Beginners Guide to Flipping Houses

If you're new to flipping houses there are several things to know before you begin. First, if you are going to be a house-flipper you cannot make emotional or sentimental decisions about purchasing properties, as each must be treated as a business operation. Here are a few tips about house-flipping for the beginner.

Understanding Equity

• The fundamental thing you need to know about house-flipping is how equity in a home works. Equity basically is the difference between the outstanding balance of the mortgage and how much the property is worth on the market.
  Before you buy a home that you want to flip it is essential that the home have some equity. How much you spend on the home in repairs and upgrades will determine how much equity the home needs to have for it to be a profitable business decision for you.
  Successful house-flippers are excellent numbers-crunchers, so do the math. If the home doesn't have any equity in it then you can create equity. First, get a good deal on the sales price of the house. For instance, if a home's fair market value is $100,000 then buying it for $80,000 will instantly create $20,000 in equity. Of course, you'll need a motivated seller who is desperate to get rid of the property.

Buy Low, Sell High

• Once you buy your property you can employ the "buy low, sell high" strategy. You can sell the home at market value and pocket the difference or you can upgrade it and raise the price. At that point, your profit will depend on how many upgrades and repairs you did to the property.

 

Timing Is Crucial

• The third and final goal is to sell the home in a timely manner, as the savvy house-flipper does so before the first mortgage payment is due, usually within 45 days. The longer you wait to sell the home, the less profitable the deal is because you'll have to start paying the mortgage.
  Because timing is so critical it's a good idea to put the house on the market before upgrades or repairs have been completed to give you enough time to find a buyer. If you purchase a home with the intention of flipping it but hold on to it for an extended period of time then it's best to readjust your goals. In house-flipping, timing is everything.

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About Flipping Houses

Cable TV channels have special shows that highlight real-estate professionals that flip houses. Investors fix them up, then turn around and sell them for a profit. Today, there are all sorts of people that are taking their hand at flipping houses. With a small cash investment, a good credit line and some elbow grease, anyone can turn a good real-estate profit.

Obtaining funds

• Before venturing out and placing an offer on a home, one needs to have funding in place first. The best way to finance a home with little to no money down is to obtain a conventional or personal loan that requires a zero down payment as collateral. The best way to obtain this type of financing is to have a good standing reputation with a financial lender. A home or business with over 50 percent equity can also be used as collateral with a new home loan. Having a credit score of over 680 will assure the lowest rate. Once a bridge loan, conventional loan or personal loan is pre-approved from the bank, the search for a fixer upper can begin.

Locating property

• Hiring a real-estate professional to handle the home search is a great way to find property fast and negotiate a good deal. Looking for homes that are bank-owned, foreclosures, abandoned or priced under market value are good starting points. Homes that are in prime locations that will appeal to buyers also need to be considered. Looking for homes that only need curb appeal, minor cosmetic work and tender loving care are the best selections for flipping houses. This assures a small amount of time, money and effort need to be put in before turning a profit.

 

Fixing up

• Once the home is purchased and closing has taken place, the next step will be fixing up the property by adding style and flair. The first priority should be to repair the most expensive project first. Examples of this would be plumbing structural issues, roofing and siding. Doing the work alone or hiring contractors who charge the lowest amount on the market is one way to ensure a profitable flip. Only bare essentials and low-cost appliances should be implemented. Staging the home with new furniture and plants is a great way to turn a house and add style flair. When the house sells, the staging company will come and remove the furniture and decor items. Landscaping and a well-manicured lawn is essential in attracting buyers. Colorful annuals alongside a well-manicured lawn will draw a buyer's eye to the front of the home. A new door and door hardware will invite guests in to see what is on the other side. Being careful not to sacrifice curb appeal is very important in getting the home to turn over a profit quickly.

Listing the property

• Once the home has been remodeled, repaired and revamped, it is time to list the property. Hire a real-estate professional who will list the home, hold an open house and work on advertising the property. It is important to list the home for well above what it was bought for, the money invested and around a 3 percent or more profit margin. Closing costs and Realtor fees should also be taken into consideration and figured in with the closing costs.

Making profit

• Having the home sell before the first payment is due and interest is accrued on the loan is what one should strive for. In order to flip the house and move on to the next investment property, there should be enough to pay off the original loan and pay off all debts related to the home. As much profit as possible should be turned over into the next investment. The money that is left over after completing two sales and clearing overhead costs on the third property is considered pure profit.

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How to Retire Early on a 401k With No Penalty

Normally, if you withdraw money against your 401k retirement plan before the age of 59 1/2, you pay both income tax on the withdrawal and a 10 percent penalty. However, if you're looking to retire early on a 401k with no penalty, you can sidestep it by drawing out the money in what will be considered "substantially equal payments" spread over the remainder of your life.          

Suggestions

1. Divide the amount of equity built up in your 401k by the number of years remaining in your life expectancy. For example, if you are 50 years old and have $250,000 in your 401k, your life expectancy will have approximately 25 years remaining, for a penalty-free withdrawal of $10,000 per annum.
2. Visit your bank or financial advisor to discuss setting up an annuity plan that would see you withdraw the required amount of money each year.
3.  Continue to receive your annuity without adjusting the amount you are paid each year, unless it is absolutely necessary. If your payments drop below your established threshold, the Internal Revenue Service will come looking for the 10 percent fee you're trying to avoid.
4. Retire on your 401k early by waiting until you're as close to the age of 59 1/2 as possible. Not only will that increase the amount of your annuity, it will also make it easier for you to adjust the amount of the annual payment downward with no penalty. IRS regulations state you will face the 10 percent penalty if you adjust the amount of the annual payment within the first 5 years of your plan, but you are exempt from this technicality after the age of 59 1/2.
5. Factor marriage into the equation. If a married couple decides to withdraw annual payments together and one spouse passes away, the rules change. If the deceased was aged 59 1/2 or younger, or if the payments had been taken for at least 5 years, the surviving member of the couple is entitled to readjust the payments with no penalty.

Tips

• "Substantially equal payments" is not the only way the Internal Revenue Service will permit you to take money from your 401k with no penalty. If you have significant medical expenses, want to make a down payment on your first home or suffer a disability, you might also qualify for penalty-free withdrawal of your 401k equity.
• Remember that life expectancies are determined according to actuarial tables if you plan to use your 401k to retire early. Your remaining life expectancy is determined by the financial institution, not by you.
• You must draw money from your 401k every year, or your previous drawings may become subject to the 10 percent penalty, as well as income tax arrears.

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