Another pet peeve I have with these “property flipping” TV shows is that they never give the viewers the true way to calculate profit.
At best, they will subtract the purchase cost, total mortgage payments, fix-up cost from the final sale price, but here’s another list which they completely left out:
Cost of sale (if a Realtor is hired), transfer tax, property insurance, property tax, mortgage penalty (if applicable), escrow/title company fee, and most importantly, personal income tax and capital gain tax.
Now, is the picture still rosy?
Don’t get me wrong, I understand the purpose for these TV shows is to entertain, and keeping things simple so it’s easy for viewers to understand. In fact, I also TiVo some of these shows because I do find them entertaining.
My point is that it takes work to make money. And I often see amateur “flippers” losing money and ruin their credit by getting into this line of business purely based on what they see and hear in the media.
The real players of the game take their time. All the developers and contractors I work with are patient and careful in a crazy, but a good way. They know the market extremely well, and understand all the risks they are taking on. They often take a long time to find the right project, and sit in front of their spread sheet analyzing tens and hundreds of properties before they make any commitment.
Home prices in the San Francisco Bay Area are extremely high to start with, remodeled and construction cost are even more scaring these days. This makes it very difficult for anyone to just get in and start “flipping” (I promise this is the last time I ever use this word), and if you are too naive or trust the wrong people who sweet talk you, you only have yourself to blame.
So be careful, for regular people, I still recommend making your fortune in real estate in the old fashion way: buy a home that needs some work which you can handle, move in, enjoy it and make it your home for minimum 2 years and take advantage of the 2/5-year real estate tax law.
And of course, let me help you. Give me a call, and we can sit down and see what’s on your mind. Let me give you my perspective, if anything, you will walk away much more knowledgeable and confident that you will make the right decisions for you and your loved ones. I hope to hear from you soon. |
