Flipping Houses in Washington State: 3 Unpopular Truths

All real estate agents who are flipping houses in Washington state are commonly referred to as real estate brokers. This is per Washington state law. Brokers that manage other brokers and run an office are referred to as managing brokers or designated brokers. It’s different from other states.

Flipping houses in Washington state The flipping profession in Washington D.C has been expanding and offers one of the most unique career options for both full and part-time. A career in flipping provides flexibility and freedom to set your own pace and get after your ambitions.

Your earnings reflect your sales efforts. There are no major boundaries as to what you can earn. Successful flippers in the state set and accomplish goals. They are disciplined, self-motivated, and ambitious. Some of the perks of being a successful flipping professional in Washington D.C are high earnings, independence, and freedom to set your schedule. They also get to help advise people on what is typically the biggest investment of their lives.

The mean gross margin for house flipping was $65,000 in 2018. This estimate is before you calculate other numerous costs and taxation. A profit is obtained.

Flipping houses in Washington state has a market that is moving fast. Over the last year, the median home price rose 6.6 percent to 385,400 dollars. Over the next year, Zillow sets their sights at 4.7%.

The prices in the Seattle area continue to rise with big names such as Microsoft and Google in the area. The median valuation of the houses in Seattle is quite high at $729,400. As rates declined by 2.4 percent in the past year, the demand dropped.

If you decide to flip houses in Washington, there are some “truths” you must take into consideration:

“Anti-Flipping” Law

The 1749 Washington house bill was vetted and passed in the house unopposed. The bill was signed by the governor on the 22nd of April 2015. It briefly points out that the owner of a house shouldn’t be the house contractor if:

1. He/She isn’t a licensed contractor.
2. If the owner contracts the house to a licensed general contractor but does not monitor the house rehabilitation.
3. The house being flipped hasn’t been occupied by the owner for over a year.

The bill has been modified a little today.

The contractor’s license is required for house flipping in Washington state. Exemptions remain, though. RCW 18.27.090 shows various exceptions that must be read carefully. For instance, the license of a contractor is NOT required when:

1. An individual conducts or employs his workers to carry out upkeep, renovations, and modifications on his property. The exception shall apply. RCW 18.27.090(13)
2. Any individual working on his estate or home of residence. It doesn’t matter if that individual occupies the property or not. RCW 18.27.090(12)

This exemption is void if:

1. An individual functions as a contractor on his/her property for selling or leasing.
2. An individual functions as a contractor on his/her property for flipping.

There are ways to make minor fixes without a general contractor.

An LLC may be established with a GC (which gives only 1% interest and no GC management power). This can be used to purchase a property. This technique should be sufficient to comply with the “anti-flipping” legislation.

90-day rule when flipping houses in Washington state

It is important to understand the 90-day FHA rule before you purchase and flip a house. The purpose of this legislation is to prevent fraudulent practices. These practices can impact the housing market. This can be caused by individuals who falsely inflate the cost of homes. Various flipping strategies allow flipping experts who use false information to conduct transactions. This is where the 90-day FHA rule comes in. The rule prevents the flipping of houses within a specified period.

The FHA flipping rule is divided into two parts:

1. The funding of property deemed a “flip” is not allowed by the FHA. This rule is valid if the flip is less than 90 days from the date of registration of the deed. Most house flippers have to wait 90 days or more before flipping. Although there are some exceptions to the rule, it is still standing and in effect.
2. Following the first 90 days with a home, FHA financing will be given over the next 91 to 180 days. Although, there could be a second appraisal needed before the FHA allows the investor to purchase.  A second assessment will be needed if the resale takes place between 91 and 180 days. If the current selling price is 100 percent or more above the amount the flipper paid for it, a second assessment is needed.

The main factor in flipping is how long you have a property. The federal legislation pays you a long-term capital gain. This is possible by treating it like any profits from sales. This is possible if you retain the property for more than one year. Therefore, the income tax is even smaller. This is possible for investors in the widest income tax-bracket achieving below 20 percent. The average may be smaller for those in the lower brackets – 0 percent.

Tax when Flipping Houses In Washington State

However, tax rates will not favor you if you are flipping houses in Washington state in less than one year. The profits made when purchasing, flipping, and selling a house in less than a year is small. It is regarded as a short-term capital gain. It is taxed at normal income tax rates. They are higher and can max about 39% of your profit.

The calculation may become complex when you flip frequently. In contrast to the rest of the United States, King County has a high tax rate on properties. It collects about 0.88 percent of the fair market value of a property as a property tax. Each year nearly 3.8 percent of the revenue of households is charged as property tax. Overall, it has the highest property tax average, something to be aware of when flipping houses in Washington state.