So you've decided to enter into the arena of real estate "flipping" or wholesaling and are now ready to flip a deal to another investor. The art of "flipping" basically involves the buying and selling of an asset and quickly reselling it for profit. Flipping houses is vastly becoming more popular among today's savvy investors as it can be quite lucrative.
There are several different types of flippers. A Scout is the information gatherer. He finds the potential deals and bargains and then sells the information to other investors for a fee of $500.00 to $1,000.00 per deal. A second type of flipper is the Dealer, who also locates the deals for other investors but also signs a binding purchase contract with the owner of the property. He now can either close the deal on the property or sell it, or he can sell the contract to an investor. There is more risk involved with this type of deal as he has put in earnest money to secure the transaction. But he stands to make typically $15,000.00 dollars per deal working full time or $3,000.00 per deal working part time. The Retailer is yet another type of flipper. He buys properties from the dealer or through a real estate agent or scout. The greatest risk is involved because the retailer puts up most of the money but also stands to make the most profit potentially.
After the deal is located, the challenge now lies in finding the investor. There are several ways to go about locating an investor for your deal. Attending local business events and public auctions is a one way to meet new investors. Exchanging business cards helps to broaden your investor network. Building online mailing lists to send to potential buyers is also essential. Having investors sign up for your newsletter where they use a double opt-in list for e-mail newsletters and e-mail discussion groups and allows for more communication with them. One point to remember, though, is that it is all about the quality of the information not the quantity of the information that is sent out that is important. The investors in you database should not be inundated with too many e-mails or they may opt to remove themselves from your list. It might make sense to divide your list and send investors specific listings that cater to their particular interests. For example, send investors interested in higher end properties only those listings. Likewise, send investors interested in rental properties only commercial properties. Joining local business groups in your area and going to their meetings, events, luncheons offers great networking opportunities. Networking can also be done online by utilizing such resources as message boards and discussion groups that are available to the public.
In order to find buyers to flip real estate contracts you have to gain their confidence. Asking potential investors where they want to buy and what their predefined price range is also helpful. By gaining credibility with your investor network you become more reputable and establish a relationship with them which can lead to future deals and contact being made
Flipping can reap big returns in a short amount of time, but buying and selling too quick has its drawbacks. If you buy and sell too quickly may result in the IRS deeming the transaction as the trade of a person or as a business with gains that are subject-to self employment taxes. Consulting an attorney or CPA regarding tax laws would give more you a better understanding of tax laws.
Like-kind exchange or 1031 exchange may not apply if a house is bought and sold too quickly. Under this provision, a person who sells a business or investment property can defer capital gains taxes by immediately rolling the gains into a similar investment. A deferred like-kind exchange allows the seller forty five days to identify a similar piece of property or business to invest in and one hundred eighty days to close the deal. There is one thing to watch out for, according the rules of the IRS, if the seller takes the cash from the sale it is in his possession the 1031 exchange is disallowed. The rules imply that money form the sale has to be placed in escrow or be held by a intermediary such as a trust company until a replacement property is acquired.
Also, if you do not hold onto a property for at least one year, you risk the not being able to receive the fifteen percent capital gain interest rate. Instead you are subject-to a thirty five percent capital gain rate. Capital gains taxes can be avoided all together if you keep the property for at least two years and live in it with a five year period. A single person can avoid up to 250,000 dollars and a couple can exclude up 500,000 dollars, which is quite a substantial amount.
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