NewswireToday - /newswire/ - Elizabethtown, KY, United States, 04/04/2006 - Buying and selling real estate (AKA Flipping) gained tremendous popularity due to overheated US housing market and the prospect of accelerated wealth through real estate investing. Read the myths and the truth from an experienced investor..

Eight myths surrounding this phenomenon.

1) Buying real estate and attempting to sell it almost immediately (flipping) is a sure fire way to gain personal wealth...The truth is that buying and selling real estate is a good way to gain wealth for a person that has experience in determining values and has the related skills and resources needed to run a business. Skills and abilities in financial management, advertising, marketing and home repair are critical for the successful flipper.

2) Its best to find properties to flip that are located near where you live...This could be true or false. If you are purchasing property that needs work and you are either personally doing some of the work or coordinating it, then distance from you may be a huge factor. Time is money in the flipping business and the more drive-time to get to the project the less likely you will have a fast paced project. If, on the other hand, you are doing most of the coordination by phone/email, then distance may be less of a factor. In either case, it’s usually unsafe to pay a contractor for work before you inspect it.

3) Financing is easy and readily available for these projects…Just like any financing, lenders require a certain level of financial strength on the part of the buyer. The physical property condition may also be a factor. Expect to pay at least 20% down on these types of purchases and factor the carrying costs of the loan into your project budget. A high credit score and strong income could make one hundred percent financing possible though.

4) The best way to find prospective properties to purchase is to have a real estate agent look out for you…This is usually the worst possible way since the real estate agent is probably looking for these opportunities for themselves. The best way is to get the word out that you are buying property. Use the classifieds, yard signs and a web site to get people to call you.

5) Income taxes on the gain can be avoided if you flip the property in under thirty days…The truth is that any gain earned on the property ( the difference between the purchase price and all expenses subtracted from the final sale price) is taxable the following year. Keep accurate record of all expenses related to the project to offset the gain and to minimize the tax liability but be prepared to show the income on your tax return. The only exception is an IRS provision known as a 1031 exchange where you exchange the equity in one property for another one of like kind. Check with a CPA for more information about this option since its filled with intricacies that could potentially help or hurt you.

6) The best way to market the property after it’s fixed up is by offering it “For Sale By Owner”…The truth is that it’s best to list with a Realtor offering MLS (Multiple Listing Service) for a flat fee. Look for the broker that offers flat fee real estate services. Pay (around $500) to get the house listed in the MLS and offer a buyers agent 3% of the sale price for finding you a successful buyer. Also, reserve the right to sell it “By owner” and pay no commission if you happen to attract your own buyer.

7) The best way to determine your asking price when you remarket the property is to add the purchase price to the cost of repair/carrying costs and grab a number...Actually the best way to determine the asking price is to get a pricing opinion from a real estate agent that has access to MLS market information (sold statistics). Price the property within 10% of this opinion.

8) If I’m unable to sell the property right away I may be faced with financial trouble...Actually the option of renting the property out is a great alternative. Two things are happening when you do this. One is that the equity continues to build under your ownership and the renter is paying the carrying cost of the loan. You can always expose the property to the market again at a future date at the same or higher price.

The main point to remember is that there are risks associated with real estate investing and proper care and caution should be exercised. Always maintain a margin of safety and never mortgage your residence to get the financing to move on to the next project. You’ll sleep better at night that way.

Agency / Source: TW Shortt & Assoc., Fl. Real Estate School

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