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Chip and Joanna Gaines have made buying and flipping a fixer-upper look so easy! Flipping houses became retirement plans for many when they realized they could cash in on this lucrative side hustle.
After the real estate market tanked in 2008, flipping houses became a very easy way for investors to make money. But now, as the market is rebounding, fewer foreclosures are available. So how can you flip a house for profit when you live in it?
First, I want to explain why you might want to consider flipping your personal home as well as how I did it back in 2007 just before the recession and how Iโll be flipping my own house for profit again next year.
Iโll also explain any tax consequences you may incur as a result of your profits. Disclaimer: I am not a tax advisor nor am I a licensed appraiser. Iโm a Realtorยฎ and am speaking of my personal experience with my own personal property.
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How to Flip a House for Profit Without Losing your Mind and your Money
When considering whether or not to flip a house for profit, you must know that generally, flips are quick. Investors purchase property with the intention of selling it as quickly as possible, often putting โlipstick on a pigโ.
Thatโs not what Iโm talking about here. Iโm talking about selling your personal home that you love with the intention of making thousands of dollars in profit.
My First Experience Flipping Houses
As I mentioned before, back in 2007 I lived in Oklahoma. I bought my very first house with my ex-husband two years after we were married (in 2004). It was a modest 3 bedroom, 1.5 bath, 1251 square feet, all-brick home in a great, established neighborhood with lots of mature trees.
We paid $74,900 for it and financed it with 3% down with an FHA loan. This was before PMI, private mortgage insurance, became astronomically high on FHA loans.
I donโt recommend this type of financing for anyone nowadays. Itโs the most expensive home loan type available, and there are far better options.
Our monthly payment was $551.15 per month. I still remember the exact amount. I was proud of my little house, and I had no intention of flipping it for profit.
Then, in a last-ditch effort to try to save our marriage and start over, we decided to relocate to Georgia. The market was booming, and mortgage lenders would give money to just about anybody.
So we put our house on the market and listed it at $75,000. I wasnโt a Realtorยฎ yet. I didnโt consult a Realtorยฎ because I wanted to save money on the listing fees, so I just blindly listed it for what we bought it for.
As soon as I could get a sign in the front yard, a Realtorยฎ reached out to me and offered to help me sell it. She said that she was confident we could get significantly more for the house than the price listed, so I obliged. I quickly learned the true value of a Realtorยฎ.
Tereasa came to my home and did a comparative market analysis after looking at the work weโd done to the home. Our list of repairs included:
- new flooring in the 1/2 bath
- new paint throughout
- repaired fence
Thatโs it. Thatโs literally all we did to the property.
We listed the property for $89,900, yโall. I was thinking โThereโs no way in hell someoneโs going to buy this house for that much more knowing we just bought it 3 years prior for $15,000 less.
A few weeks later, we received an offer and negotiated a sales price of $87,000. The house appraised, and after Realtorยฎ fees, we walked away with a hefty $10,000. Talk about a return on investment!
I was so relieved to find that we sold our house when we did because the market tanked, and weโd have been stuck in the armpit of America if we hadnโt sold and moved when we did!
When I lived in Georgia, I decided to leave my banking career for a real estate career, allowing me flexibility and the ability to work from home. When we moved to Illinois, I transferred my license and now work with a virtual brokerage called Real Broker.
I learned a thing or two since my first home purchase and sale, experienced a loss on our second sale, and our third sale, Lord-willing, will provide gains weโve never seen from flipping.
Related to Real Estate:
- 5 Ways to Earn More Real Estate Agent Income (Without a Sphere of Influence)
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How to Know What to Look For When You Flip a House for Profit
- Location โ When flipping your personal house, think about what potential buyers are going to be looking at. Is the house located near major interstates or highways? Will it require 4ร4 access in winter? Youโll need to know these things.
- Schools โ Even if you arenโt a parent, itโs important to note the school district of the home youโre considering purchasing to flip. Of course, if you already live in the home youโre planning on flipping, this doesnโt apply to you. You can find school information on GreatSchools.org.
- Utilities โ Who services the homeโs utilities? Do they require large deposits? Our local water company in my area is notorious for having bad water (it leaves black sludge in the toilets and gunk in the bottom of glasses) and they require a $300 deposit, only to be returned when you move out of the area. A great place to research areas, utility info, etc is local Facebook groups.
- Buy the worst house in the best neighborhood. This is a must! You cannot buy the biggest, nicest home with all of the upgrades because thereโs no room for improvement and upgrades. Obviously, when you flip a house for profit, the idea is to fix it up and make money. If all the work is done, you wonโt make any money. Youโll end up spending money on unnecessary โupgradesโ only to be disappointed because the upgrades didnโt affect the value.
- Skip the above-ground pool. They donโt add any value whatsoever and can, in fact, detract from the value of the home.
- Speak to a Realtorยฎ about comparable properties and their corresponding values as well as the general state of the economy/market in your area. Keep in mind that things can change quickly, but you can, at least, get an idea of the potential profit.
How We Gained $29,000 in Equity with $7,000 Worth of Renovations
My husband and I moved out of Georgia and up to Illinois (where his family is from), and we bought a ranch-style home that needed some work. We were desperate to get out of my sister-in-lawโs house, so we jumped on it.
Hereโs what we loved about the house:
- It is in an amazing locationโฆlocated in the country right next door to a historic covered bridge.
- The neighbors on either side of us own homes worth $350k-400k (nearly double what we paid for our house). (ie worst house in the best area)
- Itโs a 4 bedroom, 3 full bath home with 2332 square feet and a full unfinished basement.
- Itโs on 2 acres of land with a pole barn (1600 square feet, 400 sq ft of which is finished into a โman caveโ).
- There was plenty of work to do to this house. It had some renovations done (a garage converted to a second master bedroom) but the rest of the house needed a few major renovations to bring it up to par.
Iโll eventually share the entire ranch renovation with you, but we paid $204,000 for the home in 2014. It appraised at $211,000 at the time.
For the first three years of homeownership, we painted and replaced floor vents and added new baseboards throughout the house.
The kitchen, hallway, dining room, and another hallway (as well as my kidsโ bathroom) all had that particleboard wallpaper glued and nailed to the walls. We also removed all of that and I learned how to mud with joint compound real quick!
I subcontracted out the projects we werenโt able to do ourselves. About 1500 square feet of the home was covered in ceramic tileโฆugly ceramic tile. So we hired someone to come in and remove all of that.
Related: All You Need to Know About the 1% Rule in Real Estate Investing
Kitchens and Bathrooms Sell Houses
There was also a corner wall in the kitchen that blocked the entire view and made the kitchen darker than it needed to be. Our handyman also removed that wall, ensuring it wasnโt load-bearing.
We installed new laminate (yesโฆlaminate) countertops that look like real marble! I went back and forth on this and decided it was worth it to save some money and skip the marble or granite. We couldnโt be happier with our decision and most people still think itโs the real thing!
If youโre looking to save even more money, you could cover your existing laminate countertops with high-end, luxury laminate. This would probably save you $1,000-$3,000 (versus buying new laminate countertops).
Hereโs an image of our kitchen looking into the dining room taken at our first showing. That corner wall was blocking the view and ruining my dreams of an open concept kitchen in a ranch home!
We hired a subcontractor who removed that wall and the counter โlipโ so that we could have a flat peninsula countertop.
One of my real estate clients is a flooring installer, so he installed our new Allen + Roth hand-scraped laminate from Loweโs and our arabesque backsplash. The laminate flooring was absolutely the best decision we could have made. We have three kids and two dogs, and this floor holds up. Itโs durable and beautiful, and our appraiser actually thought it was real hardwood!
We spent a total of $7,000 on this renovation including labor and materials by subcontracting out some of the work and doing some ourselves.
The house appraised for $240,000! That means we have $29,000 extra equity in the property which means when we sell it next year, we should be walking away with a great profit!
Money-Saving DIY Renovation Tip: If youโre looking for decorative corbels for under your countertops or in doorways, consider decorative bookends like these! We saved a lot of money by thinking outside the box on some of our finishes!
Other Inexpensive DIY Renovation Updates
In addition to the kitchen and dining room renovation, we also made other improvements. We painted the ugly exterior brick for less than $300 in total.
This was the before of the brick. I told you it was ugly!
I whitewashed the fireplace and gave the entire house a fresh coat of paint.
I painted the bathroom cabinets.
I stained the back deck. This was the hardest job of all. I started out naively thinking Iโd use a paintbrush and roller for all of the slats, but I caved after about 2 hours of brushing and rolling with no end in sight.
I bought this sprayer, and it saved me days of labor on this job. If I had to do it all over again, Iโd have started the job with the sprayer.
Capital Gains Taxes: What You Need to Know
When you flip a house for profit, youโre making money and typically, anytime you make money, Uncle Sam wants a piece of the pie. There are three factors that determine whether youโll pay capital gains taxes or not.
- If youโre single and you profit $250,000 or less, youโre exempt from capital gains taxes on the sale (provided you meet the criteria below).
- If youโre married filing a joint return and your profit is less than $500,000, youโre exempt from capital gains taxes (again, if you meet certain criteria).
How to Know if Youโre Exempt from Capital Gains Taxes on your Home
In order to meet eligibility for exemption:
- You must have lived in the property as your primary residence for two out of the previous five years prior to sale.
- You canโt have sold another property and used it to reduce capital gains during the previous two years before selling your current home.
Thatโs it! Thatโs how you can flip a house for profit that youโre living in! I think this is a great way to pay off debt as well if youโre handy and can do a lot of the work yourself. People have different reasons for flipping their homes. You can use the proceeds to pay off outstanding debt or use the funds as a down payment for a home to avoid PMI.
Have you ever flipped your primary residence? How did it work out for you? Would you ever do it again?
Iโve done all the things! Girl, Iโve washed my face. Iโve trashed everything that doesnโt spark joy. Iโve walked the baby steps. Iโve cried. Iโve prayed, but my perfectionism has really held me back.
Perfection Hangover can be crippling. Stop comparing yourself to others and start living your best life! Thatโs why PH exists! I want to encourage you to take control of your money, your blog, and your business.
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Those laminate countertops looks great! I’ll have to remember that for my next rental/flip project ๐
Thank you! Yes, they are so much better than the old school laminate! And I don’t have to worry about sealing it or treating it. ๐