One of the most enticing and viral ways to invest in real estate has been the Fix-and-Flip loan method. The most important aspects of this method is in the name: fix a property and then flip it for a profit. Florida has become a very popular location for Fix-and-Flips as the state population, the need to update existing property, and the real estate market is growing. Florida, with a very strong economy and endless attributes to support the attraction, is no doubt, one of the best states to live in, invest in, and do business in – Fix-and-Flip Loans for Florida real estate is no exception. Though there are many positives to this investment process, there are also things to be cautious of, more so for first time “Flippers”. Let’s look into Fixing and Flipping and Florida Fix-and-Flip Loans.
Where to Start
The biggest part of the Fix-and-Flip process is finding the target property in the ideal location. What some describe as “buying right”, is actually just being smart when purchasing – this means knowing the important information, doing your research, planning thoroughly to maximize your profit, and accounting for every detail to make this process smooth and successful.
The “70% Rule” is a great calculation for the available total cost cap for your investment property. Though the “70% Rule” is not actually a rule, it is a great measure to ensure you are not overpaying for the property and are including all costs for repairs, ultimately aiding to avoid slimming down your profit margins or losing money on an investment property. The “70% Rule” means that you should not pay any more than 70% of the property’s after repair value, minus the costs or repairs and renovations.
It should be noted that being able to pay less than 70% would be more than ideal, but paying over that mark (to a certain extent) will still leave room for profit. Like any investment, proper planning and research can only benefit you, the investor, in the long run. Purchase price plus rehab costs should be no more than 70% of the ARV (as repaired value).
With fix-and-flips, you must pay taxes on the surplus of capital gains after the sale. Here are 3 quick tips for fix-and-flip taxes.
- Do all repairs and renovation within one calendar year – Having all contracted work completed within one calendar year helps make certain that a tax deduction can be factored in. Many aspects of the repairs are qualified for tax deductions, many of which can be completed rather quickly and are not major repair jobs.
- Maximizing Deductions – Going along with the first tip, tax deductions can be hidden in plain sight, when it comes to fix-and-flips. Much of the renovation and repair material can be tax deductible, but in addition, if operating this investment as a full-time investor (investing and selling multiple properties within a year), you are classified as a business and makes you eligible for many more tax deductions In addition to tax deductions most fix and flip loans are interest only. If you finish and flip your property in 6 months you will only pay ½ of the interest you will pay if you take the entire loan term. The faster you finish, the more money you will make.
- Work with an expert – Investment real estate taxes can get rather complicated. Figuring out all the taxes and tax deductions can be a lot of work and very confusing if you do not have experience with it. Working with a live expert will allow you to make the most out of your personal investment situation. Like the rest of the investment process, it is always best to prepare; keep all related documents organized and ready to make your tax process as smooth as possible.
What to avoid
Florida Fix-and-Flip investments are time consuming and can require a lot of effort. Despite what you may hear on reality television and the real estate influencers, fix-and-flips is not always a very quick and extremely easy way to make a huge profit. Like any business, there is much to account for and a lot of work to be put in to make a true profit.
With this being said, the number one thing to avoid is rushing into an investment, especially one that you have not thoroughly researched and planned out. Take your time when researching and looking into the best property for your first purchase. The next thing to avoid is underestimating your costs. It is better to be safe than sorry, so always overestimate every timeline and expense. Have a plan for the worst-case scenario.
The need, availability, and inventory is readily obtainable throughout the state of Florida. All that is missing is an investor like yourself! CambridgeHomeLoan.com offers Florida Fix-and-Flip Loans up to 90% of the LTC (loan-to-cost) and up to 100% of the rehab.
Click or call today to speak with a CambridgeCapital.org expert loan office about your loan scenario!
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