Investment Information

Why choose 1031 Exchange

1031 provides investors with one of the best tax strategies for preserving the value of an investment portfolio.
By using an exchange the investor is able to defer the recognition of capital gain taxes that would otherwise be incurred on the sale of investment property.
The investor can then use the entire amount of the equity to purchase substantially more replacement property. To qualify as an exchange the relinquished and replacement properties must be qualified “like kind” properties and the transaction must be structured as an exchange.
Any type of real property can be exchanged provided both the relinquished property and the replacement property are held for productive use in a trade or business or for investment

Tax Benefits of Exchanges

Whethter the investor’s property is owned free and clear or encumbered, the benefits of a tax deferred exchange are signficant. The tax dollars saved by an exhange can be utilized to purchase additional investment property.
For example: the investor sells property with no debt for $1mio; basis is $500,000; the property has been held in excess of 12 month; capital gain is $500,000 ($100,000 from recapture of depreciation deductions and $400,000 from appreciation in value); current fed tax rate for an individual is 15% on appreciation and 25% on depreciation recapture (Corporations are taxed at a higher rate) investors state tax rate is 9% (federal deduction for state taxes is not included).
Result: The investor who exchanges is able to defer the capital gain tax an purchase replacement property worth $433,000 more than the investor who sells and reinvests with after-tax dollars

Fixer-Upper, Home Renovation

HGTV and other shows have made flipping homes quite popular, and there appears to be some merit to it. Achieving success in flipping homes means understanding some key features of the practice. If you have questions about real estate investments then you should consider speaking with a Realtor or financial advisor.

Flipping houses will affect your cash flow, so planning ahead of time is crucial. Use our free mortgage calculator to estimate your monthly mortgage payment with taxes, fees and insurance. Consider hiring a contractor before you buy. Their fees may cut into profit margins when you’re tackling a home improvement project, but their professional evaluation of houses will likely save you money down the line.

Find a Suitable Real Estate Market

Even if you buy a reasonably priced home and stay within your renovation budget, that doesn’t mean you’re going to sell for a big profit. Be sure to do your due dilligence to home sales and house flipping profits in your location. Maybe you just need to venture an hour or so out of your zone to find a more profitable place to flip a house in. A professional Realtor can help you.

In addition, you should pay close attention to the neighborhood you invest in. What’s the income level and what’s the school district like? How about the crime rate? You can radically boost a dirt-cheap home, but it won’t sell as easily if it sits in a neighborhood with a recent spate of burglaries. Also, be wary of areas where homes are selling at a high rate. This could mean the local economy or neighborhood conditions are pushing people out.

Instead, you’re going to want to invest in places with high employment numbers, low crime rates and other signs that the neighborhood is thriving or quickly making its way up. Ultimately, you want to find an area that combines safety and economic growth with the potential for a profitable house flip.

A Guide to Flipping Houses for Profit

Once you have a sense of your target neighborhood and going prices for houses in it, it’s time to set up a house flipping budget. First, you need to know what you can reasonably pay for a new home. Buying with all cash is the simplest route for home flippers. It cuts out the mortgage application and approval process, as well as makes your offer more attractive to sellers. Plus, you won’t need to make ongoing interest payments for the property as the renovations are underway. Still, some house flippers need financing.

Once you nail down the amount you’ll need for the actual house, you should explore the costs of potential projects. Many people drop the ball here by failing to take the housing market into account.

For example, if neighborhood prices top out at, say, $300,000, and you pay $220,000 for the house alone, a $35,000 kitchen upgrade is going to eat into your net profit in a serious way. In this instance, you might want to limit the kitchen remodeling to $15,000. When calculating how much you think you can get for a house, aim for the lower end of comparable sales prices. This will give you more wiggle, should your renovations go over

Costs and Risks of Flipping Houses

You want to care that you don’t overextend yourself. Also, you don’t want to make the rookie mistake of thinking you’ll save money by doing a lot of the work yourself, so you spend more on materials. If you’ve never retiled a bathroom before, it may take you longer than a professional would take, and time is money when you’re paying interest for your financing. In the end, it may have been cheaper to hire a professional from the get-go, especially if you have to ask one to redo your work.

Of course, you can do light cosmetic upgrades like painting and stripping woodwork. But leave projects involving plumbing, electrical and structural changes to the professionals. That said, don’t just go for the cheapest labor. This is a big investment you’re making and you’re going to need the right talent. So make a thorough search for contractors and read online reviews. And ask your Realtor, friends and family for any recommendations.

You should factor in the size of the home as well. After all, a renovation on a large home will cost more than the same project in a smaller one by virtue of it requiring more materials. It’ll also take more time, which, as mentioned earlier, is valuable if you borrowed money for this investment.

Selling the Home You’re Flipping

If you don’t have a Realtor already, aim to interview a few. You want someone who can give you a thorough analysis of an after-repair value for the home. You also want someone with a great track record of selling properties in your area for top dollar. Finally, only sign on with someone you like and trust. To make sure you’re doing all you can to help sell the house, take a look at our guide on how to sell your house.

Flipping houses can be a lucrative business venture, if you do it right. To avoid issues, be sure to research different real estate markets and find a thriving neighborhood where you can find a low-cost home that you can reasonably sell for a profit. You should also stick to a budget and keep things small if you’re a beginner.