House Flipping – Not as Easy as it Looks on TV
TV shows have recently been showing a lot of programs about house flipping that show different guys buying houses, renovating them and selling them for huge profits. The idea of earning profit even before the first mortgage payment is due is motivating a lot of people to make a career change considering they might make a fortune in minimal time. However, it is not as easy as it might look. Experts agree that it should not be considered as an easy way to make a living.
To earn from the business, it is important to know how it actually works and invest time first to learn about the business. So before you quit your job, consider a few points to be sure if this business really is the right thing for you to step into.
Competition is tough and the best deals are gone quickly, which means you need to move fast to get good houses. Money is made when properties are bought at least 30% below market value. It is also crucial to have access to money in order to make the deal and do the house renovation. Adequate savings are needed too for a lot of expenses like house insurance, utilities and maintenance.
Every day the house is owned, it costs additional money to the owner. Due to Federal Housing Administration (FHA) anti-flipping regulations, the house needs to be held for at least three months i.e. 90 days to be eligible for FHA mortgage insurance. An additional, independent appraisal is needed to justify the sales price if it is sold after 90 days but between 91-180 days.
Remember, that once you quit your job you cannot get a loan. This is another blockade for access to finance. Finance is an issue, but once gathered, is only the first, easy step. Next, you have to find properties to buy which is a time demanding job as properties are not easily available through realtors or auctions. To find properties, one needs to be on the constant hunt for them and work on building a network to keep acquiring them. There is also a difference in the taxing for buying and selling real estate when it is done as a business which includes a self-employment tax of 15.3%.
No business can promise quick, constant and easy money. Likewise, house flipping, if not done seriously with proper time and money investment, may eventually lead to bankruptcy.
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