Flipping, or buy to sell, buy, refurb sell, or option to purchase to sell, can make you a years income in one deal.
Or leave you so financially and emotionally burned you’ll be begging your old boss for your old job back that you asked him to put in his pipe and smoke.
Here’s the right, and realistic way in 7 easy Tips:
Tip 1. 20% return on value
You should be looking at a 20% return [on the value, not necessarily your cash]. Anything above 30% is possibly a bit unrealistic or ‘best case’ (best case assumptions in flips are dangerous – see below). On a £30K gross profit you should come out with £15K to £20K Net, depending on the quality of the refurb. (These figures are based on a purchase under stamp duty. IN London, you should achieve much higher figures)
Tip 2. London or rest of UK
You’re going to be either side of £100K on a 3 bed terrace outside London. Stay under 1st stamp duty threshold. Buying at £90K sell at £120K is do-able – good in fact. London figures are better, and will sell quicker, but costs and risks can often be higher. In London you have a tougher entrance (more buying competition) but an easier exit (faster rising market). In most other areas of the UK you have an easier entrance (less growth and competition – though that could be changing soon) and a tougher exit. It’s rare to get easy entrance and exit unless you time between the seasons of the market.
Tip 3. Be pessimistic
I’m a ‘glass half full’ kind of person, but it is vital to be pessimistic with your investment figures on a flip; likely sale prices, costs, repayments, and e s p e c i a l l y timeframes. It will take longer and cost more if you don’t think it will. We have a deal analyser that analyses 3 scenarios – ‘best case,’ ‘likely case,’ and ‘worst case,’ (My business partner is infamously paranoid). If you can’t make £5K profit on a £100K flip (or 5% net profit) on w o r s t case, might be best to walk away.
Tip 4. The Rule of 3
For every 3 flips you do, one will be ‘best case,’ one ‘likely case,’ and one worse or slightly worse than ‘worst case.’ Most people fail because they have happy ears and expect every deal to be best case. So on a £100K property, if best case is £30K (it’ll end up being £20K), likely case £15K (end up £10K) and worst case £5K (end up zero), then you’ll end up with around £35K on every 3 flips – or an average of just below likely case (£12K each flip average). That’s actually pretty good on 3 £100K flips, but most people don’t get realistic to start with – you can’t blame them as they don’t know what they don’t know. Always ‘flip in 3’s.’ Of course most people make their biggest mistakes on the first one because they’ve never done it before, and then decide IT doesn’t work. THEY didn’t make it work, or weren’t realistic. Once you have ‘flipped your first 3,’ your next 3 will be that bit better. And interestingly, your ‘best’ flip will be the worst case because you’ll learn the most in the shortest possible time with the most pain experienced (which makes it real).
Tip 5. Refurb to Sell
Don’t cut corners or ‘refurb to rent.’ Someone wants to live in and love this ‘home.’ Find out what the typical buyer wants. (First Time Buyers funded by the Bank of Mum & Dad are often the best market). Pay attention to the details. Ask the Agent for feedback on what ‘sticks,’ and what ‘flies.’ You’re likely to spend 2 to 3 times more on a sale refurb than a rental refurb
Tip 6. Reward
Why would the Agent sell your property before anyone else’s? Why would they list it in the paper, or push vendors your way? If you chip them on fees, they won’t. Pay overboard on their fees. Give and don’t haggle. Ethically reward for ‘special treatment.’ You’re their favourite, or someone else is. A reality most people shy away from.
Tip 7. Good Deals
Good Deals find the money whether it’s your cash, the banks’ or a JV partners, an option or a commercial facility. A ‘lack’ of money should never stop you. A good deal finds finance. The better the deal the lower the risk.
And remember every area is different – some work very well for flips, and others not to – and it’s important to know the difference
Happy Flipping
