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Is The House Flipping Hype For Real
ouse flipping is hot -- to
the point where more than Flipping hype also leaves an
one successful reality TV unrealistic impression about the
show has been created to feed the amount and complexity of the
appetite of up and coming house renovation work required in order
flippers. But does the reality of to make a significant profit from
house flipping measure up to the a resale. Real estate experts
hype? claim there is simply no way a
house can be improved enough in
House flipping TV shows have met two or three weeks to bring in
with huge success because they $50,000 or $75,000 above the
speak to many homeowners' original purchase price.
aspirations to make it big in one
of the few areas they have some Flipping accounting is also
control over. "Buy it cheap, fix pretty suspicious. We've all seen
it up, and then resell it for a those less-than-$2000 renovations
large profit", sounds like completely transform a home on
something anyone who can "work TV. But the reality is that real
smart" is capable of doing. renovations often cost much more
than these shows lead us to
But there are problems. One of believe.
the big ones is that
do-it-yourself renovators often Profit calculations made by
do not realize the renovations flipping hypesters often leave
they plan to do require permits out some pretty crucial
and inspections. In some cases information too. Simply
their renovations can be halted subtracting the final selling
by unhappy neighbors disturbed by price from the initial purchase
the noise and unusual activity price may look impressive at
next door. first. But this often completely
ignores the full costs of misconception on the part of some
renovation, permits and people who think they can buy a
inspections, not to mention real residential home, not necessarily
estate agent fees, legal fees, their personal residence, fix it
and taxes. up and then sell it and then get
what we used to call the old
**Don't Ignore House Flipping Tax rollover provisions where you use
Issues the money you made to buy another
piece of property for more than
If you're thinking of doing some what you sold," says Rucci.
house flipping, be prepared to
wrestle with some pretty serious But according to Rucci this only
tax issues. The general used to apply to personal
impression of house flipping residences. But more importantly,
(buying cheap, renovating, and these regulations no longer apply
selling quickly for a profit) is even in those cases. They have
that your average person can turn been replaced by more
a hefty profit without having to sophisticated, more restrictive
worry about the tax man. But the legislation.
truth is, in the U.S. and in many
other countries, profit made on Current IRS legislation makes a
selling houses is taxable income distinction between owning a home
unless it is your primary as a personal residence, and
residence. owning a property for investment
purposes. In order to qualify as
According to Bill Rucci, a CPA a personal residence, you must
specializing in real estate live in a house for at least 730
investing, many real estate days (2 years) over the last five
investors are completely year period. In that case,
uninformed. "There is a huge profits made on a sale after the
2 year residence period are tax a longer term investment. In that
free on up to $250,000 profit. case profits will be taxed at the
long-term capital gains rate
But if you own a home for which, in most cases, is a
investment purposes (as most maximum of 15 percent.
would-be house flippers do), and
do not actually live in it, you Either way, it is pretty clear
could pay as much as 35% on the that the IRS does not look kindly
profits. Hold it for more than a on house flipping.
year and the IRS will consider it
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