Flipping houses: the five key steps to follow
While the market has cooled slightly in the east coast major cities, there’s still good potential for investors who are into flipping houses – as long as you understand the market, do your research and have a plan. DG Institute Founder and CEO Dominique Grubisa explains the five key steps you need to follow.
If you’ve watched television shows like The Block, you might have the impression that flipping houses is all about turning distressed properties into a showcase homes. Their main focus is often on rehabbing kitchens, bathrooms, and organising contractors to do the heavy lifting.
But in real-life, profiting from buying and selling properties involves more than soft furnishing and glitzy finishes. In fact, the less time you spend on finding the right colour paint, and the more you spend on finding and negotiating good deals, the better the return on investment.
Despite a fall in the number of properties being flipped in the current real estate market, it is still a very viable option for investors – if done right. Below are five key elements that you will need to be across in order to achieve a successful flip in any market.
Here are the five key steps you need to know before flipping houses
STEP 1: Buy at the right price
You need to buy under market value to maximise your investment. A good starting point is distressed properties where the owner is seeking a fast sale due to financial hardship, divorce, a death in the family or a business partnership breakdown. Or look for unkempt homes that nobody seems to want. Try to purchase properties for about 20 percent less than the market value. It may sound ambitious but some vendors are prepared to take the offer to get a fast sale.
STEP 2: Know your area
Flipping houses without knowing the area well might lead you to unpleasant and costly surprises. It’s no good to start the project only to find out that a highway has been earmarked to run through the suburb, or the park next door is about to be rezoned to industrial use. Do thorough research on the suburb and its surrounds so you know what it is happening there in regards to possible infrastructure or zoning surprises.
STEP 3: Know your target market
You may want to put your own stamp on the design of your flip, but it’s important not to let personal taste get in the way of making a property that will appeal to all potential buyers. Designs that are too specific or trendy could decrease its saleability. It’s better to create a home that will appeal to the majority of buyers, so stick to neutral colours and simple designs that can be updated or modified by the eventual buyer.
STEP 4. Know your improvement goals
It’s easy to over-improve but it’s just as easy to under-improve a flip property. If you don’t do enough, potential buyers will hesitate to pay the asking price and if you over improve you’ll cut into your possible profits. A good idea if you’re just starting to get into flipping houses, is to pick an easy property, that may be just cosmetically challenged and make a few minor changes rather than redesigning the entire property.
STEP 5. Compare the market
Check out the other properties in the neighbourhood and see what the latest sales figures show in terms of their market value but also how long it takes homes in that area to sell. You may also want to assess what condition they are in compared with what you are planning to do, so that you will have the best chance of setting a realistic selling price estimate. If you overestimate what you might get for the sale of the property, it could take too long to sell. No matter how nice the renovation, if you did it on a home in the wrong neighbourhood, you could pay a hefty price.
To learn more about flipping houses in Australia, join Dominique Grubisa for this upcoming webinar and learn how you can find undervalued property that you can potentially purchase 10% – 40% below market value from motivated vendors.