7 Myths About Flipping Houses
What does flipping a house mean?
House flipping is when a house is purchased, then sold quickly to gain profit. Flippers use real estate as a means to generate income for themselves.
Myth #1: Taxes on a flipped house can affect its profit.
A lot of flippers rush into buying and are ecstatic about making money. What they fail to take into account are the taxes placed on real estate.
If a home flips around in less than a year, it is considered a capital gain. Because of that, it is taxed at a higher rate. However, if a home is flipped more than a year later, it is an asset for you (literally). The asset classification still has taxes attached, but they are at a much lower rate.
If you also flip houses on a regular basis, the IRS will notice and treat these homes not as investment opportunities, but as your job. The new classification brings along some new taxes that you will have to pay.
Myth #2: It’s cheaper for me to try and flip my house
Flippers will often purchase low-value homes, renovate them, then sell them. This requires successfully closing on the home, which will more than likely require a mortgage. After you gain the mortgage, you must renovate the home, which could be extensive depending on the neighborhood and the condition of the home.
You must also convince buyers to live in the home. Renovated houses may be attractive, but the neighborhood around the home can be a big turn-off to buyers.
To sell the home and instill confidence in the buyer, you must sink a lot of money into the project and potentially go into debt. If you are looking to sell your house fast, flipping is not the business for you.
Myth #3: Flippers will price gouge a home
While many flippers look to sell homes for a profit, some homes can be found at a much lower purchasing price, giving you a real deal. Because flipping houses can be a risky business, some flippers just need to make a sale to keep their heads above water.
Make no mistake, a lot of flippers will raise the price of a home because the demand is there. Don’t assume you are always getting a bad deal from a flipper.
Myth #4: Flipping real estate is high risk
However, it can also be high reward if you pull through the risk. That’s why people flip houses in the first place.
The problem with flipping houses is the financial security. If you do not have a cushion to fall back on if your flip fails, you could be stuck with an expensive house and depleted funds.
Getting that cushion can require a good line of credit from a bank or, if you’re feeling even riskier, private investors. Pulling in other parties raises the risk and can make the fall even harder.
Myth #5: Flippers do the renovations themselves
Again, flippers make the investments to make sure the job gets done right. That means hiring professional contractors to work on the homes and get them renovated properly.
While some flippers have done renovations themselves, it can often end with mixed results. To promise maximum profit, a lot of money has to be put down on the investment.
Myth #6: Flipping houses can hurt a lot of people
It all depends on the motivations of the flipper. Career flippers can have little regard for the surrounding neighborhood and will renovate and sell a home at great price. This enhanced property makes the price of the other homes rise, which could force those that do not own their home out of the area. Eventually, all of the inflation in the neighborhood could come crashing down when another more attractive region becomes available.
However, if sellers care about the infrastructure of the area and work with other homeowners, they could leave the home better than it was before. Flipping does not have to be negative, but a lot of crooks take advantage of the system. Flipping can be an excellent way to add to income but, in the wrong hands, it causes financial disaster.
Myth #7: Flipping a house is a great way to make fast cash.
Flipping houses takes time and resources. If you want to sell a home without any questions, contact Fast House Sale. We will take the home off of you, no questions asked. You benefit instantly, allowing you to reinvest in yourself. Set yourself up for success by selling with Fast House Sale.