Building wealth flipping homes

Flipping homes can be good way to build wealth, but there are many pitfalls to consider before plunging into a project.

Always be mindful of what can be expected.

Prepare for the worst. Make sure you include all potential costs into your budget assumptions. Add a minimum 10 percent margin for error. Here are just some of the costs that flippers need to calculate before purchasing:

• Repairs
• Holding costs (taxes and insurance)
• Debt service
• City fees (permits and deposits)
• Sales costs (title, escrow and sales commissions)
• Income taxes
• Price fluctuation (potential 5-10 percent change in either direction).

If you start to see price declines, increased inventory levels or longer days on market, be cautious. It could take longer to sell your property, which would increase your holding costs and eat up your profit. Plus, your final price could end up lower than you initially calculated. Always have plenty of reserves on hand to cover the possibility of extended holding costs.

Research your local city regulations. Nothing can kill a deal faster than a slow permitting process. You've got to understand what the local municipality will demand of you. If you try to do the work without permits, you could be held liable if you don't disclose it to the buyer. You most likely will not pass inspections if you don’t comply with the code enforcement requirements.

Anticipate higher costs. Calculate higher costs of building supplies from recent tariffs, higher labor costs due to a shortage of skilled construction workers, higher permit fees due to increased regulations, higher interest rates, higher gas prices and higher acquisition costs.  

Budget your time. If you have a full-time job, make sure you have enough time left over to manage the purchase, renovation and sale of your flip. Otherwise, partner with someone who has both time and experience to get the job done right.

Know your tax liability. If you're in a high tax bracket, nearly half of your flip profits may go to Uncle Sam.  Consider putting the property in an LLC for both asset protection purposes and increased tax deductions. Always talk to your CPA before making any investment.

Smart investors can certainly make a good amount of money flipping homes today. Those who succeed have systems in place. If you're just starting out, make sure you have an experienced expert/mentor to help you, even if you pay for their time.

For more good information or to search for homes go to https://homesalesneworleans.gardnerrealtors.com/