In today’s brief, we attempt to explain the process of house flipping.
- What it means.
- How to get started.
- What things you must consider before you start.
- What to look out for along the way.
In reality there are two ways we make money from investing in property:
- Regular income: also known as rent.
- Capital appreciation: a time-driven process that sees the asset increase in value.
Like any other investment, there is no guarantee of success. However, for investors who do in-depth research before shelling out any amount of money, chances of success are higher.
A life that is paid for by their investments.
So, what type of homework will you do?
- You’ll research things such as recent market movements.
- You’ll have to access reliable data produced by industry experts.
It depends on the general movement of the market. However, recent data has proven that the market is usually on an uptrend.
In fact, according to data from the Australian Bureau of Statistics,, from September 2020 to September 2021, the prices of residential properties in 8 major Australian cities rose by 21%.
Aside from depending on this value appreciation, there is one other way you can add value to your property. It may be through simply applying a fresh coat of white paint on the four walls of your house. Logic follows that a freshly painted house is going to be worth more than one that is not. This is the idea behind the concept of house flipping in real estate.
What is house flipping?
Simply put, when you fix a house to make it look better and then you sell it, that is house flipping. It’s pretty much like buy-and-sell, except that it’s more on the short-term side and you have to put in some heavy work.
This investment strategy requires you to be good at finding undervalued properties. You must also be able to renovate the house in the shortest time possible and also with a small budget.
This is how you make money in flipping houses. The shorter the time and the smaller the expenses, the better you can maximise profit and the sooner you can move on to your next flip.
How do you get started in house flipping?
Contrary to how house flipping is made to seem easy, the trade is quite tricky.
Do your market research
First you have to determine a target market. And by this, we mean a geographic one. High-demand locations are key to successful sales.
These locations are the most sought-after places for people looking for a home. This means that finding undervalued properties in such places is difficult. One reason is because there are many other house flippers looking here. There is a tight competition.
Observe auctions in the area you are targeting. Familiarise yourself with how it works.
When you have a property in mind, make sure that you know all the details about it. Unpleasant surprises may slow down your project down the road. By checking the property closely, you also get to see if you are paying the right price for it.
As early as the beginning of your house search you should be able to foresee a property’s potential for profit. Include in your research the ceiling prices per location. This will give you an idea about how far you can go with the renovation while eyeing for some take-home cash.
Without proper research, you might go all out with your renovation and break the price ceiling. This will make it hard for you come selling time.
Know how to fund your trade
Experienced house flippers know that it’s not super easy to get started. To help you make it as smooth as it can be, you have to start figuring out the specifics as soon as possible. Once you have a property in mind, start asking questions.
- How much budget can you spend on your first project?
- Where do you contact contractors?
- How much is their hourly rate?
- How long will it take for this project to finish ideally?
- Do you allow for some time margin in case the project fails to follow your set timeline?
Start looking into loan options. Since house flips are meant to be a short-term project, fixed rate loans are pretty much out of the equation. You are most likely going to get a loan that you can repay early.
Speak with an expert so they can assess your needs and recommend the best option for you. Stick with your budget strictly. You might have experienced this before: you planned this x budget for a project and along the way, there were some unexpected costs. In the absence of excellent foresight, the costs ballooned much bigger than the proposed budget. Having a thorough professional inspection can help avoid surprise costs in the near future.
Actually, you can use your budget as a guide from the very beginning. It will dictate the location and the kind of property you can buy. Some amateur flippers renovate houses on their own, only calling professionals when needed such as electricians, plasterers, etc. This certainly helps minimise the costs and the chances of going over-budget. You can certainly do this, but please know that not everything requires the skills of a DIY-er.
What are the other things that you need to consider when flipping properties?
Do take note that this is a high-stress field. It is fast-paced, too. If you are not ready for such an environment, it’s better to make your house-flipping plans take the backseat in the meantime.
You also have to learn the trade. Know how to deal with contractors. Learn how a mortgage works and how you can make it work so that it brings you money eventually. You should know that credit is not bad.
House flipping may seem like a good investment because of its potential for quick returns. However, all presents come with strings. Due to sudden changes in market conditions, you may be forced to hold on to a property for longer.
Sometimes, it’s also a matter of luck. When the market moves in your favour, grab it. If it doesn’t, it will be a lesson learned. Just try again next time.
Certainly, house flipping is not for the faint of heart and so are other forms of investment. To lessen your chances of failing, spending time to research an investment venture will help.
If you want to get started with house flipping, one of you best weapons is an excellent mortgage broker. Get professional help and advice from of our experienced agents here.