What does “house flipping” mean? This is a term used when a person buys a property and then resells it for a profit within the shortest time period possible.
There are several methods used in house flipping, such as:
- Purchasing a property during a launch and selling it off when the keys are handed over.
- Buying an old/abandoned property, giving it a makeover, and then reselling it.
- Buying an existing property that has already been renovated and placing it in the market for resale.
- Purchasing properties with the rent-to-own (RTO) home ownership solution.
This type of strategy is best used during an uptrend in the property market, when banks are willing to provide loans with affordable interest rates.
Property flipping is especially common when the property market starts to pick up, as many property investors recognise the opportunity.
During particularly robust times, a lot of people have made money overnight with this method.
However, there’s a lot to consider if you’re looking to jump on the bandwagon due to how risky it can be.
To avoid land mines, you’ll need to arm yourself with adequate information and stable finances.
It’s always good to prepare yourself by studying the market beforehand, mapping out your investment strategy to consider how much of a risk you’re willing to take, and knowing how long before you should expect a return on investment (ROI).
Want to know how to start flipping houses? Here are the steps you need to take to become an intelligent house flipper.
Step 1: Research And Due Diligence
When beginning a flipping career, it’s a good idea to be the most prepared you can be. ALWAYS do your research! Start off by studying the property market and the current market condition.
You can always study the market by referring to online property portals to gauge how it’s trending. Property prices normally increase by 5% during the “good times”.
Check with banks on a couple of important points, namely their interest rates, lending policies, and Real Property Gains Tax (RPGT) to ensure your house flipping activity is worthwhile.
The re-implementation of RPGT in 2010 made it tougher to make a profit when house flipping than before.
Having knowledge of what can go wrong – especially when it comes to liability issues – can really help reduce your risk.
Step 2: Purchase A Property
Ask yourself these questions when purchasing the property:
- Do you want to get financing for this property or pay the total price upfront?
- Will you purchase this property on your own or with a family member or spouse (joint purchase)?
- How much of a down payment can you afford?
- If you’re taking out a home loan, what is the monthly payment you can afford after you factor in the cost needed to renovate/refurbish, if needed?
- What are the property value trends in the areas you’re shopping around?
- Have you shopped around for the best interest rates for the home loan?
- Do you have your paperwork in order to apply for the home loan?
- Would you prefer to hire professionals (i.e. lawyer and property agent) to help you out with the process from start to finish? Can you afford their services?
By answering these questions, it’ll make your property purchase journey go much more smoothly, especially when you have all your paperwork in order.
Step 3: Renovate The Property
If you’ve chosen to flip a property that requires renovating, it’s important to stick to a budget so you’ll be able to make money when you sell it (instead of losing everything you own)!
Here are some tips to help you keep costs down in this stage:
- Create a REALISTIC budget (it’s so easy to get carried away with ideas at this stage).
- Be specific with your figures so you’ll have an accurate estimate from the start.
- Use a cash-back credit card, or a credit card with great rewards points. Might as well get some freebies, right?
- To keep costs down, try to reuse materials that are in good condition from the old house. Additionally, you can opt to buy second-hand materials, or source salvaged materials.
- Take your time when finding a trusted, responsible contractor to work with.
- Stick to classic and neutral colour schemes to help the house sell quickly.
- Decide where you’ll splurge and where you’ll stick with the bare minimum.
Step 4: Sell And Earn A Commission
For property flippers who have time on their hands, it’s always best if you represent your own property – this way, you won’t have to pay a property agent’s fee, which can go up to a maxiumum of 3% of the property price.
After factoring in the various legal fees and RPGT, this can make a difference between making a profit, breaking even, or losing money on a flip.
Many months can go by between identifying and buying a property, fixing it up, and selling it for a profit. If it’s done right, this can be one of the most lucrative ways to earn money in real estate.
However, it does comes with high risks and a lot of effort. Many turn to the house flipping route to earn a part-time income so that it’s an added bonus rather than your sole income.
In the meantime, why not educate yourself on the 10 ways to increase the value of your property so that once you’ve locked down a suitable property, you’d be more than ready to start the flipping process!