People try and make flipping property complicated but, at its very core, flipping is all about buying a property for as little as possible to then sell on and make a profit, put money in your pocket.
Now, most people assume that in order to sell it on at a profit, you might have to do something to the property – but this is not always the case so long as you buy the property at the RIGHT price.
The key phrase in this strategy is that ‘you make money when you buy’.
An example of this could be buying properties direct from the owner. For example, you could find a seller who is highly motivated; someone whose primary concern is not the price because they have another problem which will be solved by selling the property quickly. Some of these problems might be; inheritance taxes, repossession pending or an unpleasant divorce. In a scenario such as this, you might be able to get the property at a low price in exchange for a fast sale, which allows you to then sell on at a profit without doing any work. It’s a bit like wholesaling – you buy cheap to then sell on at retail price.
Many times people find these properties at auction. While the properties might be quite run down, you can find them at a low price at auction houses with little competition. Using the right purchase strategy you could buy a house knowing before the purchase even completes that it would sell on at a good price without doing any work. You can even put the same house back into a more competitive auction and make a nice profit without lifting so much as a paintbrush.
This is a simple example of a basic flip. However, we could also be a little bit more sophisticated and creative with this strategy. For example, we could buy a property (still below market value – because you make money when you buy), and we could then go on to add value, i.e. through a refurbishment.
It’s important to recognise though what ‘below market value’ means in this context. While a property might be considered discounted in price, in fact, this might just reflect the amount of work needed and not be a true discount.
Doing the refurb is a sure fire way to add value but when doing the refurb, don’t forget that you need to always have in mind who you are going to sell on to. There are two reasons for this: firstly, so that you do the right specification of works and secondly, so that you spend the right amount of money.
For example, if you’re going to buy properties that are great for buy to lets then you are more than likely going to be selling to an investor, and you need to remember that an investor is likely to want some kind of discount. Unless you adjusted your specification and costs to account for this, it is inevitably going to eat into your margin.
There’s a lot to think about when doing flips, but regardless of your strategy you should always keep an eye out for a property that might be worth flipping. You never know when you are going to come across one and it can be a great way of making some cash.
The big advantage of a flip over a buy to let is that a typical B2L is that when you do a flip and sell the property on, you can get your hands on a large chunk of cash – cash that could be used, for example, as a deposit to finance another buy to let.