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House Flipping for Profit: Basic Guide - Guest Post from Ella Andrews
In the field of property investment, the practice of house flipping has been around for a long while, but the reality of the situation is that house flipping takes preparation, skill and experience to work out well. What is house flipping? Essentially, it is the practice of buying a home, renovating it and selling it for profit. This type of approach can be a great business opportunity, as long as you approach it the right way. The following tips will explain the basics:
- Curb appeal and first impressions
There is a reason why curb appeal matters, since people see the outside of a home first. If the outside of a home looks pretty terrible, then chances are people will not feel very impressed with it and may not even consider looking on the inside. Potential clients will need to see the best of a home if they will even consider making a purchase. Focusing on both curb appeal on the outside and the interior decorations and maintenance will ensure you have all you need to make things work.
- Importance of colours
Whenever you prepare a property for flipping, you will do well to keep away from any colour extremes that may push away some of the potential buyers you’re trying to attract. A more generalized and neutral set of colours will help keep the property more interesting to a wider variety of tastes. Having the largest range of potential buyers will improve the chances of a sale, so you stand to gain from such a colour scheme.
- Kitchen and bathroom importance
You will need to be especially careful with these areas, as they will likely be in a pretty poor condition in older homes, so they will need a good bit of work to make them flawless. After people move into their newly sold home, they will need to do so without finding any issues, especially once the moving company drops off their belongings there.
- Get used to working with a deadline
You need to understand that you can’t take forever with flipping properties, as time will be pretty important if you want to make a steady profit. After you figure out what planned renovations and maintenance needs to be done, you will also have to figure this out before you can make a sale. Taking it slow simply also means slowing down your potential profits and income.
- Working with contractors
If you want to make your new property shine for your potential clients, you will need to have a lot of things done professionally. Contractors will allow you to do that, as they will take care of many aspects of the job. It will take a good bit of work on their part, so you would do well to research potential options early on so you can find contractors you can count on to get things done well. The last thing you want is someone mucking up the work and making things harder to sell in the end. Once their work is complete you will have a chance to move on, allowing your new buyers to park the moving van, move in and call it a day.
Article granted by Ella Andrews on behalf of: Bayswater van hire services
The Property Voice Insight
Presentation, colours & decor are important considerations when looking to 'stage' or 'dress' a property for sale, or flip. Kitchens & bathrooms sell houses for sure. Planning & managing a renovation or refurbishment takes a different set of skills as well. Deadlines & turnaround times can cause stress, swallow up our profits and blow us off course if we are not too careful. So, what is missing here?
The commercial aspect of flipping or buy-to-sell is alluded to but not elaborated upon.
There are a handful of key components that commercially can make all the difference between a good deal and a bad one:
- Net profit margin & ROI - having pre-determined written criteria expressed both as a percentage & an amount focuses the mind and the opportunities. Buy shrewdly, manage the improvements well and sell to a crowd will add up to a tidy end-result
- Project management - don't let a 12-week project turn into a 20-week one because you forgot to order the custom-made windows at the outset!
- Payback period & 'deal velocity' - what would you rather...a £10k profit in 2-3 months or a £20k profit in 6-9 based on the same investment fund? In any year, you could do 4-6 of the former (£40k to £60k return) or 1-2 of the latter (£20k to £30k return). Deal velocity is how many times you can recycle your investment fund and payback is how long it takes to get it back - both essential components of being a successful property trader
- Financing - cash is king, or is it? Using other people's money in the form of leveraging can mean doing more with less...but at what cost of finance? We need to understand the 'opportunity cost' of our own cash (how much we give up by using it here) and the actual cost of using other people's money, along with the payback period in order to decide which is best (can I get more projects done, more quickly by using other people's money). Oh, and lenders tend to be quite slow and complicated to work with at times...tip: cash would suit the former example shown & finance may better suit the latter better
There are also a number of skills required to successfully pull off a good flip project, here are some:
- Having vision - to be able to see the end result when looking at a wreck; it doesn't matter what it looks like cosmetically or smells like today!
- Research - to be able to sniff out a good opportunity, perhaps that others miss
- Negotiation - to keep all costs low such as labour, materials, fees but not forgetting the property purchase price, get better terms like credit, fixed price quotes, etc. and maximise the resale value
- Budgeting, forecasting and cost control - 'what get's measured, get's managed'...cost overruns can quickly mount...and don't forget the contingency fund
- Planning and organisation - to logically evaluate the sequence of events, those that can happen in parallel, what is on the 'critical path' and then to 'herd the cats'
- Teamwork & team management - trades, professionals, agents and so on, all need to know what is expected and be 'on the same page' at the same time...and then what happens if they disappear, produce poor quality or have a bad day?
- Marketing & sales - to attract a 'feeding frenzy' of buyers aiming to pay the maximum price on the best terms
So, having considered all of these factors - do you still want to consider house flipping for profit? It is a different animal to standard, long-term, buy-to-let but it definitely has it's rewards and a place in many investor's armoury.