5 Rules for Property Flipping
Property flipping is big business in the USA, and the bug has bitten in South Africa. There are no barriers to entry; anyone can jump in and do a flip. Here are my five top rules for a successful property flip.
1. Know your budget and cash flow projections
Work out how much you can afford to spend and what financing you’ll need. There will be purchasing costs, which include transfer fees and bond registration costs if you need financing. You will need to fund the labour and materials for the renovation. There are holding costs–expenses such as rates, bond repayments, electricity, etc.–that you will have to fund while you’re working on the property and while waiting for it to be sold. Once it’s sold, you will need to pay estate agent commission as well.
Work out how much you can afford to spend and what financing you’ll need. There will be purchasing costs, which include transfer fees and bond registration costs if you need financing. You will need to fund the labour and materials for the renovation. There are holding costs–expenses such as rates, bond repayments, electricity, etc.–that you will have to fund while you’re working on the property and while waiting for it to be sold. Once it’s sold, you will need to pay estate agent commission as well.
Carefully calculate all anticipated costs and make sure you have enough funds. You don’t want to run out of money halfway through a renovation and be forced to abandon the project.
2. Find the right property
Location is very important in finding a property that will be easy to sell. Once you decide on an area, find out if there are any municipal plans (such as a new road) that will affect the property in the near future. If you have your eye on a particular property, consider its proximity to schools, transport routes, and shops.
You may also want to start flipping in your own neighbourhood, as this is an area you know best.
You may also want to start flipping in your own neighbourhood, as this is an area you know best.
3. Don’t overspend
You want to make a healthy profit on the property, so buying at the right price is the first step. Find out what other properties sell for in the neighbourhood so you can work out your profit, taking all your costs into account. Aim to pay 50% of the market value and then spend roughly another 25% on costs, so you make a 25% profit.
4. Get a dream team
Surround yourself with a strong team, starting with local estate agents who can scout for suitable properties and provide you with realistic market information. These same estate agents can sell your flipped property as well. Find reliable contractors to do the work, such as electricians, plumbers, builders, and landscapers. Get recommendations from people who have used them before, and get references, or go and view their work before committing.
Unreliable contractors can be a nightmare, leading to delays and extra costs. Also, rather pay professionals, instead of tackling work yourself that you have little or no experience in, to try to save money. Going the DIY route could cost you more in the long run.
5. Keep the end goal in mind
Always remember that you’re flipping to sell, not to live in the property yourself. It’s tempting to decorate according to your tastes, but this may not suit everyone. Kitchens and bathrooms are costly, but they often sell a house, so it’s worth spending money on these areas. Stick with neutral pallettes such as white or grey, which are classic.
Don’t forget the exterior. Curb appeal is very important, as is a waterwise, low-maintenance garden.
Simple changes like replacing or repainting a front door or garage door can also make a big impact.
Simple changes like replacing or repainting a front door or garage door can also make a big impact.
