This week we will look into flipping property. The definition for flipping property by Investopedia as follow:
‘Flipping‘ A type of real estate investment strategy in which an investor purchases properties with the goal of reselling them for a profit. Profit is generated either through the price appreciation that occurs as a result of a hot housing market and/or from renovations and capital improvements.
There is nothing wrong in flipping a property but it has to be done in a correct way. Please take note that I am not encouraging speculation here nor that I am referring to new properties in primary market but rather to highlight potential risks involved in the process of flipping.
So what you need to know in flipping a property?
- Money is made the moment you buy, not when you sell (flip) – When flipping a house your money is made at the purchase not at the sell of the house. So, many times people buy a house with the intention of making a huge profit only to find out that they could not make any money after all the renovations because the purchased price of the house was to high. When you purchase your property you need to be sure that you buy the house with enough money to make renovations, holding cost, etc.
Say a low cost property cost RM120,000 and the market value for the property is RM130,000. There you have RM10,000 margin to play around. Assuming you don’t need to renovate or touch up the house, after all legal fees, MOT, etc; this particular property gets you RM5,000 profit when you flip. If your intention is to flip the property in the beginning, then you have to make sure there are enough margin after deducting all costs.
- Conduct an inspection to the property – Get a complete inspection done on the property. Spending a few hundred ringgit on this expense you can save thousands in problems that you cannot see. If you are not familiar with the construction of a house, then you will not be able to spot typical problems like termites, clogged toilets, etc. Getting a full inspection you can rest assured that you know every thing that is wrong with the property before its to late. Before you even get into property investment, do get few contractors’ contact that you know and get them to inspect the house. Many of them are willing to give free quotes or inspections (provided that you give them the business to repair the house).
- DIY is a ‘No Go’ – Get a contractor or several sub-contractors and have the work done quickly. You need to have your house flipped as soon as possible, so that you can get it on the market and get it sold. Unless you have construction background, you might save some money by fixing the property yourself. That being said, what you cannot save is your time. You need to know whether it is worth your time to fix the property for two months or would you rather go out and hunt for new property where it gives you profit for your next flip. In flipping property strategy, you need to be quick and you don’t want to keep the property too long as there are running costs involved such as maintenance fees, utilities, etc.
- Selling at a discount – If you are wanting to flip real estate and make money the object is to buy and sell the property as quickly as possible, so that you can move on to the next house. If you purchase a house and try to sell it for a high price tag to make an extra couple of thousand ringgit on your flip, and end up holding it for six months then you are loosing money.
Get the house on the market at a price that is going to blow the competition away, and you will sell it no matter what the market conditions. That is why for flipping a property, the key is to make profit when you buy. In other words, you buy low and sell low. That’s how you flip in any market condition. Even if you put up some costs in cleaning up the house or simple renovation, still there is room for profit.
- Use a real estate agent – Flipping a property . Leverage on available resources by using real estate agents to help you sell your property. Nowadays, it is almost free for an agent to do the listing for you. But you have to factor the 3% professional fee when the property sold. At the same time, do advertise yourself for your property. There are many apps and websites available today that allow you to list your property for sale. The disadvantages of selling the property yourself, is that you’ll have a lot of admin work to do such as getting offer to purchase agreement to sign, the terms, getting loan (believe me, some buyers have no idea how to get this done), getting a lawyer to do land search, title search, any other instructions etc. The 3% estate agent’s professional fee is to cover all these and normally you are protected in the event something happens.
I hope this article has been helpful with the basics needs of flipping a property. The key for flipping a property, do your homework before you make your purchase, and make sure that you can pull a profit on your deal.