Maximize ROI - 5 Tips for Flipping Properties in Today's Market
Flipping properties has been part of property investors' portfolios for many years. It is an easy way to get your foot on the real estate ladder and to make an excellent return on your investment. However, in today's challenging economy, is property flipping still worth it? It is, after all, a risk that you take in the hopes that someone sees the value of the property and buys it.
Amongst the buzz and undercurrents of doubt, experts still believe that flipping properties is one of the best ways to make money from the real estate market. You just need to know what to do and how to do it - and luckily, we've got the know-how!
What is property flipping?
Flipping properties, or house-flipping, is when you buy a fixer-upper and you restore it to its former glory to sell. Usually, it is done purely to sell straight after but some investors fall in love with their hard work and decide to make it a home.
When investors sell, they sell to make a profit which is why there is a risk involved. You can make a lot of money but you can also lose a lot of money. It is often easy to get carried away with decorating and remodeling which is why investors should steer clear of making bad financial decisions.
Here are a few tips to follow when flipping properties.
1) The golden rule: location matters
In any real estate transaction, location is key. If you buy the worst-looking house in the best neighbourhood, you will still get a higher return than buying a beautiful house in a bad neighbourhood.
When choosing a location, look at areas that are close to schools, medical centres, and shopping malls. You also want to look at safety and security. Many neighbourhoods now have neighbourhood watches and community group chats. A real estate agent can help in this regard and they'll be able to give you advice on current property market trends.
2) Flipping properties 101: set a budget
Once you've decided on the location, you need to decide on a budget. As with any venture that involves money, you need to draw firm financial boundaries and stick to them. Decide from the outset how much you are willing to spend on the fixer-upper. Perhaps you want something that isn't too damaged or maybe you are up for something a bit more challenging.
Bear in mind that the worse condition the house is in, the more money you'll have to spend fixing it. Once you've decided this, you can then assess the damage and decide how much you are willing to spend to restore it.
3) Determine the renovation costs before flipping properties
Before you sign the OTP and rush into the fixer-upper, saws and drills a-blazing, determine the renovation costs. Ask yourself whether the renovations that you make will be enough to turn a profit. This requires some more research on your behalf and a lot of calculations. You want to avoid pooling all your money into the house only to wind up selling it and breaking even. Or worse: selling it at a loss.
The best way to avoid this is to buy a house that only needs cosmetic fixes. These properties are often easy to flip because they require a little bit more TLC than the average homebuyer is prepared to give but not so much that you are out of pocket.
4) Hire contractors that you can trust
Once you have thought very carefully about the finances involved and you are 100% certain that you are on the way to becoming the next Sol Kerzner, you can start hiring contractors. This is probably going to be the most difficult part of the property flipping process. You need to find teams that you can trust.
This is a crucial part of the investment because if you hire an unprofessional contractor, you can kiss your carefully laid-out budget goodbye. The last thing you want is to hire someone else to fix the original contractor's mistakes. Speak to friends and family, and do thorough research on the contractors you decide to hire. Compare quotes, ask for references, and follow up as much as you can.
5) Think about the buyer when flipping properties
Finally, you need to keep the buyer of your house in mind. They are the ones who you need to impress. Everything that you do from the bathroom to the lighting fixtures must have the homebuyer in mind.
Avoid making decisions based on your tastes. Decide on the target market and the type of buyer you want to attract. Modern homebuyers want value for money and convenience. Think of things like automatic gates, aluminium windows, and tiled floors. These are low-maintenance things that will make the house more appealing.
Final thoughts
If you do enough research and planning, you are well on your way to flipping properties successfully. Take your time and ensure that you can turn a profit once the fixer-upper is sold.