Dear Claire: Is Flipping a House a Good Idea?
First, let me be clear that house flipping is only for a select group of people. I don’t want a layperson thinking that flipping a house is a good idea.
What exactly does flipping a house mean? It means that instead of buying a property and using it as your residence or renting it to tenants, your intention is to buy it, fix it up, and then turn around and sell it. In a perfect world, that typically happens within six months, occasionally less. A lot of the time it depends on the buyer being able to do some of the work on the home. Most of the time, people that I see doing a flip are people who have a construction license or are contractors, and they can do some of the comps. If you’re interested in this data, I’m happy to share it.
Usually, what you’ll find is that home improvements actually cost more than the value they add to the property. Here’s an example: Let’s say you want to remodel your kitchen and the remodel is going to be a relatively inexpensive kitchen remodel. You would probably end up spending approximately $15,000. Statistics and data show that you would typically only get back about 80% of that investment. If you’re only getting 80% out of what you already put in, it’s not an ideal investment.
So how do you make it work? First, you have to do some of the work yourself or have connections to get the work done. And, if possible, instead of paying retail prices like what you would see at Home Depot, you will need to pay trade prices and get deals that most people can’t otherwise get. That’s the most important thing. Even if you are a successful house flipper, and I don’t want to sound discouraging here, there are plenty of additional pitfalls of which to be aware. You are typically going to be taxed at your income tax rate because you’re turning it over for profit. When you sell houses normally, they’re considered long-term investments, and, because they’re long-term investments, they’re subject to capital gains tax as opposed to your income tax. Income tax is typically charged at a higher rate than capital gains. So, if you’re successful in flipping the home, you’re actually going to end up paying more in taxes than you normally would if you held the house and sold it as you fixed it up over a few years.
I am happy to answer any questions that you have about this process – just reach out to me at (503) 998-4878 or [email protected]. If you would like to see a copy of the 2020 Remodeling and Investment versus Improvement, I’ll be happy to share it with you as well. For additional information and videos, check out our Paris Group Realty, LLC YouTube channel.
As always, thanks so much. Take care.