Flipping real estate can be a lot fun, challenging and profitable. Many people from all over the country have been flipping houses for years, wanting to cash in on the gold mine. The reality, however, is that whenever you do something that makes profit, you likely have to pay taxes on it – even when it is involving real estate.

Taxes do have to be paid on any profit you make from flipping a house. The taxes owed will vary from state to state, so it is important to research this so you have an idea of the percentage you will need to take out. Flipping real estate can be a lot about numbers, and you want to find a project that will allow for decent profits while still paying your taxes. It is very important to pay these taxes so that the IRS does not catch up to you and you end up paying interest and penalties for years to come.

Usually the taxes paid in flipping real estate will be a self-employment tax or capital gains. Self-employment taxes can be and will likely be as high as business taxes. Flipping too many houses and too quickly will end up classifying it as your job or business; therefore, the high tax rates will then have to start being paid.

Individuals who do not know what they are getting into when flipping real estate may end up owing a lot of taxes and not having the money if they spend their profits on another home. Most can expect to pay anywhere from 15% to 35% interest on the profits. If $100,000 was profited from a flip, then be prepared to give the IRS up to $35,000 of that.

There are a few ways to save on the taxes that have to be paid when flipping real estate. One way is to hang onto the property for over a year. This way you are only paying capital gain taxes on it. Another option is to move into the house. Establish it as your primary residence and live there for two years. After this you can sell it, and any profits up to $250,000 can not be taxed. However, if you were to make $300,000 in profits, then be ready to pay tax on $50,000 of that. This is the best way to keep as much of the profit as possible. Most house flippers do not want to move every two years, as they want a fast turn-around and to sell it.

The bottom line is that taxes do have to be paid on all of the profits made from a real estate flip. This is the only way to do it honestly and keep the eyes of the IRS off of you. A good house flipper understands this and takes into account the taxes that will have to be paid when he or she is looking at a property to potentially flip. Find out what your state requirements will be as far as the percentage that will need to be paid, and keep that information in mind when it is time to price the house to sell.

Deciding on your financial goals for your real estate investments is your first step in starting a good business. Do you need steady monthly income? Are you preparing your nest egg for retirement? Are you building up a portfolio to use for your children’s education in upcoming years? To meet your goals, you need to choose the proper method of real estate investment.

One method to make some fast cash, even if you don’t have any money, is locating great deals and selling them to other investors. Real estate investors are always looking for profitable deals, and if you can help them find them, they will either buy the contract from you, or may pay you a finders fee. Check into local real estate investment clubs and organizations for possible partners.

If you are wanting to establish a steady monthly income, the most common investment strategy is buying rental properties. You will need to put on your accountant’s hat, and figure the price of the property and the rental income very carefully. Factor in all of your costs for the mortgage, insurance, taxes, and set aside a repair budget. You want to buy properties which will return more in monthly rental payments than the cost of owning the property. Many times buying less than prime properties and doing minor repairs and cosmetic touch-ups can make a single family home a great rental property. Your own local neighborhood may not be the hottest area for rental properties, so you may need to step into other neighborhoods, and communities to find the right mix of rental prices, and low cost properties.

Rental properties do come with one additional cost, which many investors overlook on their first purchase, their time. Some tenants can be demanding, others are slow to pay, and even others quit paying entirely and must be evicted. Choosing tenants wisely helps to reduce these issues, but you will always have some challenges. If you prefer not dealing with tenants, you may want to explore other options in real estate investing.

Another popular investment strategy is flipping properties. In this strategy you buy properties under market value, possibly because of the quality of the property, and you make the necessary repairs and renovations before selling for a profit. You’ll need a good calculator and a sharp pencil for your budget planning on these deals. You need to take into account all parts of your planned renovations, and all possible costs to make sure the investment is likely to return a sizable profit.

Some real estate investors are in for the long haul, and buy properties to hold onto for a longer period of time, counting on rising prices to increase the value of the property before selling for a higher profit.

Your choice of what real estate investment strategy is best for you can be based upon your available financial resources, income needs, and interests. You may even decide to work with a combination of these methods to fill your real estate investment portfolio. Combining buying rental property, with a long term strategy of selling for a higher price is a common combination investment. Welcome to the exciting world of real estate investment.

There are 5 important details you must keep in mind before you flip a property.

1. Your profit is determined at the purchase of the home, not at the sale of the home. Many people who flip homes make the purchase, with dreams of the big profits, then they start on the repairs and renovations. Once they finish all the work they come to the horrible realization the money they have invested in the home is equal or exceeds the current market values in the area. Their dreams of profits have evaporated. The problem did not occur at the time of sale, but by not buying properly. You must factor in all the costs you will incur to get the home market ready. Figure in your costs of renovations, costs of ownership while you renovate, and any other expenses you anticipate. A wise investor will then add a five to six thousand dollars to their cost estimates to cover unexpected expenses. Once you have determined your probable cost, you are ready to make a wise purchase. As you can see, the true profit on the house is made at the moment of purchase, not the moment of sale.

2. Getting a house inspection should never be overlooked. A licensed home inspector is going to find potential problems with the home you may have overlooked, and not figured into your offer. Make sure to include in any offer on a property, a clause which gives you the opportunity for a home inspection. Your deal should include 7 days to have the home inspection completed, and the option to walk away from the deal with no penalties if the home fails the inspection. The inspection could turn up problems in wiring, the foundation, or plumbing, which could change the value of the home dramatically. Without a home inspection you leave yourself open to a major loss on any property.

3. Don’t do your own renovations and repairs. Did you just gasp in disbelief? A contractor can do the work faster and less expensively than you. Make sure to figure in the costs of having a contractor do the work. Your job is to get back on the path of finding the next property to invest in. Highly successful investors don’t have time to hammer nails, they have time to hammer out the details of a deal. This is one of the biggest reasons some people make an income in flipping homes, and others become wealthy flipping homes. You only have so many hours in a day, use them where you are really needed, making the deals.

4. Sell your property below other comparable properties. Gasping again? You are an investor, you need to turn the homes over quickly so you can move onto the next deal, and not have your money tied up. By pricing your home one to two percent below other properties in the area, you home is suddenly the most attractive. Your wealth will be determined by how many deals you can turn over, not by making an extra thousand dollars on a single home. When you figure your buying price, plan on selling slightly below the market value, and you will turn homes over quickly, increasing your earning potential.

5. Don’t sell the homes yourself. List the homes with the finest real estate agent available. One more gasp? The cost you pay in the commission fees is just part of doing business. You can be working on buying more homes, while the agent is busy selling. Plus, building relationships with real estate agents is going to pay you back in getting phone calls about homes to buy. They will know you are the man to contact to get a property moving for a distressed seller, and they will make their profits on the other end when you sell. With listings, you’ll also have an army of people to sell your home, plus advertising. Most successful real estate investors know flipping homes is much easier with the help of great real estate agents as their partners.

Using these guidelines will help you increase your profits, and limit your chances of losses when flipping homes. Now it is up to you to get out there and make some deals.

House flipping information is usually filled with lists of Do’s, but sometimes it is the lists of Don’ts that are even more important. Here is short list of 5 Don’ts which could make or break the profits on any house flipping investment.

1. Don’t forget to check out the neighborhood carefully. What condition are other homes in the area? How well are the yards kept up? Is the house you are considering investing in a good match for the neighborhood, or does it appear to be the odd house on the block? All of these factors figure heavily into the ability to sell the home, and could greatly affect your profits.

2. Don’t spend all of your budget, then exceed it, without a great reason. You set the budget carefully to make sure you made enough profit, exceeding you budget can quickly turn this flipping investment into either a low profit return, or even worse, into a loss. If you are going to exceed the budget, it must be on items which increase the resale value of the home, and are appropriate for staying within the area market prices.

3. Don’t neglect to set goals for yourself, and to accomplish them daily. In real estate investing, when you miss a deadline, it can take days, weeks, and sometimes even months to reschedule meetings, closing times, and contractors. Missing your goals and deadlines can extend the time it takes to flip the property, cutting greatly into your profits. Every extra day without completing your flip is money lost.

4. Don’t focus only on the interior, remember to increase the exterior curb appeal. If you do not make the house attractive from the outside, it will be difficult to get potential buyers to even stop at the property and walk inside to see the great renovations you have completed. Curb appeal increases both the value and the marketability of any home. You need to have the complete package, with a nice looking interior, and a clean, well finished exterior to attract buyers, and close deals quickly.

5. Don’t spend money foolishly on items which are not needed. You need to evaluate surrounding homes, and what is expected for this neighborhood. Adding an island in the kitchen, new cabinets, and granite counter tops would look great, but in most neighborhoods, are too much and do not add value. Do enough to make the home market ready for your area. Resurfacing counter tops, replacing cabinet hardware, and simple low cost upgrades may be all that is needed. Do the most possible to prepare for resale, at the lowest cost possible. Every extra dollar you spend which does not add to the resale price, is a dollar reduced from your profits.

With the rapidly changing real estate market, you need to work quickly, spend your money wisely, and get the property turned over fast. Avoiding unnecessary costs and delays will help you make the highest profits possible, and get moved on to the next deal. As you become more experienced in flipping homes and real estate investing, you may choose to take higher risks, but for now, keep the money in your pocket, and work smart.

The dreams of huge profits fill the minds of every new investor venturing into flipping houses. Many times they neglect to carefully plan their first project, and just jump right in. Flipping houses is a business, and like in any other business, you need to create your plan for success. By making a plan, you can make sure you cover some of this critical lists of 5 things you must do on every investment property.

Step 1: Do get out the pen and paper, and start writing down all the aspects of your plan for this house. You are purchasing this home as a business project, you need to carefully plan each step of the project. What items you will need to accomplish, your timeline for each item, and the deadline for having the home ready for sale.

Step 2: Do plan your budget, not only for the purchase, but for every detail of the entire project. Detail what renovations and repairs are necessary to make the home ready for sale. Remove your desires on how you would like the home to look if you are moving into it, and make business decisions. What are the necessary improvements to get the highest amount of profit and to make a quick sale? Evaluate what price you will be able to sell the home for when establishing your budget, making sure to include the amount you wish to earn in profit. You must then work to stay within the budget on every step of the project.

Step 3: Do have a complete and thorough home inspection. This is one step, which overlooked, can quickly turn into disaster, and major losses. A good home inspector is going to find structural, electrical, plumbing, and other problems which could lead to major cost increases in the project. If the inspection turns up major new expenses, you are better to walk away from the deal, than to risk making no profit. After the home inspection, you can evaluate the additional repairs needed, and make a new offer if the costs are too high, and you still wish to pursue the property. The most important thing, always make this a business decision based upon real numbers, not based upon the emotion of the moment.

Step 4: Do study your neighborhood, and get to know it well. By evaluating the neighborhood closely, you can determine what renovations make good economic sense, and which ones would be excessive, and unneeded in this market. The home needs to blend well with the neighborhood, or the value will be decreased.

Step 5: Do remember your are in the business of flipping homes to make a profit. Every decision needs to be evaluated based upon the return on investment, not wishful thinking. You must have a firm understanding of the market prices in your area when setting your selling price, and have designed your entire project to be profitable within those price ranges. You cannot set a high price with the dreams of making huge money, when the market in this neighborhood is not supporting those prices. Also, plan ahead of time what the lowest price you are willing to accept. This will allow you to make quick decisions as offers come in and be ready to close the deal, and move on to your next project.

First time house flippers often lose money, because they do not understand or follow this simple set of Do’s. By following a plan you have a higher opportunity to profit on your first project. Remember, often the first project is where you learn the real process of flipping homes. Even if you make only a small profit or small loss on the first project, you have now just learned the skills and are ready for higher profits on all of your future deals.