The process of flipping a property is basically buying a property and selling it on at a price you will earn a profit. Property flipping is a popular choice due to its fast returns, however, investors must be prepared for what comes with it. Flipping a property is a huge financial commitment, therefore, it is vital investors consider this before moving forward with a flip.
While it is not essential, when flipping a property, many investors choose to improve it through renovations. While this delays the process of placing the property on the market it can bring great benefits. Renovations add value to the property relatively quickly, justifying their profit return.
The OptionsFlipping a property brings investors two common options.
Investors can choose to purchase a property at a low price and patiently wait for a market increase to then sell it on at a higher price.
Alternatively, as previously mentioned, buying a low priced property and increasing its value through updating it internally, externally or both is a popular choice for many.
Regardless of whichever option an investor chooses to follow, a knowledge of the housing market is extremely beneficial. Holding this knowledge in the beginning allows an investor to determine which style of flip they wish to pursue.
Failure to the market could lead to severe issues which we will discuss later.
A key benefit of flipping properties is the opportunity to avoid being a landlord. Many investors are in the business of investing in property to make an additional income, however, investors are often time poor and, therefore, do not have the means to commit to being a landlord.
By investing in properties as flip projects investors gain the experience of the benefits of making a return without the responsibilities that come with being a landlord. This also opens an investors freedom as the limited commitment allows them to decide when to actively invest and when to take a break.
A great advantage of flipping a property is the large return. With other styles of property investment profits are seen (most likely) on a monthly basis, whereas flip properties bring a full return of investment in a short period of time.
Purchase Price: £45,000
Done Up Value: £80,000
Common MistakesThe Market
Knowing and understanding the local housing market of the property you have an interest in will positively affect your overall project. The mistake of diving in with limited knowledge is often made by many, however, by acquiring this information and interpreting it well you reduce opportunities for there to be flaws in your purchase choice.
The market will allow you to determine which properties hold the possibility to be a good investment. By monitoring the market you can ascertain the quality of the deal being offered, afterall, purchase price has a major decider of your returns.
An insight of the market will allow you to envision your asking price on completion of your renovations. For your property to sell it has to be priced well and in line with surrounding properties in the local neighbourhood. As neighbouring properties will influence the sale price of your investment property it is essential you have a knowledge of these. This will let you know the value of your flip.
Just like with everything, your budget is your decision maker, therefore, you must keep it at the forefront of your mind at all times. There are more costs to a flip project than simply buying the property.
As well as the purchase price you will have taxes to pay - the major one most commonly known as Stamp Duty (LBTT in Scotland). Meanwhile, to find the right flip property for you, you are likely to work with a property sourcing or estate agent, both of which also come with fees. Even selling the property will present you with financial commitments, making your budget a priority consideration.
Aside from these costs, it is important to allocate an adequate portion of your budget to your repairs and renovation. There is always the potential for unexpected problems to arise during renovations and repairs, due to this, we suggest allocating a larger portion of your budget than you think necessary. Afterall, it is better to have it and not need it than to need it and not have it.
ConclusionFlipping a property is a great adventure, one that often brings an array of benefits. Understandably, in most cases investors opt for a property they can add value to through improvements and renovations. By setting out on the project of adding value this way investors modernise the property and increase its attractiveness to its market.
By developing interest in a property through flipping it investors allow themselves the opportunity to gain a reasonable profit in a short time.
It is important though not to be blindsided by the positives this style of investment brings.
Your budget decides which opportunities you can take, therefore, it must always be in your thoughts. Remember there are costs before you even choose a property.
An awareness of the market will assist you in deciding which renovations to make and an appropriate budget to allocate to this.
Ensure you are mindful of factors which could affect your investment. Do not dive in, do your research into markets and buy a property which will be the right project for you.
With a knowledge of the property market you will be able to analyse if a deal suits your plan - and whether the deal being presented is a good one. Meanwhile, knowing about the property market will give you the advantage of being able to effectively determine an appropriate sale price.
Disclaimer: This is information based on our knowledge gained throughout years of experience, education and learnings. This information is open to interpretation, therefore, you must carry out your own due diligence regarding the subject.