Abiodun Doherty, abiodundoherty@yahoo.com

Flipping is a term used by real estate investors to describe the process of buying a property, renovating it and then selling it for profit.

It is one of the means of making money in real estate investment. An investor who engages in flipping houses is not interested in renting the property. He or she is also not interested in living in the property and holding it for years before considering whether to sell.

Flipping property is a business that requires specific skill sets and if done right it can be very profitable.

However, if you do not get it right it could lead to serious financial loss.

In order to get it right the basic requirement for a good property that can be flipped is that it is in a good location.

One piece of advice that experienced property flippers repeat is that you should aim to buy the worst property in the best neighbourhood at a price that you can afford.

A good property in a bad location will be negatively affected by the neighbourhood and there is very little that you can do to remedy that. It is very difficult to single-handedly change the personality, feel, and safety of a neighbourhood. If the neighbourhood is good, the property will appreciate.

There are many indicators that you are looking at a good neighbourhood.

A good neighbourhood has thriving businesses there or close to the area. The area should be close to or have basic amenities that are in top shape such as shopping malls, bus depots and good schools.

It should be relatively safe and with low crime rate. You should be wary of any neighbourhood with several properties for sale as this could indicate that several people are trying to leave the environment.

It could also mean that property supply is more than the actual demand and this could impact negatively on the profitability of your investment.

It is equally important for you to focus on the actual condition of the property. This is more than looking at a property from the outside or relying on a few online photographs.

These days you need to engage experts who can examine and check the structural soundness of the property. Imagine the implication if after purchasing a property that you consider a good deal you realise that it needs more than renovation but rather requires to be pull down entirely.

If you did not bargain for that your entire buy-and-flip strategy will go down the drain.

Furthermore, for the buy-repair-flip strategy to work you have to be cost conscious and ensure that you do not overspend on the property purchase and the property repairs.

The property must be purchased at a very good discount compared to the eventual sales price of properties in the neighbourhood.

Some real estate investors apply what is called the 70 per cent rule to flipping. This rule states that you should only buy a property for flipping if the price is not more than 70 per cent of the After Repairs Value less the cost of the repairs.

You also have to control the cost of the repairs and ensure upfront that this does not exceed your budget. Lack of care on these two items could literally wipe away your profits and could get you into debt.

The risk and the reward of buying and flipping properties are real. If you are new to this area you might need to engage a mentor who can hand hold you as you walk this path.

A good team of professionals that includes building contractors, tradesmen, engineers, quantity surveyors and others, is non-negotiable. Building this team will take time because it involves initially working with people based on other people’s recommendation. It is as you find these people reliable that the relationship deepens and you can involve them in other projects. However, if you find them unreliable or unprofessional you can dispense with their services.

Apart from hands- on experience you will need certain soft skills which could even be more important than most people think. A key skill that is required in real estate is negotiation. In order to be effective you will need to understand the motivation of the seller and how you can leverage that information for your benefit and create a win-win for all parties.

Financing the property acquisition and repairs could involve banks or other financial institutions. Project management skills will also come in handy.

You need to plan your work and work your plan to succeed in this area. After all the repairs have been done you need to market this property so that it does not stay long in the market with your money tied down. However, it is also wise to have a plan B if such a situation occurs.

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