What Are the Financial Measures for Flipping Properties?

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Flipping property is associated with a few financial measures that are very important. Learn about the financial measures for flipping properties with help from a managing broker with Windermere Real Estate in this free video clip.

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Hello, Jim Jacobsen with Windermere Real Estate in Seattle, Washington and I'm a managing broker here. The question comes up what are the financial measures in flipping houses and I'm going to break this into a couple parts but number one, the flipper if you will, the person who is going to buy the property and then purchase to resell is going to set down with their CPA, find out their tax implications of what takes place and then flip you know, on a short term basis and not being specific but there's a good chance it might become short term capital gain which in turn becomes ordinary income. So a flipper really, it's a job and a flipper is going to have to buy a property at a good value to them, well under market value and/or market value in its present condition and how much is it going to cost them to fix the house and remarket it, what costs are incurred. So number one when you buy the property you are going to have normal buying costs. If you are paying cash, then you're just going to pay your escrow and your title insurance, etc., pretty minimal but a lot of times you're going to use what they call hard money which is money that's going to be at a higher interest rate. So the time frame of you purchasing, fixing and selling are of vital importance because you're paying money out on the mortgage on a monthly basis, especially if it's hard money. So the rates might be 4% today but the hard money might be at 8 or 10%. It's a risk loan because you don't know the future. Now the flipper comes in, they already know what their costs to do the improvements will be but there's going to be the cost, the original purchase, the cost of materials and labor, the cost of selling the property and the cost of time management of the money, in other words, how much time is it going to take for us to fix and market this property. So there's a lot that goes into flipping but it's also going to be very lucrative if you're done right and done by professionals.

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