Acquisition cost of a property is too large that a first-time home flipper has to finance a major portion of closing cost which in turn is associated with mortgage interest.
Although the interest on borrowed money is tax deductible but it is not 100%. The amount spent on mortgage interest results in adding up to the property acquisition cost.
However, paying the entire amount in cash eliminates the interest but even then you have to pay property taxes and monthly utilities bills for holding your property.
You may also have to spend some amount of cash on house renovation projects. Thus, you have to sell your real estate at much higher valuation. It will be necessary to exceed the actual cost of acquisition & gain some decent profits to enjoy your flipping success.
But, if you succeed in selling your real estate property at higher valuations then you have to pay for capital gains tax.
(3) Absence Of Time
It is one of the important house flipping mistakes that should never be underestimated. House flipping or flat flipping or even an apartment flipping is always a time consuming process. It consumes enough time to find & buy an undervalued property.
Once you invested in an undervalued property, you will need to invest sufficient amount of time. Your time will be necessary to fix some structural problems to increase your house resale value.
You also need to go for house inspection process to make sure that your house for sale is complying with state’s building codes. If it doesn’t comply then you need to again invest more money & time to reach your goals.
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