How much will it cost?
The median cost to improve filliped homes is almost $5,000. However, many projects cost more. A significant kitchen remodel costs roughly $55,000, while a bathroom costs $16,000. To be safe, experts advise adding 10% to your projected project budget, and not to rely on making a profit. Instead, home flippers should be financially stable even if they only break even. It may be worth tackling bigger projects, though: flips associated with building permits have a 50% ROI. This is much higher than the average ROI of all flips (including ones that solely involve cosmetic changes), which is 13%. Indeed, there is a positive correlation between how much an investor spends on a home and his ROI.
What type of home should I buy?
If you want to flip a house, look for undervalued properties. Professionals look for homes approximately 30% under market value. These can be outdated fixer-uppers, foreclosures, short sales, or homes sold at an auction. It’s no secret that these homes offer the best potential to flip, so be prepared to act quickly if you see a home with great potential.
How will I be taxed?
If you flip a home on the side (i.e, you still have a full time job doing something else), that’s considered an investment as opposed to a business. If you hold onto a house for a year or less, the proceeds are classified as a short-term capital gain and will be taxed at your regular income. If you own it for over a year, it’s considered a long-term capital gain, which is taxed at 15% of the gain.
What else should I consider?
Location is key! When looking for a home, look for a fixer-upper in a great location. Central to location is school district, since a good school district helps homes in that area maintain their value. Richard Davis, creator and star of A&E’s reality show “Flip This House” also warns people who are unfamiliar with the real estate and construction businesses against flipping homes. He comments on an MSN article, “I mean, my wife is a doctor, you don’t see me going out doing heart surgery.” In other words, flipping homes is not a hobby—it’s a profession that requires technical skills, time, and money. Finally, you should be familiar with anti-flipping regulations: houses sold less than 90 days after they were purchased are not eligible for FHA mortgage insurance.
The best (and worst!) cities to flip homes in:
According to RealtyTrac, the best place to flip a home is Pittsburgh, PA. Here, the average purchase price is $54,949 and the average flipped price is $103,755. That’s a ROI of 89%! Other cities with good flip potential include Philadelphia, Memphis, Detroit, Seattle, Baltimore, Milwaukee, Atlanta, Rochester, and Washington. Each of these cities have ROIs between 43-56%. On the other hand, Indianapolis-Carmel is the worst place to flip a home, with an average purchase price of $163,400 and an average flipped price of $144,400—an ROI of -12%. Other cities with a negative ROI include Tampa/St. Petersburg/Clearwater, Houston, and Charlotte.