capital Gains Taxes
Then we have capital gains taxes that can either be asses as long-term or short-term taxes. Should you own the property for longer than one year you will be assessed long-term property gains taxes and the amount taxed is based on if you are single/married and the yearly income you make. If you own the property for less than a year you will be assessed for short-term capital gain taxes which are based on your yearly income bracket.
Let’s not also forget you will need a trusted team of experienced individuals who are able to handle remodeling repairs and so on. Or you will need to be knowledgeable yourself. While house flipping can definitely generate a great profit there are definitely a lot of things to consider & plan for before setting out on your property buying journey.