It looks so easy on television – just buy a house for a low price, fix it up with some paint and sell it at a huge profit. Even programs that show the downside of flipping houses make it seem simple.
Unfortunately, the reality of real estate investing is much different than what you typically see on television. To learn more about what television doesn’t tell you concerning real estate investing, keep reading.
Closing Costs and Realtor Fees Are Real (And Expensive)
On many real estate television programs, you are presented with a house purchased for $200,000, about $30,000 is invested for renovations and then flipped and sold for $300,000 – netting the stars a seemingly fantastic $70,000.
What the spokespersons often don’t tell you is that $70,000 was significantly reduced by closing costs, financing costs, real estate agent fees, home inspections, listing costs and more. And, if they do lay out these expenses, little is ever said about the Capital Gains tax.
If a property is sold for a profit, particularly if that property is not the primary residence of the owner, you have to pay tax on the gain – no small chunk of change! After all those fees and taxes, that $70,000 profit can quickly become about half of that if all else goes well.
There are Laws
Before you start tearing down exterior walls, adding extra stories, messing with concrete foundations, replacing wiring or cutting down trees – there are laws and codes that need to be followed.
The by-law process and permit application can be long and arduous, and so can waiting for an inspector to approve an improvement on the property. While these shows may show you the glamour of a major home renovation, they often don’t depict the mundane, but unavoidable, bureaucratic details.
Not Every Contractor is a Friendly Television Personality
Dealing with contractors, service professionals and trades people isn’t always as easy as it appears on television. You need to screen potential workers, check references, review portfolios and eventually find someone who’s likely to do a quality job at a good price.
Homes Don’t Just “Sell”
If you’ve recently purchased a foreclosure property in an area rifled with foreclosures, you can’t expect to throw up a coat of paint and resell the home within a month.
In short, homes don’t just sell themselves. Unfortunately, too many home renovation programs depict the simplicity of the flip process, but not the long selling process that includes open houses, listings, negotiations and yes, legal fees.
By My First Home your real estate investing blog