The flip strategy has always been popular – mainly because many of us grew up watching Homes Under The Hammer, but also because it seems as the slightly more glamorous option; finding a property that’s unloved and needs some TLC and transforming it into a work of art.
But as glamorous as it can seem on TV (and Instagram), there are plenty of risks that come with a flip strategy.
Yes, you can make a quick profit if the market is in your favour. But don’t underestimate the time and cash you need for a flip to be a success.
A flip is as basic as it sounds – it’s buying property and selling it (i.e flipping it) for a higher price.
When investors flip, there are usually two scenarios. 99% of the time, this will involve solving a problem. And typically it’s the condition of the property or speed of sale:
So like any other goods or commodities, the flip strategy is just buying something and trying to sell it for more/a profit – nice and simple.
Now you know what a flip strategy is, let’s delve into some of the details.
If you’re already aware of how much time and effort goes into pulling off a flip strategy and you’re prepared to do it, then you’ve already got an advantage over most people.
Even properties that need a degree of work will have a degree of value left in them, they just need to be taken on as a project and brought up to standard.
The work could be anything from new carpets and a lick of paint, to structural work where ceilings and walls need replacing. The harder the project, the less competition you’re going to have – and you can use this to your advantage at the negotiation stages.
Ideally you want to aim to achieve a 20% profit on your flip project. So you’re going to want to make sure that the investment stacks up financially for you.
We’ve got a whole host of videos that can help you with this. We’ve got a video here on property negotiation tips so you can try and get a better price on the property itself or materials. Then we’ve got a video on property expenses because after all, you’re going to want to keep your costs down. And finally to complete the trio, check out this video on how to boost your property profits.
A flip strategy isn’t for the faint hearted. The work required will be more challenging, and often more expensive than other property strategies.
You might think your builder telling you that ALL your joists in the ceiling need replacing is the worst news in the world, but with flips, this could be the least of your problems. You never know what’s going to be uncovered if you don’t do your due diligence properly.
Sometimes the issues might not be with the property itself, but with the legals. Or it could be a short lease on the property which could cost you thousands to have extended. There can be a number of different reasons why a property comes with problems.
And interestingly, you often see these properties in an auction. So if it’s in disrepair, you can pretty much see straight away what the problem is. But sometimes if the property looks good, it can be that there’s a problem elsewhere, and you just need to dig deep to find out what that is.
Another thing to be aware of, is that you can’t use a normal mortgage for a property that you’re intending to flip. One option is that you use cash. You buy the property in cash, you pay for the refurb with cash, and that’s it. One of the easiest ways investor’s come up with cash to put towards their investment plans is to release equity from their own home.
However if cash isn’t an option, then we highly recommend working with a good broker who specializes in this area of funding.
If you’re willing to put in the hard work, the cash, and you’ve got the determination to succeed then this could be the strategy for you.
There are a few things to consider to help you succeed. Firstly, you need to be selective about the location and analyse the supply and demand. You’re going to want to purchase a run-down property where there’s an active property market if you’re wanting a quick sale at the end.
Another tactic would be to get ahead of your competition. By this we mean make sure you know the areas that are up and coming. This free university course on how to spot the next property hotspot will stand you in good stead. You’ll learn all the tips and tricks on how to make educated decisions on where to purchase your next property. And, if done at the right time, you’ll bag yourself a below market value property and sell for a pretty profit.
You may still be a bit apprehensive about putting all your eggs into one basket and taking that leap of faith.
But don’t worry, we’re here to help you and we’ve got a whole bunch of resources to guide you through it. By the time you’ve gone through everything you’ll be eager to get going.
If you’re concerned about how you’re going to come up with the funds to be able to go ahead with a flip strategy, don’t worry. Raising cash is often the main barrier to entry for most investors, so we’ve got a handy video here that gives you 6 ways you can raise the cash to invest in property.
Maybe you need a confidence boost on how to negotiate deals. Not to worry, we’ve got a course you can take that will give you everything you need to get yourself a deal when buying a property.
And if one course wasn’t enough, we’ve got another that’s all about how to flip a property. Naturally we saved the best for last.
Finally, if you need one final push on confirming that a flip strategy is the right one for you, then feel free to book a free goals call to discuss just that. A member of our team will talk it through with you and make sure that this strategy will put you on the right path to achieving your goals.