Is "flipping" for you? These are the potential risks and rewards of buying homes at low prices to sell later for a profit.
Advantages
- You can be your own boss and make a decent full-time or side income.
- The Federal Housing Authority (FHA) has extended the ban on their "90-Day Anti-Flipping" rule for all FHA-insured loans through December 2014. So, eligible buyers can use FHA-insured financing to buy properties they plan to flip.
- If you plan ahead, do your homework, and market well, you can make a quick profit. This involves determining how much you need in profit, including the after-repair value and the location, and calculating repair and closing costs.
- You don't always have to fix a home much or at all; some new homes in hot markets can sell, too.
- You can buy homes that don't need extensive renovations, to bring them up to par with others in the neighborhood.
Disadvantages
- The work involved in research, meeting people, securing financing, etc. can take a lot of time, so you should decide what to delegate to others and budget for professional help.
- You can't predict when a home will sell or what will appeal to buyers.
- Having cash on-hand for a down payment is more important now, and how much you can afford affects your loan interest rate.
- Sometimes contractors do shoddy work or take too long to finish -- make sure they're licensed and insured. Before you hire anyone, check references.
- You can spend a lot of money up front. Sometimes flippers don't plan well or make much of a profit. They can over or under-remodel or estimate their budgets. And the more people involved, the more it will cost.
- If you sell a home after owning it for a year or less, it's subject to a short-term capital gains tax.
For more advice, call Coldwell Banker Rizzo Mattson: 207.622.9000.
Sources:
Connors, Tiffany. How House Flipping Works. How Stuff Works.
Dolamore, Lindsay. Realtor.com: Fix and Flip Homes Still a Good Investment.
Poretsky, Solomon. The Nest. What are the Disadvantages of Flipping a House?
Roberts, Ralph R. Flipping Houses for Dummies. New York: John Wiley & Sons.
Woollard, Deidre. Realtor.com: The Four Big Fix and Flip Mistakes: BiggerPockets Investor's Corner.
Woollard, Deidre. Realtor.com: Thinking of Flipping? What You Need to Know Right Now.