Flipping Properties

[steven.ruddell]

I was watching the news and saw that foreclosures are at an all time high because of sub prime mortgages. I figured that it would be a good time to flip property in my area because we were named third by for largest business growth for Forbes and we are growing on population by huge amounts.

I was just wondering if anyone knows anything about flipping properties for capital gains. I plan to use the 1031 exchange to avoid paying taxes but that is all i really know. Other than that, i'm on my way to the book store tomorrow to go pick up some books. Does anyone have any advice?

P.S. I know its not real investing but its money and its a start for some investment funds.

[David Rocci]

When a lending institution such as sub-prime mortgages starts collapsing, it is the time to buy but not to flip. As a buyer you will have many homeowners in desperate situations that need to get out of their homes immediately. This could be because their interest rate adjusted (ARM) upwards and they cannot afford the property any longer or because they bought new construction and just got whacked with a $5k property tax bill.

The point I'm trying to make is that it will continue to be a buyers market and there are significant deals to be found but it is NOT a market for flipping right now. The average home lists for over 130 days right now. Even if you got a great deal, did some 'fixing' and tried to flip it you will be hard pressed to make significant profits.

If you want to avoid paying taxes on a capital gain you should live in the property for 2 years and then sell it - 100% of the profit is tax free up to $250,000. 1031 exchange is only an option for tax deferral - you still have to pay tax on a gain once you realize it.

And, as irony will have it...the sub prime mortgage business is more than likely the only lending that will lend most investors the money to buy a property. Once you already own a property or two they use stated income programs - which is a sub-prime product.

So, this means you will need to find traditional financing, full disclosure of income, good credit AND a significant down payment. THEN, you will need cash or a good credit line to do any 'fixing' you plan to do AND you will need the cash reserves and/or additional credit to float the property expenses while you try to sell it again.

If you have a little money and good credit, PM me and I'll try to help you some more. I currently own two properties and I'm a licensed real estate agent.

-dave