TV Reality Shows on Flipping Houses
and
Real Estate Investing Terms Explained
By: Jeanette
Joy Fisher
The
TV show Flip this House spurred a lot of interest in making
money in real estate by flipping houses. However, the show only tells
part of the story. Often, the viewer never gets to know if the
renovated house sells or not.
How can you learn about making money flipping houses if you don't get
the entire story on how much profit the investor made? Also, the
investors rarely get their hands dirty and hire out all the remodeling,
which costs a lot.
Another reality show scheduled for The Learning Channel, Property
Ladder,* also focuses on the "rehabbing" side of flipping
houses. In this show, the investors do the home remodeling themselves
instead of hiring outside help. Let's hope the new show gives us more
details on costs, profit and loss.
To many real estate investors, the type of real estate investing these
TV reality shows feature is termed "rehabbing" or fixing a
"fixer."
Flipping Houses: Terms Explained
Old-school investors think of "flipping houses" differently.
They think of a "flip" as a house (or just its purchase
contract), which is purchased below market value for a quick resale.
The house may never transfer title into the investor's name. These
investors look for sellers under duress to sell for 70 percent or less
of market value. The house may not even need fixing. When the house or
purchase contract sells to another party, possibly another investor
"rehabber," the "flipper" pockets quick cash.
The flipper or "quick turn" investor may never even
"invest" any of his or her money into the purchase.
Quick-turn investors look for many "flips" to do each month
and like to make $5,000 to $10,000 or more on each house.
The "rehabber," who fixes many houses each month with a team
of contractors, may or may not do some of the actual work. Rehabbers
who do the work themselves take longer to do a project and do fewer
homes each year. If they keep a house for over a year, rehabbers can
gain a significant appreciation if the property value increases. Plus,
they do not have to pay high income taxes. Investors who sell in less
than a year pay taxes based ordinary income. Holding over a year gives
investors the long-term capital gains tax break.
State taxes also cut into the investor's profit. In California, the
state gets the first check out of escrow--almost 3.8 percent of the
sales price-- regardless of the profit percentage. Investors need to
wait until they file tax returns to get their money back.
Investors who specialize in "Pre-Construction" also flip
houses. They gamble that a builder's home will appreciate in value upon
completion. Some builders require that an investor keep the home for
over one year to keep speculation from harming the home buyers who
intend to live in the home.
No matter what you think of when you hear the term "flipping
houses," you can bet that the knowledgeable investor makes money.
Copyright © 2006 Jeanette J. Fisher
Article by:
Jeanette
Fisher teaches interior design secrets for fixing houses. For more Real
Estate Investing Information for beginners, visit
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