Property flipping has always been a very popular method of making money in the real estate market. Investors are always frothing at the mouth when they see a nice shiny property that shows flipping potential. When done correctly, property flipping can yield impressive returns. However, if you’re not careful, then you could make a massive loss. There’s a fine line to tread, but this guide will help set you on the right path.
What is property flipping?
Before we continue, let’s take a few moments to make sure everyone is on the same page here. If you’re not fully aware of what property flipping is, then allow me to explain things.
It starts with a property. You search the market for a good deal and buy a property of sorts. Now, you make improvements to this property, in the hope of increasing its market value. Then, you sell the property for more than you bought it, making an overall profit.
It’s a fairly simple process, but the formula for success can be more complicated than you think. It’s easy to make mistakes along the way, so here’s how you can properly make money when property flipping:
Find The Perfect Property For Flipping
I always think that there’s a property for everyone and every purpose. If your purpose is to flip a property, then you need to look for a very particular type. This is a property that gives you enough room to make money when you sell it. Contrary to what you might think, this doesn’t mean you should buy cheap properties and not focus on expensive ones. It’s still possible to make a profit when you buy a high-end property, and it’s still possible to make a loss when you get your hands on something cheap.
Realistically, you should be on the search for something that has room for improvement. The listing price is slightly lower than the average price for similar homes in the area, and you can see it’s not perfect for living in. You want the sort of house that needs improvements before you can comfortably live in it.
This normally puts a lot of regular property buyers off as they don’t want to take on all the work. But, as an investor, it’s perfect for you. You get a home that’s already cheaper than other similar homes, and one that you can make simple improvements on to increase its value.
Similarly, here are a few things to avoid when looking for the ideal property. Don’t buy a proper high-end property that’s got no room for improvements at all. While you can buy an expensive house, just make sure it’s still cheaper than other homes of a similar value and has room for improvements. Don’t buy new homes as there’s no real way you can increase their value. Don’t buy houses that are incredibly run down as they just prove to be huge tasks that cost too much to improve.
Don’t Go Overboard With The Improvements
Making improvements to your property is the main way you’ll increase its market value. Granted, the value can increase steadily over time, but it can take years before your house reaches a price that’s worthy of selling it for. When you make improvements, you can get a lot of work done in a few months, and instantly add value to the property.
The important thing here is that you don’t go overboard and spend too much money on improvements. This is how most people make a loss when property flipping. They spend way too much, thinking they’re doing an amazing job and properly boosting the value of their new home. The only problem is, it cost so much to make the improvements that you’ve completely wiped out any profit margins at all.
Yes, your property can now be listed for a lot more than the price you originally paid. But, when you factor in the improvement costs, you’ve actually made a loss or broken even. Make sure you monitor your spending and only make improvements that lead to a good return.
Consider Trust Deeds
Up until now, we’ve pretty much talked about making money from property flipping in the conventional sense. This means you buy everything, and you spend money on fixing everything, and so on. However, if you want to make money by property flipping – without actually doing all the dirty work – then think about a trust deed investment. In simple terms, this is when you invest in property by lending money to someone who wants to buy a property and securing that property as collateral. They work on the property, fixing it up and selling it, and you get a percentage of the profits.
This is such a great way of making money because it’s got a built-in failsafe to ensure you never make a loss. If the person you lend the money to fails with their property flipping plans, then they still have to pay the loan back to you. Essentially, you get your money back no matter what, and you can earn massive profits if things go well. The only reason this isn’t more widely done is that you need a fair bit of money to get involved in this investment.
Watch The Market Wisely
My final piece of guidance is to watch the property market wisely when you invest. This may sound obvious, but the timing of any purchases/sales can make a huge difference to the eventual profits you make.
For example, the best time to invest in a property is when the market is quite bad. This means prices are low, which is excellent for investors. On the other hand, the best time to sell a flipped property is when the market is in fairly good shape, and prices are on the rise.
I hope there’s some decent information here to help you make the right moves when property flipping. Let it be known that property flipping is a fine investment idea for anyone looking to fund their retirement, as well as anyone that just wants to make a nice bit of money!