By Kevin Chiu
The monetary hunger of millions has driven flipping homes to earn a reputation for being an investment ploy to make fast money through a slew of TV shows. But the weak housing market has sent some of those trying to flip homes to flipping out.
Distressed properties, including foreclosures and short sales can be purchased cheap and with an investment of time and money can be transformed into valuable commodities. However, the collapse of the housing market is changing the rules flipping homes.
In some cases, wannabe flippers are finding that homes are worth less than they anticipated. In areas where home prices have been most depressed flipping homes have flopped as flippers are left holding the keys to their flips and a bloated mortgage. “It’s been pure hell,” said Roger Baylor, 37, a Las Vegas handyman who used to make his living in construction work in home building.
“I bought a home way under the price of others in the same area, did my home work and got a loan. Now almost a year later I own a home that is worth $15,000 less than what I owe on the mortgage.”
Baylor purchased a five year old 3-bedroom that only needed cosmetic repairs, carpet and paint and like a lot of other aspiring flippers is trying to make ends-meat in a tough economy.
Television shows like on A&E “Flip This House” and “Flip That House” on The Learning Channel may picture the lighter side of flipping, but many episodes lack the key ingredient of actually relating just how much flippers made or lost on their flip.
During the boom years it seemed like almost everyone was buying a home. It didn’t matter what was being put on the market or where, from the biggest “Mc Mansion” in the ritziest neighborhood to the dinkiest cracker box on the outskirts of the meat-packing district.
For home flippers, it was a time to make hay while they could and pocket the profits as fast as they could before the inevitable crash happened. The same rules no longer apply.
A smart flipper will take time to do his or her homework. It’s crucial to research any potential purchase completely, checking the latest comparable sales, days on the market and consider the possibility of living in the home as a primary residence if things don’t work out.
“It takes me an average of three months to find the right home from the day I start anymore,” said Steve Harnett, 46, a Miami flipper who has flipped more than two dozen homes. “The business has gotten a lot more competitive and most people are over-paying even with the huge supply of homes available.”
Understanding the tax and legal ramifications of house flipping is as important as understanding the market. It will do you no good to sell a house for a profit, and hand a large portion of the profits over to the IRS. Far too many flippers have learned this the hard way. The smart home flipper will pony up the fees for the advice of knowledgeable professionals.
A professional tax advisor, CPA and tax lawyer need to be on your side before you start buying up properties. Can’t afford professional council? Then you might strongly reconsider whether or not you have the kind of financial base needed to successfully flip properties in the first place.