all these flipping shows?

Question

OK,
so there are all these flipping shows now.
Buy a property for 500,000
Put in 50,000
sell for 900,000 in 4 months.
and they say the person made a 350,000 profit.
but that is not reall true? right?

don't they have to pay big taxes. because they did not hold on to the house for 2 years?
dont they have to pay for sales tax?

anyone know in this scenario what else would be paid out?
thanks

Answer 1

Be wary about the "don't have to pay tax" thing -- the ONLY way to avoid capital gains tax under current tax law is to live in the house as a primary residence for a minimum of 2 years. That can be off-and-on over a 5-year period, but still must be 24 months (although the IRS can grant exceptions under certain conditions).

Anything else is tax DEFERMENT. You may not have to pay the tax this year, but you will have to pay eventually.

I do a couple fix-and-flip deals a year. I don't bother with the tax games; if I pay now, I know how much I have to pay and I get it out of the way. If I play games, I know I'll have to pay later but I don't know how much. Probably a higher rate, so I'm better off paying now.

The deal you mentioned -- 350K return on 550K in 4 months -- can I have some of that to fertilize my lawn?

A more typical deal would be buy a bank repo fixer-upper for 90K, put 20K and a lot of hard work into fixing it up, selling for 140K. Add in closing costs, realtor fees, and finance charges, profit before tax is about 20K. Figure about 4-5 months start to finish if all goes well.

This is not a get-rich-quick scheme. It's a great way to make some supplemental income so you can drive a nice car and eventually retire debt-free, but don't count on buying a yacht tomorrow.

Answer 2

You're right about the two years. If you sell a property in less than 2 years you pay capital gains tax. But, these houses weren't bought to live in, so they are investment property anyway. But, if you're in the right market and you can get the people to work on the house in just a few weeks and then sell it right away, you can turn a nice profit. The scary part is if the market slows down on you and you are left making payments on the house. They make it look easy on TV. I would do it if I could buy it really cheap and I knew a lot of construction workers, but I don't so I won't.

Answer 3

Flipping or even fixing with that kind of profit is rare, and more so in this market. The properties with those kinds of potential never get as far as MLS - the listing agent or their broker buyes them, pretty much every time.

Those shos are likely to represent the best deal anybody ever did as typical. They are not. You might chect out John Reed's Rate the gurus page at http://www.johntreed.com/Reedgururating.html (Not a general endorsement of John Reed, but only of his guru ratings)

Answer 4

To flip successfully you MUST study your market trends for at least three to six months. Go to www.realtor.com and pick out a few listings in different neighborhoods. Monitor these listings to see how fast they sell, that will give you a good idea of a desirable neighborhood. Its better to wait and buy one house that will sell within 3 months..then buy 3 houses that will sit on the market for 6 months. Flipping is not about volume, its about a quick sale.

Example: Purchase a $70,000 house that only needs cosmetic work in a $250,000 neighborhood, be prepared to put in about $50,000 to bring it up to neighborhood standards..then sell for $250,000 and you'll profit a little over $110,000 and be able to purchase another flip house.

Answer 5

There are ways to shelter yourself. For example, some investors are putting their money into a real estate IRA account and using that money to purchase property. They then take the profit from the sale and put it back into the IRA. The profit now becomes untaxable.

Regards

Answer 6

i also watch those shows.
in my understanding from total profit they deduct everything like real estate commission, legal fees e.t.c -except taxes.
those depends of the flipper situation- if he wanted to buy more properties or just simply pay his capital gain tax or maybe something else. there is many ways to avoid to pay those taxes- talk with your CPA they will guide you

Answer 7

most of those are exaggerations, they make it seem easy. It defintiely can be done, but you need to work hard at it just like anything else. Those companies are all just about marketing, nothing else. You can get all that info for free, they just cater to total novices.

Answer 8

Most of the people that do that sort of thing are realiters that can get around taxes and all of that b/c that is their job and everything.

Answer 9

You have to have been doing this for a while to start even breaking even.