Flipping properties sounds like a fun business, either for a side income, or as a retirement project. The idea of cherry picking undervalued properties from the market and turn them into masterpiece is fascinating to say the least. But behind this glittery image, there is a lot of work, numbers, and dust to go through.
Let us list the rookie mistakes that are seldom discussed on the reality shows, where all they want to portrait are successful flips.
1. Location is still the most important single factor
2. Find a balance between affordable and cheap
3. Work only with the best professionals
4. Be extremely meticulous when listing the items to fix
5. Be patient
An important lesson to learn is that even properties in bad shape, when located in premium locations, retain their value. Similarly, a hidden jewel in a dangerous neighbourhood, is worth less than its potential value. Location is inescapable. Properties cannot be moved. A good habit before committing on a property is to have multiple viewing, during the week and in the weekend, in the morning, in the afternoon, and even at night. A neighbourhood might change drastically during the day.
For novices, there is a natural strong temptation to buy a cheap property, just because they can afford it. Don’t do it. In the largest majority of cases, a cheap property is just a honest representation of its value. Bear in mind that the under-priced hidden gems are always a minority. A tiny minority in fact. Unless the seller is in a mad rush to sell a good property at a low price, most of the times all properties are marketed at their fair valuation.
Flipping properties requires extraordinary speed of execution. Many flippers buy properties on mortgage, thus from the moment they receive the key, the clock starts ticking. Every month spent renovating, reduces the potential profit to be made. A friend of mine in the US told me that his second property flipped turned into a nightmare. The contractor was irresponsible for 4 months after being appointed, and after that was working slowly. My friend had to pay his loan for 11 months before he could flip the house at a loss. This part could deserve a column by itself. Especially if we include under the professionals, not only the contractors, but also the property agents, architects, etc.
Another important matter is to double and triple check every single item on the list of fixes needed. Thinking that anything could be fixed without a plan, is recipe for disaster. Small items are harder to spot than structural changes, and they might turn out to be the most tedious to fix.
Lastly, be patient. Fixing a house is something that - when we do not do it as a business - we are willing to take our own sweet time. But due to the nature of the properties flipping business, everything must be done fast. When rushing, many things can go wrong. It is crucial to keep your mind focused on the final goal, especially because you will be dealing with people. The extra hours that a contractor might be willing to work to make sure that everything works smoothly, could mean the difference between a profit and a loss.
stefano@virgilli.com
The writer is a member of the International Press Association
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