That dream of buying a house in a state of disrepair and fixing it up to sell for a big profit is one many of us share. And the people you see on TV aren’t the only ones who are doing more than dreaming. According to ATTOM Data Solutions’ most recent stats, more than 200,000 U.S. homes were bought and resold within a 12-month period in the year 2017.
“That’s just under 6% of all the single-family homes and condominiums sold that year,” said Investopedia.
But, if the state of New York has its way, it might soon be harder to pocket that cash. There are actually two bills making their way through the system: Assembly Bill A5375A and Senate Bill S3060E. Each of them “Imposes a tax on the transfer of certain real property within two years of the prior transfer of such property,” said the New York State Senate. They are both currently in their respective Committees.
So what would the passage of either of these bills do? They would add a ‘flip tax’ on real estate sold within two years of purchase anywhere in the state of New York,” said Sharestates. “Appropriately titled ‘New York state small home anti-speculation act,’ these legislative items are being proposed for one reason only: To discourage property speculation.”
Specifically, would-be flippers would be looking at a 20% tax on real estate that’s sold within 12 months of the initial purchase and a 15% tax on those properties that are sold within two years.
That would eat into potential profit and likely discourage flippers from targeting New York. But, as Sharestates points out, the bill could also “hamper property improvements throughout the state and could do so with severe effects in New York City.”
Using Washington as an example
The state of Washington threw a wrench into flippers’ plans in 2006 after they passed Substitute House Bill 1843 in 2007. This didn’t impose a tax on the sale of real estate, but, rather, discouraged flipping by requiring "property owner developers, including flippers, to be registered and bonded as general contractors,” said Curbed.
Curbed took a look at flipping trends in Seattle in 2016 and noticed some interesting findings. “Pew Research released a report on flipping around the country. Washington State comes in at No. 23 with flipping only accounting for 4.9 percent of sales,” they said. “The national average is only 5.5 percent; but back in 2006 it was more like 9 percent.”
Of course, that dip in flips could also have something to do with the exorbitant price of property in the city, which has one of the most expensive real estate markets in the country.
Do your research
If you’re looking to buy a piece of property with the intent of flipping it, make sure you do your research. In addition to local regulations (passed and in the works), there are also specific rules that might be imposed by your lender. For example, the FHA won’t allow you to resell a home you purchased with an FHA loan within 90 days. You’ll also want to make sure you resist the urge to play with the laws. No amount of profit is worth paying the price for mortgage fraud.