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Old 02-08-2011, 09:06 PM   #1
Join Date: Jan 2011
Location: Canada
Default Flipping Houses

I know a lot of people probably cringed when they read the title, as it seems this is a very common "get rich quick" plan people have nowadays after seeing all of the shows on TLC, etc. I don't have search capabilities on this forum but I did do a google search of this site and didn't find a good or recent thread solely on this topic.

Anyway, this is something I have wanted to do for a while, even before seeing the shows. However, I do realize that now isn't necessarily the best time to get into it, but I feel that if it is possible to get a really good deal on a house then it is still possible to make money in a not-so-great housing market. I'm not out trying to make $100,000 a house like the people on the TV do in California.

For example, I would have a partner in this venture. He has good connections with people in real estate. There is a house we are looking at now that we can probably get for about $65,000 and after fixing it up can likely sell in the range of $115,000. We would do almost all of the work ourselves, and if necessary we would subcontract out some stuff (my friend also has good connections with subcontractors). This would, considering closing costs, realtor fees, repair expenses, 6 months of mortgage payments, give us about $24,000 in profit. My first question is, what expense(s) am I forgetting to account for? I've read that I should add about 20% to our estimated expenses in repairing the house to account for any unexpected repairs.

Another question I've got is how taxes are paid on the profit of doing this? I'm assuming it varies by state? (I'm in South Carolina)

In general I was wondering if anyone here had some tips for house flipping, so if any of you guys have experience, I'd appreciate the help!
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Old 02-08-2011, 09:06 PM   #2
Join Date: Jan 2011
Location: Singapore

1.) What part of the country are you trying to flip in?

2.) Are banks in that part of the country having mortgage apps. coming in at a normal, large, or small volume?

3.) Do you have a budget set?

4.) Can you keep the budget that you've set?

5.) What is the rate of foreclosure in your area?

If you are going to flip, you damn well better make sure that you can sell this house once you flip it, lest you have to make more and more mortgage payments.

Oh, and if I understand right, the IRS will tax the total profit from what you bought the house at v. what you sold it at during the first 2 years of possession. I'm not sure of the rate, but it is substantial.
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Old 02-08-2011, 09:07 PM   #3
Join Date: Jan 2011
Location: Tanzania

The rate of foreclosure in your specific area will be totally different than South Carolina as a whole. If you drive around your neighborhood and see a lot of for sale signs, then don't do it.

Example: in Ohio, the rate of foreclosure where I work (0 foreclosures in the past year) is totally different than the city where I live (50 foreclosure announcements in the paper last week). Do market research, and for the love of God read about Casey Serin.
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Old 02-08-2011, 09:07 PM   #4
Join Date: Jan 2011
Location: Mozambique

I guess I should've been born with the innate knowledge of this topic?

I've got a little bit of experience on this just from the house that I live in now. We bought it a couple of years ago for $90,000 and re-did a lot of stuff in the 11 days that we had before we moved in (painted every wall/ceiling, all trim, re-finished hardwood floors, tile in kitchen, new cabinet doors, built some new cabinets, new appliances, etc.) We spent about $7,000 on everything and could sell the house in the $125,000 to $135,000 range.

I know this is different because I live in this house (and have for about a year and a half), so that is why I was asking about some of the specifics of doing this to a house you do not live in.
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Old 02-08-2011, 09:08 PM   #5
Join Date: Jan 2011

As a rule of thumb I try to stay far away from the most visible and 'glamorous' avenues to make money as they are typically overly saturated. Think of it this way. With several television shows getting people motivated to do this you have a large pool of unqualified and destined to lose participants. Also amongst this pool is an increasing number of 'experts' in the field who invariably will be dominated the market as they are either extremely experienced, talented or both. The level of competition is so high that unless you are equipped to compete with the top tranches you will get decimated by them. The 'experts' can get the house ready to 'flip' much quicker, cheaper and better than you can from the start and the customers cannot distinguish between you, the experts or the diluted pool of idiots leaving them disillusioned and therefore driving the prices downward.

Now factor in the current economic environment and you have yourself an extremely risky endeavor regardless if it is a weekend project or not. The reward may not be worth the risk so you should begin to investigate some other areas to spend your weekends for profit. If you are handy perhaps you could do some side work for existing homeowners. At $50 an hour for maybe 8-10 hours a weekend that fleshes out to equal out your $24k profit target gross. Cash based business too so your call on whether to report or not to the IRS

Figure where your efforts are best utilized based on your skill set and the overall environment. It is what every major company does. It was never anyone's childhood dream to create some plastic flanges but there was a man who found a way to do it better than someone else and at the right time. You don't need to revolutionize an industry, but capitalize on your skills.
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Old 02-08-2011, 09:08 PM   #6
Join Date: Jan 2011
Location: France

I've done two now, though I prefer being a landlord. I've made okay coin but nothing spectacular, it's mostly been side projects for me to get an extra $20K or so a year on top of my existing income and keep contractor buddies employed so they do work for me more readily. Assuming your market in the area is good for sales, I can offer a few pointers.

- Don't quit your day job.
- Get the lowest possible downpayment and live in the house while working on it. Lenders and house insurance companies like it a lot more when you live in the house yourself. Low downpayments usually require mortgage insurance, this can usually only be obtained if you're going to live in the house yourself.
- Drywall is cheap and easy, subcontract it. "Everyone can do drywall", you can often find people standing on the street corner who'll do drywall for $50 per day.
- Painting is just as cheap and easy. Subcontract painting and drywall out and do more difficult micro tasks yourself.
- Do not ever buy a house without a full basement that you can stand up in. It is very difficult to resell otherwise, unless you're in an area where basements are rare or the water table is very close to the surface.
- A driveway with sidewalk ramp makes a house much easier to sell as well. Basement + driveway = easy flip.
- Detatched sells for $10-30K more than semidetatched automatically no matter what area or condition.
- Don't buy duplexes, they're much harder to get insurance for. Inlaw suites are fine.
- If the basement leaks, main wooden supports have any rot, or the foundation or interior walls have any signifigant cracks, pass unless you're getting the place for land value. Moist walls mean troft problems at a minimum and bad weeping tile or adjusted water table at a maximum. You are ****ed if it's the latter. Unless you are an expert you will be unable to tell what the cause is. These defects can be hidden easily but you may be liable if the place collapses after you resell it.
- Spend the least money possible for the maximum visual improvement before selling. Crooked floors and walls, bad walls, bad exterior siding, or bad paint will kill a sale. Structural issues not so much if they're well-hidden and the place still has a decade or two left in it. You have to be a bit unscrupulous to flip houses and make money at it. Keep an "I don't care if the place is still standing 20 years from now" mentality at all times. You're not fixing houses to make them last forever, you're fixing them to sell to suckers, essentially. People who aren't stupid will know when you're a house flipper and likely avoid the place, and good real estate agents who have preferred clients won't list or show your place to them because they know you're just flipping it and they don't want their repeat clients angry off at them.
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