9 Property Flipping Tips For Newbies
What is property flipping?
Property flipping literally means purchasing a property and selling it on for a profit. You may also have heard property flipping referred to as ‘buy-to-sell’. There are essentially two ways of flipping a property. The first method involves purchasing a distressed property, for example, at an auction, and then selling it immediately (without many renovations). The second method involves buying the property and then focusing on carrying out significant renovations before selling it. The second method can add more value, and consequently generate higher profits. To make a success of this second method, there are several areas that you’ll need to focus on.
1 . The Right Property
Finding the right kind of property to flip, and then getting it for the best price, is one of the most challenging stages of the property flipping model. First off, you’ve got to find property flipping opportunities. To do so, you might look at auctions or online marketing. You might spot a distressed or empty-looking house and decide to contact the owner. One of the most critical aspects to finding the right property is choosing a suitable area, let’s consider that in a little more detail.
- Type Of Property
So which type of property should you choose to flip? Generally speaking, the best kinds of properties are those which will appeal to a significant number of buyers. For example, choose a property that might interest first time buyers and second-time buyers. A three-bedroom property might fall into this category; it could function as a first home or an upgrade from a flat. It’s essential to go in with a strong idea of your target audience, as this will help you to choose the right property for them.
- Consider The State Of The Property
Choosing a property that needs too much work could become overwhelming. When you are starting out, it’s easier to choose a property that can be renovated within a shorter time frame. A property that takes too long to renovate means you’ll have money tied up for longer. In addition, it may prove more challenging to stick to your renovation budget.
- Choosing The Area
Once you’ve completed your renovations, you’ll want to sell up quickly. To do so you’ll need to choose a neighbourhood with a fast-moving property market. It can also be a good idea to look for an area where houses sell quickly to occupiers (as opposed to investors). The logic behind this? Investors generally have a set amount that they are not willing to exceed. Occupiers are more emotionally involved, and due to this, they are likely to enter bidding wars which drive up the price. With the help of a bidding war, you could end up selling for much more than you bargained for!
- Financing Your Property Flip
When it comes to financing your property flip, bridging loans are one of the most popular options. These are helpful for people who need quick access to a loan, on a short-term basis. A bridging loan is perfect for those who are planning to flip within a specific time frame. It’s useful to consider bridging as a kind of ‘short-term mortgage’. Usually, you’ll be able to borrow approximately 70% of your purchase price.
- Budgeting Your Costs
Naturally, your goal is to make a profit, and this is achieved by considering the purchase price, costs and sale price. As you can imagine, your goals should involve selling higher, getting a cheaper deal originally, or lowering your expenses.
Refurb costs: One of the most important areas to budget are your refurb costs, these will make up the majority of your expenses. To get a good idea of your refurb costs beforehand, it can be useful to take your contractor to view a property. You can ask them to provide an estimate of how expensive the renovations will be.
As well as this, you’ll need to factor in your estate agent costs, solicitors costs, and your broker fees. Whilst your property is in the refurb stages, you’ll also need to budget for security to protect your work in progress. For example, scaffold alarms can be useful for added protection on-site.
- Carrying Out The Refurb
This part must run as smoothly as possible, and so you’ll need to secure the best contractors for the job. To get the very best, you’ve got to do your research, set up meetings and interviews, screen your potentials, and make your needs clear. Look for reviews, testimonials and referrals. You can also call on anyone you know with property flipping experience. Remember, this stage is intended to increase the value of your property as much as possible.
- Selling The Property Fast
Once the renovation has been completed, how do you go about selling your property fast? Well, first off, you’ll need to ensure that your real estate agent puts on an excellent marketing campaign. Next, you’ll need to focus on preparing the property for sale. So how do you do this?
- Stage your property: You should stage your property, using furniture and other items, to make the house look like a home. When people view your property, they’ll need to feel that this place could be a comfortable and homely choice.
- Areas to focus on: When you are staging your property, you should focus on using plenty of plants, natural light and calming color schemes. All of these touches will ensure that the home looks warm and inviting.
- The 70% Rule
When you are setting the max price that you will pay, the 70% rule says that you should not pay over 70% of the ARV, (with the repair costs deducted). ARV refers to the ‘after repair value’. The rule can help you to establish how much to pay, while also estimating your refurb costs.
Property flipping can be a great real estate option for beginners; however, there is plenty to learn. As with any investment opportunity, it’s essential to perform detailed research before committing to any method, deal or financial decision.