Is flipping expensive for cash home buyers?

Flipping is risky and tougher than it seems on TV, especially in Pittsburgh! More often than not, it usually ends up taking a bit longer and costing more than anticipated from entry to exit. Many home sellers we speak with consider flipping their own house as a possible option for selling.

Let’s break down what all goes into a fix and flip! (We’ll show you a detailed example with realistic figures at the end.)

Pittsburgh cash buyers typically see a return of 20-30% net profit, and a flip takes an average of 4-6 months from entry to exit. The less construction a property needs, the quicker you can sell it. This will shorten your timeline to minimize expenses and maximize profit! A home buyer in search of a flip won’t typically find the risk, time, capital, and effort worth it for anything less than a forecasted 20% net return.

There are 4 main components: Buying costs, holding costs, selling costs, and income tax

Buying costs:

  • Purchase Price
  • Closing costs (usually 3% if paying only the buyer customary costs)
  • Inspections: home, camera sewer, radon, pest, mold (if applicable)
  • appraisal (if applicable)
  • loan origination fees (if applicable)
  • Finders fee (if applicable)

Holding costs:

  • Insurance
  • Utilities (water, electric, gas, sewer, trash)
  • Landscaping/lawn upkeep
  • Taxes
  • Construction (labor and materials)
  • Interest payments (if applicable)

Closing Costs:

  • Realtor fees (if applicable)
  • Closing costs (usually 3%)
  • Seller concessions/seller assist (if applicable)

Income Tax:

  • 25-35% of your net profit based on your ownership structure and tax strategy

Example:

New Building Permit Fees in City of Pittsburgh

The City of Pittsburgh recently went on a taxation and fee binge on anything and everything.

Beginning on May 1, 2019 a building permit fee for a total gut rehab ($150,000 rehab estimate) on a single family home will go from $150 to $850: that’s an 83% hike! Yikes!

What is the impact?

PGH Property Buyer believes that this will inhibit numerous homeowners and property owners from being able to make basic necessity repairs and enhancements to their properties.

In addition, it could absolutely hold back hard working carpenters, construction workers, and local small business companies from doing more business.

When it comes to rental property owners who invest their life savings into rental properties to supplement retirement, we could likely see them pass on this expense indirectly by raising rental rates.

One thing we can learn from this is that for every action comes a reaction!

City of Pittsburgh Real Estate Tax Disaster

Did you know that Pennsylvania is among the top states plagued with staggering and economically crippling taxation?

Did you also know that beginning on January 1, 2020, the City of Pittsburgh will have the highest total combined real estate transfer tax rate in the US!?

This ordinance negatively impacts people in the City of Pittsburgh of all walks of life except the governing entities. However, the direct impact that this ordinance has falls on real estate buyers and sellers.

What should we expect to see?

We at PGH Property Buyer believe that it has the potential to slow economic movement and growth because it makes it more difficult and expensive for a seller to sell and a buyer to buy. This will likely trickle into rentals and leasing and upset the current balance of tenants, rental rates, and vacancies.

Our forecast expects to see an economic gridlock effect take place. We personally believe that these astronomical tax hikes incentivize families, developers, landlords, tenants, new and local small businesses, and investors to engage less in the City of Pittsburgh and engage more in the suburbs and boroughs surrounding the City of Pittsburgh.

Tips and Risks of Owning Vacant Property

Owning a vacant property comes with risks. Today we will discuss the challenges and offer solutions for owning vacant property.

We at PGH Property Buyer aren’t the only people who perceive a property that sits vacant as a negative. Did you know that homeowner insurance for property is automatically quoted higher if it is not occupied?

Vacant properties around Pittsburgh are easy targets for squatters and vandalism because many homes are very old and contain valuable copper pipes. Copper pipes are at the top of the list for what intruders desire to take.

Risks:

-higher insurance

-higher probability of break ins, vandalism, squatters, stolen pipes

-no cash flow

-harder to maintain landscaping

-higher probability of wildlife pests accessing and destroying the interior

-greater likelihood of mold accumulation and pipes freezing and breaking

-greater likelihood of trespassers and accidents happening on the premises

Solutions:

-Make friends with the neighbors, and ask them to watch over your home. Exchange contact info and be supportive with each other.

-Hire a property management company.

-Install a camera and security system.

-Hire a landscaping company to maintain the grounds regularly.

-Rent, move in, or sell the property.

-Arrange a seller finance or rent-to-own scenario in which the occupant is responsible for the entire property upon executing the agreement.