When you see houses flipping on the TV, it looks like an attractive premise. As the name suggests, the idea is to purchase a home, perform some improvements and repairs, and then sell it on for a profit. For some, they’re even able to leave their work and flip properties full-time. However, house flipping is harder than it looks, so here’s some advice.
Step 1: Choose a Property
Remember, profit will only come if the selling price is larger than the purchase price plus anything you spend on refurbishment. With this in mind, half the battle is choosing a property that has potential. Often, this comes down to three things:
- The area
- The property
- The situation
Since you’ll want to sell relatively quickly, pay attention to locations where the market is fast and active (the last thing you want is to have the property on the market for months and months). With the property, make sure it’s something that will generate enough interest in the location you’ve chosen. With a three-bed semi, for example, this appeals to all types of buyers, and would also appeal to investors looking for Canberra home renovations to flip for profit.
Finally, a great situation will generally present itself; don’t buy a house in perfect condition because you have nowhere to go from here. Therefore, the property should need a bit of love and care.
Step 2: Arrange Financing
Of course, another major step for buying and flipping a home for profit is arranging the finances. Generally speaking, you shouldn’t use a mortgage because these are designed for long-term agreements. Especially if you plan to flip several properties, you won’t keep getting away with repaying mortgages early without a penalty.
If you have cash, this is the obvious solution because it’s quick, easy, and doesn’t involve any loans or banks. Alternatively, another solution is called ‘bridging.’ Essentially, this is where you borrow a percentage of the purchase price and fund the rest through cash. As a short-term mortgage, the lender is clear on the terms and won’t charge an early payment penalty.
When sorting the financial side of the flip, don’t forget all the fees and costs involved in this process. For instance, this includes:
- Stamp duty
- Financing costs
- Refurb costs
- Holding costs
Step 3: Refurbish
With a property chosen and financing arranged, it’s then time to refurbish. For beginners, there are two ways to achieve the same goal:
- Hire various individual contractors and become
the project manager - Hire a project manager who will then sub-contract
While managing the project yourself is cheaper because you have full control of all costs, the obvious downside is that you need expertise and lots of your own time. Ultimately, the route you choose will depend on your timeline, budget, the work that needs doing, and your own plans.
Step 4: Sell
Finally, with the home in a stronger position, the house should go back on the market. It’s essential to work with the right real
estate agent at this stage because they will provide advice on staging, paperwork, pricing, and the process itself. If this is your first time flipping a property, working with an agent is perhaps even more critical. As time goes on and you become more knowledgeable in this field, then maybe you can forgo the agent and use your experience instead.
With this, you have the four steps to buying and flipping a home for profit. Remember, don’t invest if there’s not enough room for a profit after purchasing and refurbishing. If all works well, you can walk away with a healthy sum!