Hey yall, i’m really interested in getting my hands into real estate investing. specifically rehabbing/flipping and maybe (if succesful) new property development. i have zero experience and am just now starting to do a lot of reading up on the subject, and plan on taking some type of classes to do with real estate investing within the next year, so i assume i’m still at least a year from giving this business a run. but i have some questions i would like answered so anyone who can give me some insight, i’d really appreciate it.
a lot of material i’ve read up on on this site and other sources refer to examples and dates a decade or more ago, how accurate is this information in the current market state? (specifically interested in techniques used to get properties with no money and BAD credit) i’ve been hearing that interest rates on mortgages are at or close too an all time low, but also that lenders are really cracking down on who qualifies, and almost always requiring a down payment.
doing rehab/flipping investing, does it make more sense to stay within a certain area (lets say your home state) or do you generally have a bigger playing field up to anywhere in the whole country that you can find the best deals?
i’m not exactly sure about this question, but i thought someone with some real estate experience told me that when you buy a house and sell within a short period of time (i think less than a year or 2) there is additional taxes that you will have to pay because they (state or federal government) know or at least assume that you are doing it to make a profit, therefore they feel they are entitled to some of your hard earned money…if that is the case…what a bunch of :bs , is there any way around it?
again i wanna say ahead of time that i really appreciate anyone who can take the time to answer these questions for me.
I think it's good that you're getting educated on REI. The material you read should be current. However, there are a lot of timeless strategies that will always hold true. Read all you can both present & past. Nothing can replace the wisdom of the seasoned veterans. Find the the successful people in the area you're interested in and pick their brains if possible. Find out what they did and why. Don't try to reinvent the wheel. Keep in mind that if you focus mainly on rehabbing/flipping, you may have a problem of selling your properties quickly in this market. It depends on your area. When starting out, you want to be closer to home so you're not running around from city to city. When it comes to flipping, you need to be there constantly to be successful. I suggest you find an erea of REI that you can get into that makes sense for your situation and local market. If house sales are slumping in your area, you may want to look into buy/reha/rent until the sales pick up. When it comes to taxes, I believe you have to have the property for at least a yr. Your tax accountant should be able to guide you through the tax issues. Discuss this with them BEFORE you start buying properties. If you were to purchase a SFH or a multi-fam. to rehab then rent it out, you won't have the taxes or the holding costs associated with flipping. I know this reply is kind of all over the place, but I'm trying to answer all you questions the best I can. :cool. You could get more detailed answers if you posted more about your situation ( short & long term goals, rehab experience, credit score, money, etc). I'm sure the veterans will chime in as well. Good luck!
It’s not additional taxes - but if you flip homes, the money you make is subject to your regular tax rate - just like if you worked a job. It’s ordinary income. Keep in mind that you also need to withhold your own social security and such, since you are basically self employed. The only way around it (legally, at any rate ) is to hold the property for longer than 1 year.
thanks plhemboy and others for the replies…please everyone keep them comming.
i figured that might be the issue not being able to sell quickly in the current market state. and although i realize flipping houses is not a get rich quick scheme i like the idea of making your profit (if succesful) in a lump sum, what ever amount it may be, rather than on a monthly basis. as well as the lack of a headache that being a landlord could turn into. i’m not ruling it out, but at least to start off with i like the idea of flipping better. another reason being is this… i’m 23 and i just moved out of my parents a year ago, and have never been a home owner, so if i stuck with flipping for my first project, i could find a house that after the rehab i could except as my own home. that way i can buy it, rehab it, and if i sell then great i make a profit, if not, i still win because i would be a first time homeowner.
another thing i’m curious about has to do with strictly cosmetic rehabs… first of all i want to say that i was interested in flipping real estate before any of the tv shows that are on now, and no i’m not stupid i know its not as easy as they make it look on tv. that being said… today i did watch an episode of flip that house on tlc and here is the run down… a couple bought a house in orange county, CA for 1,000,050.00 that was fairly new i believe it was built in '99 so as you can imagine there is very little chance of any unseen problems such as foundation, plumbing, electrical because (correct me if i’m wrong) houses that new don’t generally have those types of problems. there renovation budget was 75k. they put in new floors in the whole lower lever and some of the upper level, upgraded from tile to granite counter tops (kitchen) as well as new stainless apliances. tile counter tops to marble (master bath) basically re did the whole master bath. re-stained wood trim and railings to a dark color, and minor landscaping in the back yard. there target sell price as suggested by there realtor, was right around 1.25 - 1.3 million. it seemed like a fairly straight foward flip, in a project like this… besides issues with contractors, and holding costs due to not being able to sell right away, what would the risk factors be?
sorry about the long posts, there is a lot i want to know.
i think you identified the biggest problems on the TLC show. you have to take when that show was filmed into consideration, it could have been 3 years ago when the market was a lot better. Personally if they have 1.1 mil into a house and only going to get 1.25 out of it that doesn’t justify the risk. one or two things could have went wrong and ate away another chunk of profits, not to mention trying to sell a house worth 1.25 mil. even in cal. that is still out of the avg. homeowners price range. not to mention if you can’t sell it, what are you going to do rent it for half the mortgage payment because you can’t rent it for 4grand a month. but then again i didn’t see the episode, am not in cal. and not an expert. but i would have stayed away from that deal.
you are on the right track with reading and finding out everything you can about flipping/ real estate. the one thing i think you are missing is that if you are getting into this business you will, at sometime, need to be a land lord. as always all real estate is local. i don’t think you’ll find too many people buying properties all over the country to flip… if you get to that point you will probably be running a multi-million dollar company with plenty of employees
The length of holding time does not necessary change its taxable disposition; however, longer holding times couple with other circumstances may prevent it being taxed as ordinary income.
You have to look at what your local market is in regards to selling quickly. The quick lump sum money you're talking about only comes if the house sells quickly. If you have to sit on it for 6 months, you'll have to rent it out to cover your holding costs. You may be forced into landlording whether you like it or not. Why not get a fixer- upper and live in it while you you rehab it? How about rehabbing a rental property? You can always hire a property management company to tend to the day to day issues. While flipping has its place in regards to quick money, that really only happens in a hot market. If your local market is similar to most markets I've seen, there are not a lot of buyers right now. If the economy keeps slumping, homebuyers are gonna stand on the sidelines and rent their apartment until their confidence in the economy returns. People will always need a place to live. Apartments offer the cheapest route. I tend to favor purchasing assets that pay for themselves and put money in my pocket... for years.. Think about it. If you were to become disabled, how many houses can you flip in order to earn your money? When you acquire cashflowing assets, your money works for you; regardless if you get out of bed or not. It's a lot easier to hire people to manage your properties than to manage a lot of flips. You have to be involved in every aspect of flipping constantly. It requires a lot of your time and effort.
) is to hold the property for longer than 1 year.