Flipping homes can be quite lucrative but some buyers don’t always have the capital to invest in order to complete the project.
So what else can you do to get into the house flipping game?
Start by flipping your primary residence. Find properties you can live in that need work. Buy it then renovate it. There can be a number of benefits to flipping a primary residence, as opposed to an investment property, but you would have to keep in mind that you’re going to be living in a project, and flip projects are not the most comfortable places to live.
For a primary residence, it’s not a requirement for you to have a 20% down payment in order to buy which is often the case when you acquire an investment home. Additionally, when you purchase a primary residence there are many more loan options that do not require you to have as much cash on hand. Some options even include 100% financing.
Secondly, you can take more time to make improvements. As soon as you close on an investment property the countdown begins and every day that passes, while you own the property, is money lost in carrying cost and time off the market, or on the market. This chips away at your bottom line and can cause a lot more concern due to the fact you haven’t yet sold.
Third, after you sell the home you get the benefit of not being charged capital gains tax. On investment properties, after the sell, you have a capital gains tax that must be paid to the government which is approximately 14-25%. However on personal property, the tax is waived for property sold up to $250k if you’re single, and up to $500k if you’re married, as of the time of this post. But the caveat to avoiding the capital gains tax on your primary residence is that you must own the property for at least two years. So, if you want to avoid capital gains, you have to be okay with a minimum stay of 24 months before putting the home back on the market.
For the potential ROI (Return On Investment) it can be worth the wait.
Author – Steve Gunter is the Real Estate Team Leader and Editor in Chief for Urhous Real Estate and Media Group. Steve enjoys running, eating (especially a great slab of ribs), and although he can’t swim, going to the water park with his wife and kids.