Look, it's Chip and Joanna Gaines Making absolute Bank flipping homes wait And these business in the front party in the back twins are doing the same thing. Oh, and all these other social media millionaires. Mom Let's buy a house, fix it and then become millionaires. Look, it's not as easy as it seems and here's why.

Hello everyone, and welcome back to your new videos! Sean's a name And today we're talking about the single hardest thing when it comes to flipping real estate. regardless of the market and to avoid wasting time. And to give it to you straight, the single hardest thing about flipping real estate is actually being profitable. I know, right? And here's why: there's so much more math that goes into a property flip than the three numbers that everyone talks about, right? Which are what you bought the property for, how much you put into it, and what you sold it for.

Because at a simple approach is that it's pretty dang easy to buy something for one price, put a little bit of money into it, and sell it for something higher. For instance, some major companies were able to do this at a very large scale with very minimal effort. You know, they pay. Maybe redo the flooring, give it a little bit of lipstick, and boom, list it for 100k more than what they bought it for a couple months later.

A little awkward for them, but the market has crushed them lately and it pretty much just goes to show just how hard it is to actually flip homes. But not only have those big companies been crushed lately, but still have the hundreds of investors who've reached out to me to refinance out of hard money loans and I want to set something straight when I say investors or when other people say investors. they're just common everyday people like me and you someone who's made some money is wanted to put that into something to make some more money. We're not talking big Financial companies and trust funds and all this other big money.

No, we're talking about average everyday people who think they can make a profit when they're flipping homes. You know when the market is popping off and it's super hot, it's really easy anyone can do it. But when the Market's more of an average or even into a slower Market it's a lot harder. And a lot of these investors have been reaching out to me.

They've been stuck right. They've bought their property with hard money. they said. here's how much you're going to put into it.

Here's how much you're going to sell for. Well, uh-oh we're not able to sell it for that price point anymore and we need to refinance out of these hard money loans or else you're going to be losing our properties. I Personally tell all of them it's a blessing in disguise, but a lot of them who are planning on actually selling those properties are not having to refinance into a longer Term Loan But that's not what this video is about. I'm just trying to paint the picture that it's not as easy to flip a property and we see it every single day when I'm doing loans.

Quick plug for X2mortgers.com link down below. But let me actually break it down what you need to be thinking about when you want to do a flip. Remember, it's not just about your purchase price, your Renovations and your selling price. Okay, you got to think about things like Realtor commissions, closing costs, property and income taxes, cost of hard money or financing, and most importantly, the cost of your time.

Everyone forgets how much time it actually takes to do a property flip, and when McDonald's is out here paying like 20 an hour, your time matters. You need to make sure that the time you're putting into something is actually being accounted for. So let's break down a super simple scenario. so I can paint the picture a little bit better and let's take it again.

As simple as it gets, let's take out the fact that you'd be financing it or getting a hard money loan. Let's say you have cash. Okay, and here's my little disclaimer. Of course, this is going to vary tremendously based on the part of the country that you're in, but let's say you found a great property.

It's a great deal and you're going to take it down for 375 000 dollars. Cash? Okay, and you go in. You say you know what? I'm gonna make about 75 000 worth of Renovations and it's gonna take you three months, which is ridiculously fast. But let's say you get it all done in three months and you've actually sold it by that third month.

And let's say you sold it for 500k. Nice. You made a 50k profit in three months. Whoa.

Calm down there money bags. We need to break down all those other things I talked about. So before we got to the sale, you likely had some buyer paid closing costs. Okay, you likely paid 500 for an inspection since you probably aren't a GC or have a GC on payroll to walk a property and tell you what needs to be done to it.

Then another two thousand dollars in buyer's side, just miscellaneous closing costs and maybe 1500 on insurance policy. So let's say super basic four thousand dollars in cost just to buy the property. and again, this is if you're buying the property cash. no financing involved at all, because if you were to go the financing route, there'd be a lot more buyer side closing costs.

But okay, on that 500k sale, you likely paid about 25 thousand dollars in realtor commissions. Average realtor commission is paid by the seller of the property, so you probably didn't pay any when you were buying it, But when you're actually selling it now, you're paying the average, which is usually about six percent of the purchase price. And yes, you could do it for sale by owner and kind of go down that route. But if you're not super well versed in the market that you're in, you're probably going to be making a lot less by actually doing yourself than actually hiring a professional.

But then back to the Whiteboard. You probably have another two thousand dollars in seller side closing costs and prorations. things like prorated property taxes Insurance HOA Etc and hopefully zero dollars in concessions for your buyer, so it's still not bad. You're sitting at about thirty one thousand dollars in cost on absolute best case scenario, so you're still showing a 19k profit.

That's pretty good, but now we have tax season coming up and Good Old Uncle Sam comes knocking and wants his piece of the pie. Since you didn't own the property more than a year, you're going to be paying short-term capital gains tax on that. Which essentially means it's going to be taxed as ordinary income. Ordinary income is based on your overall total income on the air.

Whether it's income from W-2s properties flipping Um, LLCs You have whatever, you take everything and you total it all up. and that's your ordinary income on the air. and you'll get taxed based on the bracket that you're in. So for our Mega simple scenario, let's just say your tax at 30, which is honestly probably low for this type of person because if you're able to buy a property cash, you're likely in a pretty high income tax bracket.

But let's just use 30. You'll take 30 off that 19k. Which means you paid the IRS Five thousand Seven hundred dollars. Now your profit's only thirteen thousand.

Three hundred dollars I mean not bad. You know if you made thirteen thousand three hundred in three months, you did four of those a year. That's what. Like Fifty Three thousand Two hundred dollars a year? Not terrible in added income.

Problem is even if you did absolutely zero of the work yourself and you hired contractors for everything and maybe even a designer and you had everything all planned out where you basically spent zero time at all on the renovation, you still will probably spend quite a bit of time property searching, finding the right deal, running the numbers, making sure that your deal is going to actually be profitable. So once you factor in your time, you're not really making much money on that flip at all. at least for the stress that comes with it. Because you have to remember, that's if everything goes exactly according to plan and super smooth.

Which if you work in real estate or have ever done anything in real estate, you'll know that that actually rarely ever happens and most of the time things go wrong and most of the time that's going to cut into your margins. so that's kind of a bummer. And then you also have to think you know if you were going the route of hard money or financing route, which is probably what ninety percent of investors do. you're going to be paying upfront origination points or some sort of financing charges to essentially acquire that financing, Then you're gonna be paying the monthly payments on that, and again, it's going to cut in your margins even more.

Nobody talks about this part of the business and you know why. Because everyone has their own motives. Real estate agents will say it's a great business to be in because they'll get a commission on the purchase and the sales let will get a commission on all purchases. Contractors will say the same because they'll continually get business from new investors who are way in over their head and need professional help and seasoned investors will say the same thing because one, they make money doing it, and while they have probably 10 20 years of experience and all the mistakes that have cost them hundreds of thousands of dollars, they'll also save your butt when you get yourself way in over your head and they'll gouge your eyes out, essentially picking up a great deal for themselves.

Best piece of advice I ever got was Before you accept advice, think of the advisor's motive for giving that advice. In my opinion, the best way to really make money into real estate is to buy a property, renovate it, and rent it long term. You get so much more benefits out of it, and that's what all the big players are doing. That's where they make majority of their money because over time those margins get better and better and better.

and you get tax benefits, appreciation, cash flow, so much other better ways of kind of utilizing that property. But anyway, that's my two cents. Remember, take it for what it's worth and that's a wrap on this video. Hopefully you found it useful and actually enjoyed it.

And I'm not saying you can't make money flipping real estate because obviously tons of people do it. I'm just saying it's a lot harder than you think and you have to be heavily involved in your market and actually know what's going on to actually be really profitable with it At the end of the day, do your research and make sure you're buying the right deal. So just because it looks fun and easy on TV I'm telling you, it's not, it's a grind. It's much more challenging than you think, and there's way more numbers to actually think about when you're going in on a deal.

But if you enjoy the video, please hit that like button. please subscribe for more content like this and share the video with a friend of yours who's singing about doing a property. Flip Or maybe you're in the process of doing a property flip right now. Sharing is caring otherwise.

I'll see you in the next video.