Does Flipping the House Pay it Off?
Flipping a house refers to the practice of purchasing a home at a discount and selling it at a higher price for a profit in a short amount of time. Homes purchased for flipping are usually discounted because they're in need of repairs. Investors who flip houses usually buy in cash or with short-term "hard money" loans, but the premise is the same: The loan will be paid off if the house sells for enough.
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Basics
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Flipping is the equivalent of selling a home. This means that if you flip your home, you'll have paid off the mortgage, but you'll also have transferred ownership to the buyer. This is a risky strategy, because you're counting on being able to sell the property. In a down housing market, this may take time. In the meantime, you are stuck making payments on the mortgage, unless you purchased the property with your own cash.
Understanding the Market
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Deciding to flip your home should take into consideration the home's current market value in relation to how much is owed on the mortgage. For instance, if you purchased the property for $80,000 because it had been vacant and mold was growing inside, you likely can't turn around and sell it for any more than you paid. Taking into account closing costs, that would leave you in the hole financially. You thus have to raise the market value of the property. In this scenario, getting rid of the mold and making it look livable again would raise the property's value so it can be sold at a price that would allow you to pay off the mortgage and closing costs and walk away with a profit.
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Preparation
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When flipping a house, the goal is to maximize your profit. You may do this by tackling needed repairs, making cosmetic improvements or taking on major renovations. Check your finances to see how much you can spare in home improvements. If you don't have a lot of capital to work with, you may only be able to make minor repairs and cosmetic improvements. But even a fresh coat of paint and an uncluttered lawn can make a difference.
Process
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You'd sell the flipper home just as you would any other home, so you might choose to place a "For Sale By Owner" sign out front or use a real estate agent to list your property on the Multiple Listing Service, so other agents searching for buyers can easily find your home. However, be wary that lenders may be exercise more caution than normal when issuing a mortgage note for a flipped property. A buyer's bank may research the home title to ensure the selling price mirrors its market value, notes an article on the MKE Mortgage website. It may also require you to document improvements to the home via receipts.
Considerations
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Various things can eat into any expected profits when flipping a house. You'll have to pay real estate commissions and property taxes. Unless you used the home as your primary residence for at least a year, you may have to pay capital gains tax on the property. Some flippers sometimes choose to live in a property for that amount of time while making repairs to their property so they don't have to pay a mortgage on the flipper and a second mortgage or rent on their place of residence. They can thus make repairs more slowly then flip the house and avoid capital gains tax after a year.
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References
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