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Now here’s the first reason I don’t flip properties: It’s a LOT of continuous work.
For example, it’ll usually take me about 3-6 months of work just to find ONE property that’s worth buying. I’m a lot more conservative when than most investors, because when I buy something, I KNOW I’m making money on it – I build in a large enough buffer and margin for error that even if the market goes DOWN, I’m still coming out ahead. And finding these deals takes a lot of time.
Secondly, if I WERE to flip a property, what a lot of people don’t realize is that the profit you make is taxed as ordinary income, not long term capital gains tax.
And this is where it gets rather nuanced…the IRS classifies that anyone who’s buying a property in an act to resell it for profit, your profit could still be counted as ordinary income. However, according to the IRS, you’re now an owner-user, and you can sell that property for up to a $250,000 gain if single, and a $500,000 gain if married…completely tax free. So I could “flip a property”…by just living there for two years…and then make that $100,000 profit TAX FREE just by living there instead of flipping it immediately. The more you know.
In addition to that, you also have CLOSING COSTS that will eat into your profit anytime you sell.
I’m going to pay about 6% in closing thats…that’s escrow, title, and insurance fees, as well as Realtor commissions.
Now the THIRD reason is that, when flipping property, market timing is a HUGE factor in what you can make.
When the market is consistently going up every month, it’s a GREAT time to flip real estate. But given the nature of flipping real estate, how time intensive it is, and how much work goes into it…most of the time, you can’t afford anything to go wrong. Often, if the market goes DOWN during the time you buy it – you’ll begin working JUST to break even on your investment, and sell it without losing money.
On the other hand, RENTS tend to be a LOT more stable…even if the market goes down, usually rents stay about the same. This means on a rental, I can much more easily estimate what my monthly profit would be over the next few years – than I could guess what property values would be by the time I want to sell.
So with that said, the FOURTH reason I don’t flip properties is because it would take my time away from my main focus, which is working as a Real Estate Agent and making these YouTube videos.
I’m the type who LOVES to avoid stress and obligation. I don’t want more on my plate, I don’t want more on my mind, I don’t want the pressure of needing to make sure everything goes as planned…I love the set-it-and-forget-it mentality, where I can pick up and go anytime I want without worrying about what contractors are doing, or concerning myself with where the next deal is coming from. That’s just me, other people love the constant hustle…I don’t.
And finally, I believe that when you DO buy a property like that, where you can fix it up, and it has THAT much equity in it where you can flip it for a property, chances are, you can just rent it for a higher amount than you could before.
This has been my mentality for every single property I’ve purchased. When you run the numbers, too…depending on your tax bracket..sometimes you’ll actually end up with MORE money by doing a cash out refinance than you would SELLING the property and paying ordinary income taxes on it. So you’ll actually make MORE NOT selling it, than you would by selling it…how crazy is that.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
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