Buying to Sell? Five Steps to Prevent Your House Flip From Becoming a Flop
Flipping, i.e. buying a property at a low price, fixing it up and selling it at a profit is a big investment of both money and time, and it may seem like a daunting task, especially to beginners. Without the right planning, any flip can quickly become a flop.
By Jumia House Zimbabwe
But the reality is that real estate flipping is not any more complicated than buying or selling household property. It is simply a more lengthy process. The key to successfully flipping homes is what you do before you buy the property. That is, the planning stage is the most important.
For investors interested in flipping, following the steps below will help make your flip into a success and not a flop.
Step One: Find the Right Location, and Give Yourself Time to Do It
Even beginners know this. Finding a good location is the number one requirement of any real estate investment. Naturally, this goes double for house flippers.
The neighborhood in which you choose to buy a property to flip must meet at least two more requirements. (1) the neighborhood needs to be up-and-coming so that prices are low, and (2) it needs to have enough buyers in the market. This is a hard balance to achieve, but by paying attention to the rate at which market prices increase, you can get a good idea of how popular a neighborhood is and will be.
This is the most crucial step of the flipping process and the most time consuming. It requires good planning, which means that it can take months of research.
Step Two: Find the Right Property, but it Might Not Look the Part
One of the most common features of a great flipping property is a slightly worn or unfinished condition, also known as a “DIY” or do-it-yourself property. This means that it might not look like a good investment.
The reality is that a “fixer-upper” like this can be the perfect investment because they usually have extremely low prices. Then with a little renovation, its value can skyrocket. But first, you need to get an estimate on the home renovation costs. To get this, you will need the assistance of an expert, usually a building inspector, architect or contractor.
Step Three: Find the Right Price – the Balancing Act
The price of a great flipping property needs to be low, but not too low. Low prices are a large part of what make flips profitable. But a price that is too low might be too good to be true. An extremely low price should be investigated. It could be the result of an immense amount of required repairs or worse, a weak market, i.e. a lack of buyers.
Hiring a building inspector will enable you to determine if renovations are cost effective or cost prohibitive. To determine the popularity of a neighborhood, property values must be on the rise, which usually means that there is a healthy market of buyers or that there will be when you are ready to sell.
Up-and-coming neighborhoods are the most common place to find great flipping properties because prices are relatively low and property values are on the rise.
Step Four: Know How Much You’ll Spend Before You Buy
Once the right location, property and price are found, an analysis of the renovation costs must be carried out before moving forward. This means making a budget. Your budget should include the price of the property plus renovation costs and the taxes and fees associated with buying and selling a property.
We have already discussed that an inspector and a contractor may be needed to determine the viability of the property. Those same parties will be able to make an estimate on the home improvement costs.
Additionally, a contractor or builder will usually handle all the various aspects of the renovation, such as electricity, plumbing, materials, labor and licenses. However, it is always important to understand these things yourself so that their estimates are not exaggerated.
The Final Step – Determine Your Sale Price
Once you have determined your costs, you are ready to take the final step before the big purchase. In order to make the time, energy and money that you put into the flip worthwhile, you need to know how much you will need to sell the property for to make a profit.
Determining a sale price can be a personal preference, but common industry-insider wisdom tells us that the profit percentage of a flipped house should be at least 10 percent. This means that if your costs (property price, renovations, fees, taxes etc.) are $70,000, then your sale price should be at least $77,000. This price gives a profit of $7,000, which is 10 percent of the costs.
Naturally, the amount of profit you make is up to you, just don’t forget to leave yourself some breathing room and follow these five steps.
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