Helping Your Real Estate Appreciate: Getting the Most Out of Your Real Estate Investment

When it comes to flipping properties for profit, timing is key. Despite the best laid plans, often as investors you’ll find you’re simply at the mercy of the market. Selling your property at the right time can make all the difference. Despite the ups and downs of the market, and the unpredictable nature of property values, real estate has historically had a very high return when compared with other methods of speculative investing. One problem many people face is deciding on the right time to sell. So when is it time to part with your property and cash in for greener pastures? While there are no definitive answers here, there are a few items that should certainly be considered before placing your property on the market.

Term of Investment

Prior to the economic downturn of recent years, investors could turn a profit on a property after just a few months with surprising regularity. Tumultuous markets allow for high returns, but the risk is also inherently higher in these situations as well. However, if you are committed to investing in real estate, you should go into it with the assumption that it will be a long-term investment. Many experts suggest at least a 3 year timeline. According some experts, the ideal range for flipping properties is 5-7 years for maximizing ROI. Short-term flipping is still a possibility in certain markets, but should not be entered into lightly as the market could change rather quickly and leave you saddled with debt.

Maximizing Margins with Manual Labor

In all cases, saving on the purchase price of the home can increase the profit margin when the house is sold.  Not only does a lower purchase price increase profits, but it also decreases risk as there is now a cushion to help counteract a volatile market and a potential decrease in property value. A great way to save on an investment property is to purchase foreclosure properties on a site like auction.com. These homes may need some renovations, but any work you do to the property will likely increase your equity and result in even more profits when you sell. This tactic is commonly referred to as property flipping. This method can be rather effective, but comes with its own unique challenges. Often, higher-priced homes can remain on the market longer and value of homes is still affected by the location, neighborhood and other factors that are outside your influence. There are also certain tax implications that should be accounted for when evaluating a potential purchase or sale of property.

Short Term Satisfaction vs. Long-Term Savings

A holding period of 3 years or greater has some tax benefits that are not present with a shorter term investment. A waiting period of this duration can result in many savings; including certain transaction costs, duties and brokerage fees. When the 3 year mark is exceeded, the gain on investment is considered a long-term capital gain which is taxed at 20 percent of the purchase price (adjusted for inflation). If the property is sold before three years have passed, the profit you receive from the sale is counted as income and is taxed at the same rate as your income tax bracket. In most cases, this tax exceeds the 20% capital gains tax.

All industries have a certain amount of cyclical change and volatility. However, you can minimize your risk and set yourself up for success by following this tips and setting out a comprehensive investment plan before investing your hard-earned funds into a property. The biggest payoff comes when you can take a property with a low demand and favorable price and ride out the market until demand and value are in your favor.