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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.
It seems like everywhere you turn you see on the side of the road those “We Buy Houses” or “Sell Your House Fast” signs. The question is, is this the right way to sell your house?
Right off the bat, if you have ample time to sell your house and aren’t facing some dire situation, then no, you are much better off selling your house through an agent. Yes you will have to pay more in commissions, but on average a realtor will get you more money for your house as well as handle all of the headaches that come with selling a property.
However, there are situations where it does make sense to sell your house to one of these companies. If the house has major issues such as foundation, then these companies are a great alternative.
So lets look at some of the pros and cons of selling your house to a we buy houses company.
1: It’s easy. You don’t have to go through the trouble of finding a good realtor that will actually work to sell your house
2: You don’t have to clean your house from top to bottom. No worrying about dirty dishes in the sink for a surprise visit from an interested buyer.
3: Generally these companies pay with cash which allows them to close fast. Some companies claim to be able to close in as little as just 1 week. Forbes has more on this –
Flexible Payment Options – Investors may offer various payment methods such as certified funds, cash, pre-scheduled cash payments, or perhaps they may even take over the existing mortgage completely. With multiple options available, sellers may find a solution that suits their needs.
Cash Offers – Quite often investors are willing to pay cash for a home and with the recent tightening of financial restrictions, coupled with the growing number of complaints about low appraisals, having a cash buyer has become even more appealing.
4: You don’t have to worry about making any kind of repairs. If your house needs a new roof or the AC is out, these companies love houses like these.
1: Selling price! This is huge. We touched on this a little already, but if you can make the repairs to your house yourself, or hire a contractor to do them for you – do it! You will almost always get more money for your house selling it to a retail buyer through an agent. This is what Max Real Estate Exposure has to say about it:
When you hire a real estate agent, he or she is working to make you as much money as possible from your sale. The Realtor takes a percentage of the sale price as financial compensation, so he or she is motivated to fetch the best price. If a real estate agent believes that he or she can sell your home, there is a good chance that you can make more than you would if you sell to a house flipping company. In fact, I will go out on a limb as say you are GUARANTEED to get far more money when you list your home with a real estate agent. Selling to a real estate investor will almost always end up netting you less money!
2: Scams. You have to be very careful who you are dealing with. There are a lot of unscrupulous people out there that will try and take you. Before you decide to deal with a company be sure and check them on the web for reviews, and that they are a legitimate company. More on this from Big State Home Buyers:
To avoid scam artists posing as investors, get the name of the investor and do research online to see who they are. Ask for references and look them up with the Better Business Bureau. While this is a start, there is actually a lot you can do yourself to make sure you are working with a credible and reliable company.
All in all, there are certain situations where it makes sense to sell your house to a “we buy houses” company. However, for the majority of sellers, selling your house through an agent makes more sense. If your situation requires the use of one of these companies, just be sure and do some research on the company before signing on the dotted line.
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Having to sell your house and move isn’t the most fun thing to do. However, you can make it a lot easier to sell your house if you get it ready before putting it on the market. This is true whether or not you choose to try and sell your house yourself (FSBO) or higher a real estate agent. One of the best things you can do to help get your house under contract faster is to properly stage it. Staging is simply having the bare necessities in your home to help buyers visualize the property as their own as well as define spaces. This will most likely the first of a few posts about properly staging your house. If you need to sell your house, keep reading 🙂
Staging Your Living Room To Sell Your Home Quickly
The first and most important thing you have to do either with or without an agent is clean your house from top to bottom. Make sure everything is put away in it’s place and remove as much clutter as possible. It is a good idea to rent a storage bin or unit when getting ready to sell. This will help you 2 ways. One, you have less things in your home for showings and two – you are getting ahead of the game for moving!
Don’t forget about the yard. Make sure you perform all of the basics like cutting the grass, trimming hedges and depending on what time of year it is, plant some flowers. This is what is known as “curb appeal”. You want potential buyers to get a nice warm feeling about the property when they first arrive. You only get one chance to make a good first impression.
Now onto the meat of staging. Let’s start with the living room and/or family room.
The Home Buyer Institute put up some good info –
Staging the Family Room / Living Room
- Clear the room of family portraits and other items that say “you don’t live here” to buyers.
- Arrange the room in a conversational way, if it’s not that way already. Try different furniture arrangements until you get the best fit.
- Choose a nice and warm paint color for the living room. Use neutral tones in this space. That doesn’t mean you are limited to beige. There are plenty of warm colors that will neutralize the space, while also adding visual interest. These include the softer shades of green, blue and brown.
- “Neutral” does not have to be boring. You can liven up a neutral color scheme with colorful accent items, such as pillows and rugs. Color-coordinate these items for a professional and “put together” appearance.
- Let the room breathe. If it’s crowded or hard to walk through due to having too much furniture, remove some items and place them in storage.
Consider renting furniture for staging purposes. If your family room ensemble consists of that old couch from college days and a cheap table with wobbly legs, replace them with some nice rental pieces.
- If the furniture is a bit worn but otherwise intact, use a slip cover as a low-cost way to enhance the appearance of your couch and chairs. Slip covers can also help you neutralize overly bright or “loud” fabric colors.
- If you have a mantle, make sure it’s not overloaded with knick knacks. A couple of well-placed items (like a vase or flower arrangement) are all you need.
- If you have a fireplace in this room, make it the focal point and the star of the show. Arrange seating to face the fireplace. Remove the TV if it’s too large — a huge television will draw attention away from the fireplace.
Remember, people want a living room or family room area that seems open and inviting. Make the room airy and bright, and arrange furniture for the best possible flow. Replace or cover worn furniture as needed. When people naturally want to sit down and spend time in the room, you’ve achieved your home-staging goals for the room!
Continue reading “Home Staging Tips – How to Stage a House for Sale“
All of that is great advice. We would emphasize that you need to remove as many personal items as you can, especially family pictures. The object is to help the buyer visualize the property as their own.
In addition to their tips you want to make sure that all of the children’s toys are put away. This can be rather hard if you have small children because it almost seems like they are wired to make a mess! If you are selling with an agent then you can ask them to give a few hours notification before showing the home so that you have enough time to do a quick cleaning.
And speaking of cleaning, you are going to have to keep the house as clean as possible at all times so that you won’t have so much to do when someone shows up to look at the house. Make sure there are no dirty dishes in the sink and all of your laundry is done.
Staging your house is something that is frequently overlooked by seller. However it is extremely important. If you have a good real estate agent, they will be able to help you with some good ideas to help you properly stage your house for a quick sale. Otherwise you may have to hire a professional stager, or do some serious online research, apply some techniques and then ask some friends and family what they think. Stay tuned for more on staging.
Recommended reading on how to sell your home quickly;
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