Property Strategies (Part 3)
This week we’re going to think about flipping. At its very core, flipping is all about buying a property as cheap as possible to then sell on and make a profit. Now, one would 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.
A good instance of this could be buying properties direct from the vendor. For example, a seller who is highly motivated; someone who isn’t overly concerned about the price because they have another problem which could be solved by selling the property quickly, e.g. inheritance, repossession or divorce. In a scenario such as this, you might be able to get the property at a price which allows you to then sell on at a profit. It’s a bit like wholesaling – you buy cheap to then sell on at retail price.
Not so long back I bought a property that I put through an action. Whilst the property was quite run down, I didn’t actually do anything to it at all. I could see that it had scope and I knew it would sell on at a good price so, I put it through an auction and made myself a nice profit.
This is a simple example of a basic flip. However, it is possible for us to be a little bit more sophisticated with this strategy. For example, we could buy a property and could add value, i.e. through a refurbishment. Now, one of the best things to do when you’re flipping is to try and combine the two – in other words, find a property that you can buy “cheap” AND where you can add value.
But let’s think about “cheap” in this context. While a property might be considered discounted in price to reflect the amount of work needed, you still might be able to buy the property even cheaper. By doing this and by refurbishing the property, you’d be able to make an even better margin.
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 buy the RIGHT property.
For example, if you’re going to buy “cheap” properties that are great for buy to lets (and where you are more than likely going to be selling to an investor), then you need to remember that an investor is likely to want some kind of discount. This is inevitably going to eat into your margin.
For this reason, a lot of “flippers”, don’t actually sell properties onto investors; they’d much rather target the owner occupier market. This type of buyer tends to choose property that is already done and which is ready to move into straight away. Perhaps they don’t have the money available to get the property up to scratch, or perhaps they simply don’t want the hassle of a refurbishment – and these types of properties come at a premium.
Most owner occupiers also prefer to have the work done for them because it’s likely that they can get a 90-95% mortgage. This being the case, they probably only have to come up with a 5% deposit and they don’t have to spend out as much money as an investor in order to turn the property around. So, targeting the owner occupier market is certainly well worth thinking about.
However, if this is the strategy for you, then this might mean doing the property to a different level of specification. When you refurbish a property to put in tenants, then you’re probably going choose a slightly lower specification than if you were going to sell on to an owner occupier.
As always, there’s a lot to think about when doing flips, but in my opinion, 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 will probably only yield a relatively small amount of money every month when you’ve deducted costs. But, 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.
Here’s to successful property investing.
Peter Jones
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
www.ThePropertyTeacher.co.uk
By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to:
www.ThePropertyTeacher.co.uk/the-successful-property-investors-strategy-workshop
