Why You're Unlikely To Make Money Flipping Houses

June 20, 2018

Dreamstime

Watching HGTV and reading news articles tout the financial windfall of buying a distressed house, fixing it up, and selling it for a handsome profit. But before you cash out your 401K and get a second mortgage to flip your own house, the odds are you will not make any money and rather lose your hard earned cash. While house flipping looks easy and fun on TV, we're about to expose the part of real estate not shown or discussed on these programs. First, home remodeling isn't a quick process. Thanks to editing, the long and complicated process looks quick but with the average kitchen renovation taking two to six months and the unexpected costs that pop up, time is not on your side. Add into the mix of a skilled labor shortage, that renovation might take even longer. A longer renovation means more time you are paying an additional mortgage, property tax and utilities.  Speaking of tax, while you'll owe no taxes on profit of your home you've lived in for two of the last 5 years up to $250,000, flipping a house within a year with any profit will be considered a short-term capital gain, which is taxed as regular income—at rates as high as 37%, depending on your other income. Finally, consider the realtor the commission. Any time you sell a house, you're starting out at a loss, because you're going to pay an average of 5% to 6% in realtor commissions. Even if you're a realtor yourself, you'll typically need to pay at least the buyer agent's commission of 2.5% to 3%. But for most people, that means you need a home to appreciate in value by at least 5% just to break even. SO before considering flipping houses, make sure you get all the financial facts beforehand to see if it's worth your resources.

SOURCE: Apartment Therapy

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