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John J Peterson

Session 9: Exploring The Journey of Selling /Flipping a Property

Updated: May 28



Session 9:  

Exploring the Journey of 

Selling/Flipping a Property


House Flipping (selling)


For all of you out there into epic makeovers, this one's about flipping houses. Picture this: you find a house that's kinda run-down and needs some love. You buy it for less because it's not all fancy yet. Then, you get to work and fix it up, and make it look great. After all the magic touch, you sell it for more than what you paid. That's how people make serious money in the house-flipping game. It's like giving a house an extreme makeover and then finding someone excited to buy your place. This idea rocks whether you're selling your own home or one of your rental properties. But here's the deal with house flippers: they're all about snagging a house, giving it a quick, stylish revamp, and selling it fast to pocket the profit and jump onto the next fixer-upper adventure.

Vision


If you're thinking about fixing up houses or looking for a place to live, it's important to have a special skill called "vision." Sometimes, the houses that don't look very nice, with old walls, carpets, floors, and messy yards, can be the ones that help you make the most money. These houses usually cost less because not many people want them. A lot of people can't imagine how great these houses could look, so they don't think about buying them. But sometimes, just painting the walls, fixing the floors, and cleaning up the garden can make a huge difference! There are also houses called "foreclosures." These are houses that the bank takes back because the people who lived there couldn't pay for them anymore. These houses often need a lot of fixing up, but with a little work, they can turn into awesome homes!   


Setting the Stage


Before you show your property to buyers, you want to make it look its best. This is where home staging comes in. Imagine you’re a director of a play, and your house is the stage. You arrange everything perfectly to make sure the audience (in this case, the potential buyers) love what they see. This could mean painting the walls in warm, welcoming colors, fixing any little damages, arranging furniture neatly, or even adding some pretty plants or artwork. It's all about creating a space that someone can walk into and think, "Wow, I could live here!"


Class Activity:  Find a House to FLIP.


Look on Zillow.com for houses that are in foreclosure or homes that look like they need some fixing up.   These homes should be priced below the market value of COMPARABLE (COMPS) homes which are other homes on the market with the same details (bedrooms, bathrooms, square footage,  etc.).  

In this activity, let’s just assume you have all the money you need for the home purchase.  So if the home is selling for $300,000, you have the money for it!   No loans are needed.  Here’s the tricky part.  We need to figure out if this home will be worth buying.


  1. Look for a foreclosure or a home in disrepair

  2. We are going to virtually inspect the home, and take our BEST guess on what needs fixing or updating. 

  3. Look a the description and look through the pictures

  4. Make a list of what needs fixing or updating.  Does it look like it needs to be fully painted? Does it need new floors?  Do the kitchens or bathrooms need to be updated/renovated?  Does it need a new roof?  You can ask your classmates or instructor for their thoughts too.

  5. Search on Google (or use ChatGpt) for the AVERAGE cost of each repair/renovation. Make a list and then add up all the costs/expenses.

  6. Add the costs/expenses of the repairs/renovations to the price of the house that you paid for it.

  7. Compare the total price you spent (purchase + repairs/renovations) to the COMPS (other homes in the same area).   

  8. Assuming you were to sell it around the same price as the COMPS, DID YOU MAKE A PROFIT?  


For example:

You bought the home for $300,000

Your repairs/renovations cost $50,000

You sold the home for $400,000

You made a profit of $50,000


Understanding Income Tax


Income tax is a crucial part of earning money through your investments. Think of it this way: when you earn money, the government gives you a virtual high-five and then asks for a share of your earnings. This share is what we call income tax. The cool thing is, it works on a sliding scale. The more you earn, the more tax you pay; the less you earn, the less tax you pay.


One of the perks of being an entrepreneur is that you can deduct your business expenses - like what it costs to run your business - from your earnings. This can reduce the amount of income that's taxable. Now, who's responsible for paying this? As a business owner, that's on you. You'll calculate this tax based on your yearly earnings and typically pay it every year.


Let's put this into perspective with your $50,000 profit. Your tax could range from 20% to 30% of this profit. For example, 20% of $50,000 equals $10,000, calculated by multiplying 0.20 by 50,000. This gives you a ballpark idea of what you might owe when tax season rolls around.  So make sure you save some money to pay these taxes.


As you dive into more complex ventures like property investments, it's a smart move to consult with an accountant or financial expert. They can guide you through the tough areas of managing your money and help ensure you're getting the most money out of your investments. This way, you can focus on growing your business while staying financially savvy!


Conclusion

Real estate investment is a fascinating world full of opportunities. It teaches us about the value of property, the thrill of investment, and the importance of making informed decisions. While it might seem like a grown-up topic, it's never too early to start learning about it. Who knows, maybe one day you'll become a savvy real estate investor, making smart choices in this dynamic field. So, keep learning, stay curious, and remember that in the game of real estate, knowledge is your most valuable asset!





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