What to Know Before Trying to Flip a Home

What You Need to Know Before Flipping a HomeIn recent years, flipping homes has become a popular way to make money. Home flipping is when someone buys an old, inexpensive home that needs a lot of work, fixes it up, and resells it for a profit. Flipping is more often done by investors, but anyone can do it - so long as they have the money. For some people, flipping may seem like a quick way to make money, but it can actually be quite risky. Anyone who wants to try flipping a Fayette County home needs to be aware of the risks that go along with it. Here is what everyone needs to know before buying a fixer-upper to try to flip.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Flipping Requires a Lot of Money

Fixer-upper homes are most commonly used in flipping because it’s easy to get big discounts on them. However, fixer-upper homes are so cheap because they need a lot of work to be livable, and that much work adds up quickly. If a home needs a brand-new kitchen, a flipper can easily spend thousands of dollars on just this room alone. Before a flipper even thinks about buying the home, they need to estimate what the renovations are going to cost. It’s also a good idea to reserve extra money for renovations. It’s common to get partway through renovating and find something else that hadn’t been accounted for needs repairs that cost a lot of money.

Be Aware of Financial Loss

The goal of flipping a home is to make money, and no one wants to think their months-long project could end up losing them money. However, this is a very real possibility that flippers need to be prepared for. Many things can happen that can lead to financial loss, including:

  • Unexpected necessary repairs and renovations
  • The economy going into a recession
  • Home buyers being uninterested in the home
  • A cold housing market

Flipping a home isn’t always going to be successful, and the flipper takes on a lot of risk when purchasing a home to do so. Someone should only buy a home to flip if they understand the potential consequences and have a plan in place to deal with them.

Flipping Can Lead to Higher Taxes

Flipping a home typically takes anywhere from a few months to a year, with it rarely taking any longer than that. Any income made from selling homes during such a short timespan is subject to the short-term capital gains tax rate, which is more expensive than the long-term rate. Higher taxes cut into the amount of money the flipper gets to take home, which can make flipping significantly less lucrative. In fact, the tax can be as high as 40%, or possibly even higher. The amount someone pays depends on their overall total income.

Flippers Need to DIY to Make Money

Not everyone is comfortable going the DIY route when fixing up a home. Some projects are too big or too advanced for some people to do on their own. In these cases, it’s advisable to hire a professional who can do it instead. However, when flipping a home, if the flipper needs a contractor for a lot of jobs, they likely won’t make very much money. Hiring contractors is expensive, but it helps ensure the jobs are done correctly. If someone truly wants to make money through flipping homes, they need to know how to do a lot of renovations on their own.

TV shows can make flipping a home seem like something that anyone can do, but in reality, it just isn’t for everyone. Anyone who wants to try to flip a home needs to be aware of the risks that come along with it.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

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