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 These can be outdated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.
