Real Estate

Flipping Homes–What does it take?

People who take old homes and rehab them for a profit are called flippers. Flipping homes can be a good way to make money; however, like every other business there is a risk. I believe that several tv shows have made flipping look like easy money which is not always the case.
In order to make a profit on a rehabbed house you need to have enough of a spread between the purchase price and the sales price. I believe the best way to estimate this is to work backwards from the potential sales price. I am also conservative on what this price will be. Let’s face it if you sell the house for more, then it is a bonus.
Working backwards looks like this.
Example:
Sales price when house is completed………………..$150,000
Cost to sell the property (10-12%)…………………….$15,000-$18000
Cost of repairs……………………………………………………$25,000
Holding costs (interest, taxes, utilities, etc)………..$2000 Can vary depending on how long you hold it.
Break even point……………………………………….………$108,000-$112,000
Cost of property including closing costs, etc………..$90,000
Profit…………………………………………………………………….$18,000-$15,000
Sometimes people new to flipping will tell me it shouldn’t take 10-12% to sell a house, but by the time you pay an agent to sell it and the title work and give something to a buyer, it becomes this amount. And let’s face it if it is less then you put more money in your pocket.
Same thing for repairs, things come up along the way and cost more. So make sure you have a little slop in the amount and you are not figuring the cost so tight that you end up losing money.
Please know that today you are probably going to have to do more than simply paint and replace carpet to make a profit. You are going to have to update kitchen and baths, open floor plans. People will pay more for nice finishes but don’t forget to make sure the roof and foundation is good. They also want the mechanical systems of the house to function properly and be updated.
Having a realtor to guide you and helping you can be incredibly valuable. I have personally rehabbed several homes and helped several investors in flipping homes. If you are interested in investing in real estate and would like some help please contact me at 405-213-2992 or sandisellsokc@kw.com

Real Estate

Don’t lose all your investment profits to taxes

Investment property is a great way to build wealth. The investor can write of off many expenses and depreciate the value of the property on their taxes over the years. While making a profit from the rental income, they also are able to obtain a tax benefit from the investment. Over time an investor may decide to exchange a property with a high equity position perhaps a free and clear property to a larger property or to multiple properties that provide additional cash flow. The investor may want to diversify into other geographical areas of the country.
When an investor sells their property they are liable to pay several taxes. These include capital gain taxes to both federal and state, recapture tax on the depreciation, as well as the ACA tax of 3.8% if the investors taxable income in over the designated amount. ($200,000 for a single person and $250,000 for a married person at the time of this writing). This can add up fast and take up to approximately 50% of the profit to pay these taxes. For this reason, people sometimes think twice about trading properties. But there is a way to trade properties without paying the taxes.
Since 1921, savvy investors and real estate professionals have been taking advantage of a powerful tax strategy created by IRC section 1031-the deferred exchange. IRC Section 1031 (a)(1) states:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-king which is to be held for productive use in a trade or business or for investment.”
By using a 1031 exchange an investor can defer the tax burden. This allows them to keep more money to invest in other like-kind exchanges. While this does not eliminate the tax burden, it does defer it. And it can be deferred into a passive trust or a vacation rental when the investor decides not to be as involved in managing investment properties.
The investor will need to work with a “Qualified Intermediary” to facilitate the transaction. And it will need to be stated in the contract that the sale is subject to a 1031 exchange. This is just a simple introduction to 1031 exchanges. If you have additional questions, regarding time lines and other benefits please ask. As always it is recommended that the investor discuss a 1031 tax deferred exchange with tax and legal advisors.
If you or someone you know is looking to buy, sell, or invest in real estate please have them call me at 405-213-2992 or visit my website at http://www.sandiwalker.com

Real Estate

Want some money—Quick

I have been told you can make some fast money in real estate. Buy a house cheap. Throw a coat of paint on it and some new carpet and you are on your way to instant wealth.
I get calls from people wanting to be investors all the time. People who want to flip property mostly, because they don’t want to deal with tenants. I can understand that I have had some tenants I would rather not have had to deal with either. But as the old saying goes: If it were easy everyone would be doing it. Now I don’t want to discourage you, if you are thinking about buying investment property, but you should know it is work.
There are some basic questions you should ask yourself before you begin.

What will the property sell for when it is remodeled?
Will the property I purchase resell fast/
Is the floor plan functional or does it contain some dysfunction?
What will it cost to repair the property?
Can I do any of the work myself?
Do I have a list of contractors or can I get a list of contractors?
Do I have enough cash reserves for the remodel?

Create a budget and stick to it. This is sometimes easier said than done. Do not over updates for the area. The appraiser is not going to over value the property just because you did, and neither is a buyer.

I have personally rehabbed several properties, rented properties and flipped properties. The knowledge I have obtained over the years does not come from seminars and books but rather life and the school of hard knocks. I have worked hard and been fortunate to find some really good deals. You can make money investing in real estate but don’t think it is like you see on late night t.v.
If you have questions about investing in real estate, please feel free to contact me at 405-213-2992 or visit my website http://www.sandiwalker.net