Archives: Real Estate Investment
It’s a common question these days. Is it really possible to make a ton of money flipping houses and quit your regular full time job? With all of the house flipping shows on TV they make it seem easy to pocket anywhere between 40k and 100k just flipping one house in just a couple of months. That’s more than a lot of people make in a year, so it seems very appealing. But are they really making that much money? What are the other costs?
Agents And Closing Costs
I often wonder if in that final projection of their profit are they taking out for the realtor fees and closing costs? It’s not uncommon for agents commissions and closing costs to take up as much as 9% of your selling price. That’s a big chunk of change. Now you might be able to do some searching and find a brokerage that will list the house for only 1%, but still more than likely the buyer will have an agent that will require at least 3%.
An important thing to remember from what I have seen is that the lower your commission the less agents will take notice of your listing. Think about it, if you were an agent and could possibly sell a house that has a full 3 or 4% commission or one that has only 1%, which property are you going to show to a qualified buyer? So sure you might save a few bucks in commissions, but on the flip side you might sit on the property longer only paying more in finance charges for the property as well as insurance and utilities.
Just like every other business, good ole Uncle Sam is going to want his share, and in the case of flipping houses, he wants a big share. Sterling White has this to say about Uncle Sam and his share –
One big flaw in the house flipping model is taxes. Uncle Sam takes a huge chunk of the profits in tax on flipped properties. It’s extreme. Most overlook the fact that they are going to have to give up 20% to 40% of their profits in taxes. If flippers have already spent the money by the time they get their tax bill, a vicious cash crunch cycle can kick in. Most won’t enjoy being chased down by the IRS for $50,000 or $500,00 in past taxes.
20% to 40% – that’s another big hunk of change out of your pocket!
So now we are looking at almost half of your projected profits gone between agents, closing costs and taxes.
This is often overlooked when it comes to flipping properties. Your time is extremely valuable! On your first flip you may have to miss time from work and at least spend evenings and weekends at the property. If you are having to miss time from your regular job, this is something you will most definitely have to factor in.
Even if you are able to quickly make the repairs and updates to the property, you still will have holding costs. What are these?
Holding costs before, during, and after renovations can stack up, which is why it’s always best to flip and sell as quickly as possible. Unfortunately, this isn’t always possible; a crash in the economy can turn buyers off or the location you’ve chosen may not be desirable enough; and these are just 2 of many other reasons why your house might not sell as quickly as you’d like. All the time you’re holding onto it, you’re paying the mortgage (if necessary), taxes, utilities, insurance, and maintenance, costs that will eat into your profit margin.
Holding costs can add up really fast, especially if you used a hard money loan to purchase the property. Learn more about hard money loans and what they are in our previous article.
Yes, you can make money flipping houses. However it’s not for the faint of heart, and for sure don’t think it’s going to be as easy as what you see on TV.
Probably the best bit of advice I can give you is to find a local, reputable investor that has done a lot of flips to teach you the ropes and help avoid the pitfalls. Sure their knowledge is going to come at a price, but in the end it could mean the difference between actually making a profit and losing your shirt.
Wow! Has the real estate market changed in the past few months – and for the better! One of our favorite real estate markets in the country is the Georgia market, and more specifcally, the Metro Atlanta area.
The real estate market in Atlanta Georgia will always be a good investment because of a couple reasons, people will always need a place to live, and businesses will need property in which to conduct their business, or manufacture their products. In this short article we will discuss different ways of investing in properties for rental income.
Real estate in Georgia, and especially around the Atlanta area, can be purchased solely for the purpose of using it as an investment property, or more commonly known as a rental property. First of all you will get some tax deductions due to the fact that it is a business, but you will also be building equity since the property will probably appreciate in value over time.
Once the mortgage is paid, then the rental income is pure profit. This can be a long haul, and the real estate investor really has to have some cash set aside for repairs over the years.
Another way to accomplish much the same thing is to join a real estate investment group, This model works well for investors who don’t want the day to day management of dealing with broken toilets and fixing faucets. The group itself owns several rental properties and the group pools their money for repairs and such. The group has a chance to discuss new acquisitions, and there is some power and safety in a group effort like this. These can be hard to locate, and also one “flake” in the group can really mess thinigs up, so just make sure you know what you are getting into, and with whom.
Also, if you don’t want all the headaches of dealing with tenants at 3 in the morning because their toilet is backed up, you can also employ a management company that can take care of all the important repairs, and some of these companies can even keep the property rented for you.
A real estate investment trust, or a REIT is when investors invest in the trust which owns and manages income producing properties. Shares are issued in the REIT just like a mutual fund, and these shares can be bought and sold just like the shares in a mutual fund. The values of the shares will determine the value of the investment that a person makes in accordance with the amount of money invested.
The leverage in a real estate transaction is much greater than any other type of investment, as in a stock situation, even if you are buying on margin you still have to come up with the purchase money much sooner and for more money than you would with a real estate transaction.
Most mortgages that are conventional in nature require only 25% down and some mortgages only require 5% down, which gives a tremendous amount of leverage to an investor for purchasing investment properties.
These are just a few of the various ways that people can and do invest in Georgia real estate and acquire portfolios with a vast array of investment properties. As in all investments, the investor should plan carefully and assess all risks in light of his or her ability to withstand difficult economic times.
When purchasing real estate in and around the Atlanta area, or any area for that matter, you should always assess the means of getting out of the real estate and doing so with the smallest possible loss. While that is not always possible, one should consider what it will take to liquidate and start over.
That is a serious concern for most real estate investors and it should be considered before investing in any Atlanta real estate investment. Of course if you don’t sell the property, you are not out any money, except for the expenses you will incur in property upkeep, taxes and insurance.
The best advice is to get to know your market and your property both backwards and forwards, and be willing to hold on to your property until conditions are very favorable to sell.
If you are looking for great, off-market wholesale investment properties in Georgia and all around the Atlanta area, you need to check out this company – This Great House L.L.C. They have some tremendous wholesale deals on investment properties at deeply discounted prices for either investment properties as rentals and also properties for fix and flip from Central Georgia to North Georgia with an emphasis on the Metro Atlanta area.
Here is a video that tells you how to get in touch with them –
We have also found another great company that wholesales properties in Metro Atlanta, and here is a short video about them.
Posted in Real Estate Investment