The most difficult aspect of flipping properties is finding the perfect house at a great price in order to ensure that you maximise potential profit. Ideally it would be beneficial to find a property that requires some upgrading but nothing too cumbersome like serious structural work.
A great place to set your sights for a good deal is at auction, you could use an auction bridging loan to help purchase the property, however also contacting local estate agents, simply asking around or directly approaching property owners are also effective ways of landing yourself a profitable flipping opportunity.
It’s wise to remember that the actual property itself, although primarily important, is not the only consideration when deciding to take the leap into flipping. Other factors such as the location of the property must be taken into account. Finding a deal in an area which is popular and where properties tend to sell quickly is a definite advantage.
Selling to a buyer who intends to live in the property will often lead to gaining a better price for the house as people who have a personal connection as well as emotional and family ties to the location will likely go a little further to seal the deal on their dream home.
In order to ascertain which areas may provide the best flipping opportunities it is vital that you consult with various estate agents who will has access to reliable and up to date data. Checking on sites like Rightmove and Zoopla will also provide you with invaluable information.
Typically the factors you need to consider when choosing location will be things like local schools, transport links, local amenities, green areas, all of which will make your property more desirable when it comes to selling.
Next you need to carefully consider the type of property, for example if you are planning on refitting the bathroom or kitchen with the intention of attracting families then a property with three or more bedrooms would be ideal. For this purpose a 3+ bedroom semi-detached, detached or large terrace house will more than likely attract many 1st and 2nd time buyers and hopefully result in a bidding war, ultimately pushing the price up.
Bungalows can also represent a very good flipping opportunity in that many older people will be looking to downsize and generally want to buy a property that requires no work and are quite willing to pay a premium for the convenience.
HMO’s (house of multiple occupation) can be a big money maker but require a certain type of property in order to pull off successfully. The size and the layout of the property is of paramount importance so finding the right property with the ability to create communal areas and enough bedrooms is vital.
The situation is also key! What is meant by this is that the property market has its ups and downs and so timing is important in order to be successful at flipping.
Finance Options for Flipping
The best funding vehicle for flipping properties and typically the one most commonly used is bridging finance. Due to its short term nature, a bridging loan allows you access to funds needed without committing you to a mortgage. Ideally when flipping a house you will want to get the work done as quickly as possible, followed by a quick sale which makes a short term loan the best option for financing the project.
A bridging loan is typically repaid within 12 months with most lenders requiring a 75% LTV (loan to value) rate. You may be offered higher LTV by some lenders, but you will probably need previous experience and clear evidence of the expected profit.
Due to the speed at which bridging finance can be arranged, opportunities for great deals can be seized when time is of the essence. When pursuing action properties you will need to have the deposit already in hand, with the balance due within 28 days. Bridging loans can be approved sometimes in as a little as a week and therefore present the perfect solution for securing a knock down price on a property.
Know Your Budget
Before you start your flipping project, it is vital that you know exactly what your budget is, and stick to it. You will need to set aside some funds for contingency just in case you run up against any unexpected costs. Take into account the time it will take to make the necessary renovations as well as the time it will take to sell the property.
Typical Improvements and What to Avoid
The most common improvements made to properties to create profit are installing new kitchens and bathrooms. This is mainly due to these types of upgrades being fairly expensive and disruptive for buyers to do themselves, and therefore make a property more attractive to buy if they have already been done.
Other changes that can be done include changing layouts and knocking walls down to create an open plan design. General overall decoration will also be an important aspect of gaining a quick sale and can ass value without spending too much.
Things to avoid would include any expensive upgrades which will not add value to the property, for example installing a pool or hot tub would not be a good idea.
How Much Profit Will You Make
There is no clear answer for this as each project is different. It will entirely depend on what kind of property you are flipping, what upgrades have been made and the state of the property market at the time. Generally the expected profit should be around 20% but you will need to consider tax implication which will affect the profit. As an individual you will pay tax through your income tax and as a limited company you will pay through corporation tax. If you are planning on flipping many properties, it is probably wise to set up a company as the tax implication will be less therefore increasing potential profit.
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