How to flip a house.
The idea that retail can make fast money is a worldwide phenomenon, and in Europe, is showing moderate success, though knowing the right approach, what to look for in an investment, and what to expect in the way of returns on a realistic market basis is the only way to make that flip positive.
So what is House Flipping ?
House flipping is buying a property in order to resell it and make profit. It’s almost like thinking on the philosophy of using bricks and mortar to make money, rather than other money orientated investment. There are different kinds of house flipping:
*Buying a house to renovate and sell on at a profit.
*Buying a house and using it as an investment potential.
*Buying a house at a bargain price, and selling without spending further cash.
To understand how each of these works, we need to go back to roots. Housing investment is only viable if the funds are available to achieve the results that the investor seeks. In fact the mistakes that are made in the potential market for profit are usually short-sighted, and occur in situations when research was insufficient to recognize local trends in the market, house prices in that particular locality, cost of renovations to make the investment work and a lack of awareness about what works, rather than what the invester thinks will work, without proven background.
RESEARCHING THE MARKET
Researching the market is essential for success. Comparison of similar properties and the prices that they can realize is important, since without this research, the home owner cannot realistically assess what kind of profit they are likely to make, with what improvements. Look at houses not just from the outside. See what they offer and recognize trends that work within the area you are researching. For example, creating an ideal family home in a student area may not be wise, although turning a dwelling into studio apartments for young professionals may work.
Check out the locality and the type of people that live and work in the area. This is important since the eventual aim is to sell to people who that area attract, and taking this research, hand in hand with looking at what facilities other homes offer, helps you decide what amount of investment you would need to make to be competitive, and exactly what sector of the market you are aiming at when you go to re-sell the home.
RESEARCHING THE FINANCES
People jump too quickly at the first loan they can get and here huge mistakes are made, with potential investors borrowing amounts of money and not taking into account the amount of time a job will take before resale, and indeed the return and profit on the money borrowed. Do estimate how long the job will take, and the monthly payments that you will be required to make during that stagnant time when the house is not on the market. Also, do ask what the company offering the loan are giving you in the way of interest rates, and if there are penalty clauses for early payment. This is essential since traditional mortgages depend upon the investor taking them out for long periods, and when you are in the process of buying and selling houses, you do need to be aware of penalties.
When selling houses that are not your principle residence, care needs to be taken in researching what taxes you will be charged on your capital gain. This is an unearned income gain, and in many countries, this kind of gain is highly taxed. Research also what work will offset the tax paid, and be sure that you keep all receipts that are applicable.
Many areas offer grants for improvement of houses. Find out the rules and see if any of the grants being offered by the government are applicable to your type of investment. You may be nicely surprised. Here, do take care never to commence works before permissions are granted, and grants approved, since this can affect your entitlement to a grant. Also find out what rules apply in relation to short term ownership.
IDEAL HOMES TO BUY
Re-possessions are a good investment. What has happened is that someone has not paid their mortgage and the company want their money. In an effort to get it back, they will sell houses, not being too particular about the profit factor, but more concerned that they get the money that was borrowed. It’s a horrible situation, though these houses often come up for auction at bargain prices.
Houses that are under-priced on the market and that have potential that you can exploit by renovation works that you know yourself capable of can be bought as a good investment, although be wary that your research is done on the kind of sales price you can expect if the house is renovated. Here, talking to real estate agents, and looking at the trend of property sales in the geographical area is a good idea, as this will give you an indication of your potential market.
THE BUYING PROCESS
If you are going to buy a home, ensure that all the surveys are done, so that there are no surprises, and know the condition of the home before making that offer that you cannot refute.
Having established that you want to buy a house in order to flip it, gather quotations for all work you would want to be undertaken before signing your financial agreements or buying papers, because at this stage, you can establish exactly how much you can afford to spend, and what repairs are needed. Make extensive lists of the jobs that need doing, and in order to create a budget, do over-estimate the costs, since it is very easy for a job to go over budget, and thus lose you profits. Armed with an idea on total renovation costs, you are in a better position to know exactly what finance you need, and how much you can afford to spend on the bricks and mortar in the first place.
Do work to a schedule. Every month you own that house is costing you money at an alarming rate. Not only will you have the financial debt to pay, you will also have all the utility bills for that house, and housing taxes to find. Owning an empty property costs an enormous amount of money.
Get your priorities right, working in order, so that different trades are not getting in each other’s way, and put time schedules on each of the jobs that need doing.
Aim all your renovation work on the market in which you are hoping to sell the house. Using cheap fittings on an executive house won’t bring in sales. Work through your lists, and when you have established a finishing date, see real estate agents in advance so that they can estimate the value of your investment. Here, you may be able to save money by selling direct, although their estimation of value is essential as a starting point.
When selling the property, many investors go wrong and lose money because they don’t take into account the following deductions:
*Excessive cost of renovation.
*Real estate fees
What happens is that they are shocked by costs and try to sell their properties at an unrealistic level based not upon what the house is worth but upon what they have to pay out. This is not a realistic way of doing business since the house is only worth what the market allows and what house buyers are prepared to pay.
Make sure that the presentation of the house is such as to reflect quality, neutrality, and value for money. Make outside approach neat. Color in neutral colors that entice the buyer. Make sure the house is clean and looks cared for, staging if necessary to achieve a sale.
Only by taking all these considerations into account can house flipping work successfully. Good luck with your investment. With thought and homework, hard work and dedication, you can make it work.