As a beginner to property investing, flipping houses may seem like just another term amongst a bewildering list of different strategies and options to try to understand. Investing the time to comprehend the basics will be time well spent as ‘Flips’ are a key concept, as you will discover. This may not be your primary goal when viewing properties, however it could provide a solution if other plans flop.
What are Flipping Houses
The basic concept of flipping houses is an easy one to grasp; you buy a property and sell it for more than you paid within a relatively short period of time, thus making a profit. No tenants will be involved, it is purely a strategy of buying and selling properties. The reasons for the price increasing between buying and selling may be for a number of reasons that we shall discuss next.
Creating a Profit
The popular approach is to seek properties that are unloved and needing a bit of care. The goal is to buy these properties at a price that is representative of their condition. Some may need a light touch such as redecorating and new carpets. Some may be a full-renovation with structural work, replastering, rewiring and a new kitchen and bathroom.
Other opportunities can arise if there is an unresolved legal issue that is negatively affecting the value of a property. Perhaps a large property can be split into a number of smaller properties to increase the overall value. Maybe the owner needs a fast sale and will accept a below market value offer.
There are many ways to increase the value of a property, creating forced appreciation. The crucial link in the profit chain will be getting your calculations right. Every single cost from start to finish will need to be considered in order to understand how and more importantly, if the deal will work. Getting the calculations wrong could result in a very costly mistake so it is therefore your number one priority to fully understand how to cost the deal and crunch the numbers.
Understanding the numbers will give you an indication of the amount of finance you will need to raise. The costs will not just be the buying and renovating costs. Expenses will also come in the form of selling costs, taxes and the costs of borrowing money for example. Any lending will need to be acquired with great consideration and professional advice as there may be mortgage restrictions on the length of ownership before selling, exit fees and if the property is not in a habitable state, it will not be mortgageable in the first place.
Flipping houses will most likely involve an element of refurbishment. Careful choices will need to be made as the requirements of a flip property will differ to those of a buy-to-let property for example. Understanding the local area, housing market conditions and your target buyer will be essential knowledge when designing your refurb as you will wish to get the highest price from the sale without incurring exorbitant building costs.
Easy Mistakes to Make
There will be many potholes to avoid along the road of flipping houses. Costs can escalate due to unforeseen structural issues, problems with planning consents or contractors not delivering on what they promised. The biggest pothole however, may be the one that you dig yourself.
People can often run into problems due to a simple lack of knowledge and planning. Over-paying for the property, under-estimating refurbishment costs and setting unrealistic timelines all come down to poor knowledge and planning. To make a flip work successfully will require making the right decisions at the right times. As with a house, the importance of solid foundations cannot be emphasised strongly enough.
A final note
Our final consideration should your first consideration. Flipping properties will generate lump sums of money as opposed to income. This may suit your needs if your needs require a pot of money to spend or invest on other things. However, if you need an income to pay the bills today and into the future, you may wish to consider an income generating strategy such as Buy-to-Lets or Serviced Accommodation. If you need to better understand you options, get in touch or jump on a free Discovery Session.