| The S&P 500 is hovering at record highs, which is making valuation-conscious investors nervous. Now's the time to consider alternative investments. The Federal Reserve's interest rate cut on Wednesday should fuel the housing sector, which in turn is a tailwind for the phenomenon of house "flipping." Flipping is a tactic whereby an investor buys a property with the goal of reselling within a relatively short amount of time for a profit. The gain is made through the price appreciation that occurs from a healthy housing market and/or renovations. Do it right, and flipping could make you a lot of money. Do it wrong, and you could lose your shirt. Below, I'll examine the common pitfalls of house flipping and how to avoid them. A reflection of the boom in flipping is the recent spike in new condo construction. House flippers often choose condos because they're generally cheaper, easier and faster to flip than single-family homes. The following advice could help you exponentially boost profits from house flipping and also prevent costly headaches. Do The Math Make sure you have sufficient capital to get through the expensive process. Acquiring the property is the first cost. Sure, there are plenty of low or no money down deals available, but the key is to find a reputable borrower who won't gouge you. Every dollar you spend on interest increases the amount you'll need to make on the sale to turn a profit. Before taking out a mortgage, do your homework to find the most advantageous offer. If you can, you're better off paying cash for the property. Marketing come-ons from vendors that claim to be house-flipping experts are proliferating. But you should ignore those emails inviting you to join house-flipping seminars. These self-proclaimed flipping gurus just want to pick your pocket. They promise to help you through the deal, but typically they get a high percentage of the eventual profit, charge onerous fees, and push most of the risk onto your shoulders. Also factor in recurring ancillary costs such as taxes, utilities and landscaping. The cost of one-time improvements and renovations must be considered as well. Your sale price should exceed all of these combined costs. It's not uncommon for house flippers to lose money because they overlooked a large expense such as, say, mandated federal flood insurance. Don't forget about the capital gains taxes you'll incur when you sell. The IRS considers flipping houses to be a business, not an investment. Normally, if you buy a piece of real estate to sell at later date, the profit is taxed under capital gains rules. The word "flip" connotes fast action, but it's actually a months-long marathon. Remain patient. You must pinpoint the right property, in the right location, at the right price. There's also a morass of paperwork to slog through, involving mortgage applications, official permits, inspectors, contractors, lawyers, you name it. When it's time to sell, you'll need to market the property and schedule open houses. You can greatly enhance your profit from house flipping by applying do-it-yourself (DIY) skills. If you're handy with tools, apply sweat equity. If you can hang dry wall, fix leaky roofs, install a kitchen, repair gutters, lay tile, and replace bathroom fixtures, you've got a leg up on other house flippers. You'll be able to substantially and cheaply increase the value of the house. Renovation Wive's Tales You also need to know which renovations to make and which don't add value to your home. You obviously want to do a quality job, but if your chief aim is to boost the value of your home for eventual resale, keep everything in perspective. It's easy to spend six figures on a new space-age kitchen, but unless you live in a neighborhood of million-dollar mansions, you'll never recoup your cost. Many homeowners (wrongly) think that using top-of-the-line materials is a guaranteed way to boost their home value. File that factoid under "renovation wive's tales." Your home improvement project must match the economic realities of the neighborhood. Before you go down the flipping route, think it all through. If you already have a full-time job, flipping a house could impinge on your ability to earn a living. Can you spare the time? And more to the point, would it be worth it? | 
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