The Costs of Flipping Homes
While buying, fixing, and quickly reselling properties can be lucrative, it takes much more money to flip a house than it does to simply buy a house in which you want to live. Not only do you need the money to become the property owner, but you also need renovation funds and the means to cover property taxes, utilities, and homeowners’ insurance from the day the sale closes through the rehab work and until the day it sells. Short-term capital gains tax rates of 10% to 37%, depending on your federal income tax bracket, will cut into any profits you earn on properties you flip within one year or less.
If you have no cash of your own to invest, getting started in house-flipping is not an easy proposition. This isn’t 2005 when anyone able to fog a mirror could get a mortgage with nothing down. Even if you qualify for a loan with a down payment, you’ll pay more when you’re borrowing to finance a flip than when you’re borrowing to buy a primary residence. That’s because lenders see flipping as a riskier proposition.
Further, many lenders will not work with inexperienced flippers. They will want to see that you have a successful track record of selling at least one home for a profit. Others will work with an inexperienced flipper but will charge higher fees and interest.