Flipping property. It’s a plan that a large number of people like the idea of – buy a property below market value, do some work on it and then sell for a profit.
Yes, it can work well, as long as you follow the rules. Too often people spend more than they planned as the excitement of bringing a property back to life takes over their life.
So where do you start when looking at this as a strategy to make some money?
- Start at the end… this may seem strange but you need to have a good idea of what the likely selling price will be and make sure this is realistic – rather than start with the price the property is on the market for. What have properties around that area sold for? (move out a quarter of a mile). What is the demand in the area; what is the likely selling price if you refurbish it to the standard that there is a demand for?
- Now work out the costs of your project and allow a 10% contingency on top. One of the main things you need to get right is your renovation budget. This is achieved by knowing what your customer will expect for the price and realising its about what your buyer wants not what you want.
- Next work out how much profit you would like to make from the project. What is the minimum you would accept?
- At this stage, add your costs and profit and take them away from the likely selling price. This gives you the absolute maximum price you should pay for that property.
- Then see if you can negotiate to get it for less.
So even if the asking price of a property looks good, it may not necessarily be good enough for you to tie up your money.
Going back to point 2, the most important thing to get right when flipping is to work out the standard required. Too often people either go for a higher end finish than is required, and this actually eats into your budget, so step away from those designer taps! Alternatively, if you do a budget refurbishment and your buyer is expecting a high spec finish, they will not even come over the threshold to look at your property. Have you noticed that many estate agents today are using their photography skills to concentrate on taps! These same agents are however a great source of knowledge on what people are buying and what they will pay for it in their area too.
I hope this has helped you look at flipping a property in more detail, and as always if I can help you on your property journey then please get in touch.