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5 Questions to Ask Before Flipping Your First House

Posted by Chris Peterson | Jul 11, 2022 | 0 Comments

Unless you're an experienced house flipper, navigating the ins and outs of flipping a house can be daunting. From finding the right property to sell to overseeing renovations and dealing with loan options and taxes, there's a lot to think about. And if you're not careful, one wrong move can cost you big time.

To help you avoid making an expensive mistake, we've compiled a list of five questions you should ask yourself before flipping a house.

  1. Do you have a team? One of the most important things to consider before flipping a house is whether or not you have a team in place to help you with the process. A good team will include a real estate agent, a loan officer, an experienced contractor, an attorney, and a title company. If you don't have all of these people lined up ahead of time, it's going to be difficult to get your flip off the ground.

  2. What is your budget? Once you've found a property that you're interested in flipping, it's important to sit down and develop a realistic budget for the entire project. This budget should take into account the purchase price of the property, the estimated costs of renovations, holding costs like insurance and property taxes, and the real estate agent's commission. It's also important to leave some room in your budget for unexpected repairs or cost overruns.

  3. How much can you realistically make? When it comes to flipping a house, there's a lot of talk about making a big profit. But it's important to be realistic about how much money you can actually make on a flip. A good rule of thumb is to expect to make around 10 to 15 percent of the property's after-repair value (ARV). So, if a property's ARV is $200,000, you can expect to make between $20,000 and $30,000 in profit. What's important is to make sure that your estimated profits are in line with the market you're flipping in.
  4. What are the risks? Flipping a house is not without its risks. The most obvious risk is that you could lose money on the deal if the renovations end up costing more than you budgeted or if the property takes longer to sell than you expected. There are also a number of legal risks to consider. For example, if you're doing any work on the property yourself, you could be liable if someone is injured while working on the house. It's important to talk to an attorney about the potential risks involved in flipping a house before moving forward with a deal.

  5. How will you deal with capital gains when you make a profit? If you plan to flip again, you'll want to think about this question sooner rather than later. When you list the property, it may be wise to handle the transaction as part of a 1031 Exchange.  This allows you to sell the property and defer paying capital gains taxes on your profits by reinvesting them into another investment property.  You'll need a qualified intermediary to help you with the process, which we are here to assist you with. Please contact us if you have questions.

Overall, flipping a house can be a great way to make a profit. But it's important to do your homework and ask yourself some tough questions before getting started. If you take the time to answer these questions honestly, you'll be in a much better position to succeed as a house flipper.  Of course, if you have questions about real estate investing or the 1031 Exchange process in general, please contact us at (888) 508-1901 to schedule a consultation.

About the Author

Chris Peterson

Chris Peterson is the owner of Peterson Law Group. He practices primarily in the areas of wills, trusts and estate planning; probate and trust administration; elder law; and business law. Chris is also the owner of Brazos 1031 Exchange Company.


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