"FLIPPING" HOUSES: WHAT TO THINK ABOUT BEFORE TAKING ON A RENOVATION PROJECT
Social media is full of them: old, damaged homes being transformed in an instant to something beautiful and breathtaking. And then being sold for a hefty profit. But flipping homes is not that simple, and there are plenty of things that you should consider before you put in an offer on that "diamond in the rough" you've been eyeing.
Flipping homes is a business and you should go into it with a plan that will help you to maximize your profits. We've put together a list of the top 5 things you need to consider before committing to a property to flip.
How much will it cost to buy?
This is the most common mistake made by new real estate entrepreneurs: most people consider the purchase price and imagine what they can sell it for after but there are a ton of other costs that go into buying and holding a property while you renovate. Make sure that you add costs like transfer fees and holding costs into your calculations - during the months that the property is standing empty, it's not making any money and that loss of potential income needs to be accounted for. There will likely also be a capital gains tax when you sell the property, and this should be added into your costs as well.
How much will it sell for?
As humans, we tend to over-estimate the value of things that we've built ourselves. When you look at reselling the property that you're working on, remember that potential buyers are not comparing it to its previous version, they're comparing it to other homes on the market. No matter how good a job you do, buyers will always have things that they want changed and will come to the property seeing these flaws, rather than your big improvements. In addition to this, homes that are priced over the R2million mark become more difficult to sell and will likely sit on the market a bit longer.
How fast can you get it done?
The longer it takes you to resell the home, the more it is costing you in interest paid on the bond, and in lost income from it standing empty. Consider how extensive the changes are that you need to make, and whether you can afford to start - and finish - the work immediately.
What changes need to be made?
Try to stick to properties that only need cosmetic changes and focus your expenses on the changes that are likely to have a high impact on the resale price. You should also bear in mind the priorities of your potential buyers: you might love a lush, full garden but not everyone has a green thumb. Repainting a property and some basic landscaping are always a good idea but try to avoid properties that need the flooring redone or require electrical and plumbing work.
Who is going to make the changes?
A lot of people dream of doing renovations themselves, but it is important to be realistic about the time, energy and level of skill required to do this. You might be able to repaint a wall with the best of them, but tiling a backsplash is a very different story. When calculating the costs of the renovation and upgrades, make sure that you've accounted for any specialists or contractors that you need to hire in and be honest with yourself about what you can do, and do well enough to add value to the home.
Flipping houses can be an incredibly rewarding experience, but it is important to be aware of the risks. By following these 5 tips and going into your new purchase with a clear plan and as much information as you can gather, you can create a successful, thriving business.
Author: Pierre Rousseau
