Fixer uppers are basically “rundown” homes that need a little TLC. This can be time consuming and heavy on your pocket too. But if you enjoy breaking and making things- you may love this kind of project.
Before investing in one, you may need to consider a few points:
Firstly, you need to decide if you are investing in this property to keep for personal use or to resell. This will help you gauge how much of your resources to spend on this project. Obviously, if you are looking to resell the property you do need to consider whether you will be able to recover the amount plus an extra proﬁt to keep you going. While turnover may be slow, the proﬁt may be large enough to sustain the time lapse in between ﬂips.
Secondly, the time factor. Turning houses to a presentable condition takes a lot of time. This is an important factor that needs to be considered as you may need to resell this property to generate more income. Therefore, balancing your cash ﬂows well and taking into account how much time you have will earn you more points.
TAX ADVANTAGES- Deductions and depreciations are two of the many advantages a property investment can earn you. Speaking to your tax advisor can help navigate you in the right direction.
Cost incurred during the ﬂipping process:
Capital Gains Tax- CGT, is a tax levied on the capital gain arising from the sale or disposal of an asset. This can be on property or stock, shares and bonds. CGT is chargeable at 20% of the capital gain in a case where the asset being sold was acquired after 1st February 2009. Anything before this date is charged at 5% of the gross capital amount realised from the sale.
VAT on sale of property- Bear in mind the possible VAT implication on the sale of a property. If a property being sold is by a business and is being sold as a going concern, then a 15% is applicable on the sale value. Developers are usually subject to VAT and income tax.
Transfer of property- stamp duties and transfer fees are a real cost and could be estimated between 5-8% on the purchase / sale of a property.
Potential sources of passive income earned from a property investment include rent, capital appreciation and best of all a healthy proﬁt.
A prudent investor will have to undergo a cost beneﬁt analysis before making such a large investment decision. Being calculating will help you ﬂip houses and earn money in this way.
As it has been quoted by Armstrong Williams
“Now, one thing I tell everyone is learn about real estate. Repeat after me: Real estate provides the highest returns, the greatest values and the least risk”
So invest in your future now, and let your bricks work for you!