GMAC Real Estate – Real Estate Flipping Guide: The Risks
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Real Estate Calculators

Real Estate Flipping: the Risks

Takeaways

  • Market downturns are a major risk for real estate flipping.
  • Don't miss structural problems when buying a home to flip – it can devastate your bottom line.
  • Taxes on real estate transactions can quickly eat into flipping profits.

Did you know?

  • If a house is bargain priced, it usually needs repairs.
Look out for profit-eating traps when flipping real estate. The real estate market is always subject to change. Sometimes the changes or corrections take a long time; sometimes the market changes faster than anticipated. One of the major risks of real estate flipping is buying property and not being able to sell it quickly at a profit that exceeds the costs of the purchase and resale transactions plus repairs. Every month the property does not sell impacts your profit margin.

Many successfully flipped properties are purchased at a bargain because repairs and cosmetic fix-ups are needed. Sometimes a fast exterior paint job increases the resale value. Easy, right? However, if serious structural defects are missed when buying the property and surface during the resale, profit evaporates. On the same note, investors must weigh the cost saving versus time spent on DIY repairs over hiring a fix-up handyman to ready the property for resale.

Like any other investment, real estate flipping has tax and legal implications. In most cases when property is bought and re-sold within 12 months, profits are taxed as ordinary income. If you are in a high tax bracket, taxes could take quite a hunk out of your profits. You should have a real estate broker, attorney, and tax consultant in your corner to be sure you can maximize the rewards and minimize the risks of real estate flipping.

Never forget that the lure of quick profit sometimes blinds investors to the drawbacks and risks associated with real estate flipping.

Learn More About Real Estate Flipping

To learn more, explore the advice on Real Estate Flipping in this section of our site. Before you engage in this aspect of the Real Estate business, you need to be fully informed. We recommend you talk with a GMAC Real Estate Agent, to get professional and experienced real estate advice.