You have probably seen it somewhere. An old apartment block, or a house, in a not-so-bad neighbourhood.
You pass by the building without giving it much thought, and if asked whether you would buy it, chances are you would say no. The structure is old and, why buy old when you can buy or rent new?
But the saying goes ‘old is gold’, and this is where house flipping comes in, a real estate concept especially practised in the west.
The term ‘house flipping’ refers to buying a home with a short holding period with the intent to resell it quickly.
It is a form of real estate investment where the buyer finds houses on the market that are below market rate for instance because they are in a state of disrepair, fixes them and resells them for a profit.
Unlike buying real estate as a long-term investment, house flipping is a short-term way to make some money after your initial investment. Most investors buy homes that require some updates and repairs at a low cost. The idea is to “buy low” and then “sell high” later after making a few changes, and you’re ready to put the home back on the market.
It is important to note that there are no guarantees with house flipping since the real estate market can fluctuate widely. To succeed in this field, it’s important to have access to the right information, resources, and connections. While these types of properties may not be easily accessible, with the right strategies, it is possible to find them.
Look for properties that are being sold at a discount, such as those that are being foreclosed on or are in need of significant repairs. These may be more challenging to fix, but they can also offer a higher potential return on investment.
How to get started
If you’re considering entering the world of house flipping, it’s important to keep a few key things in mind.
Extensive research
The first step is to do thorough research on the housing market, nationally and locally. This will help you make informed decisions about which properties to invest in and ensure that you are making a wise investment. One way to do this is by working with a real estate agent to get an idea of comparable prices for recently sold homes in the area, as well as what features and amenities are in demand among local buyers.
Come up with a budget
In addition to researching the market, it is crucial to budget your house-flipping plan carefully. This includes setting a limit on how much you are willing to pay for a property and including the costs of renovations and upgrades in your overall budget. This will help you avoid overpaying for a property and ensure that you have a realistic idea of your potential return on investment.
Engage a home inspector
Before making an offer on a property, it is also advisable to hire a home inspector to assess any necessary repairs. This will give you a better understanding of the total repair costs and help you determine your bottom line before making a purchase.
Once you have a better idea of your proposed asking price, you can subtract the home’s cost and all of the repairs and upgrades. The final number will be your bottom line and show you what you’ll gain financially once the flipped home is sold.
The house flipping 70 per cent rule
When looking for houses to flip, it can be helpful to use this rule as a guide. It suggests that you should not pay more than 70 per cent of the home’s estimated value after repair (ARV), minus the cost of necessary repairs.
For example, if the home has an ARV of Sh2, 000,000 and requires Sh500, 000 in repairs, you should aim to pay around Sh900, 000 for the property. This leaves you with a wiggle room of 30 per cent to cover any unexpected repairs or costs and accounts for the amount of money you will receive when the home is sold. To calculate this figure, use the following formula:
(ARV of Sh2, 000,000 x 70 percent) – Sh500, 000 = Sh900, 000
This rule can help you make informed decisions about which properties to invest in and ensure that you are making a financially sound decision.
Structural improvements
Before flipping a home, it is important to carefully assess its condition and identify any necessary upgrades. Even if the property appears to be in decent shape, there are a few key areas you should focus on.
For example, if the home has an old knob and tube wiring, a full electrical upgrade may be necessary. It is also important to inspect the plumbing for signs of rust or wear, and ensure the house is properly insulated.
The roof should also be in good condition with no leaks or missing shingles. By taking a close look at the home’s key components, you can determine which upgrades are necessary and plan accordingly.
Room-by-room renovation guide
When flipping a home, inspect every room and identify the types of renovations that will be necessary. Here are a few key areas to focus on:
Façade: Improving the curb appeal of the home can help attract potential buyers. This may involve painting the exterior, adding new siding, updating the landscaping, and repairing any broken outdoor lighting.
Bathrooms: Updating the flooring and fixtures in the bathroom can give it a fresh, modern look. Make sure all plumbing is in good working order and consider adding a new tile job around the shower or tub.
Living room: A fresh coat of paint and new flooring can quickly transform an outdated living room. If the home has a “choppy” floor plan (broken up into several separate rooms), consider knocking down a wall to create a more open layout. Extending the windows and making them oversized can also help bring in more natural light.
Kitchen: Replacing outdated appliances with new ones and updating the countertops can give the kitchen a more modern look. Repainting older cabinets can also be a cost-effective way to update the space.
Garden: Removing weeds and dead plants, planting new flowers or shrubbery, and checking for pest signs can help give the garden area a fresh, lively appearance.
Bedrooms: New paint colours and flooring can easily update the look of a bedroom. If the master closet is small, consider altering the layout to create more storage space.
Laundry: Installing a new washer and dryer and re-tiling the room can give the laundry area a fresh, functional look. Adding a sink can also make it more practical. If the house does not have a laundry area, creating one if there is space for it can add value to the house.
Addition or extension: If you have a larger budget, consider adding an extension to the home. This will be more costly and time-consuming, but it can also help you get a higher asking price. The extension can be anything from an extra bedroom, living area or outdoor dining area.
Adding the most value
In today’s market, modern homebuyers are often looking for unique properties. If you want to add the most value to your house flip, consider making some updates that will appeal to younger buyers.
Add a glass railing along a staircase: This modern design element can be a great alternative to traditional spindle designs.
Install high-tech upgrades: Options such as remote security cameras or doorbell alarm cameras can be easy and affordable ways to add value.
Replace an old garage door: Choosing a sleek, contemporary design can make a big impact on the overall look of the home.
Install energy-efficient windows: Not only will this make the entire home look new, it is also a great selling point for buyers.
Pay attention to the outdoor space: Adding a new covered patio or deck can be a great way to add value and appeal to buyers who enjoy spending time outside.
Selling the flip
Once you’ve completed the renovations on your property, it’s time to put it on the market. Make sure your listing includes all of the home’s details, including the square footage, special features, and significant upgrades.
Hiring a professional photographer to take clear, detailed pictures of every room, both inside and out, can also help attract potential buyers. With the right marketing plan in place, you can sell your newly flipped home quickly and for a good return on investment.
Keep in mind that house flipping is not for everyone, but with the right knowledge and resources, it can be a smart investment choice. It is also important to understand the local real estate market and partner with professionals you trust.
Sticking to a budget is also crucial to ensure that you don’t overpay for a property. By focusing on the right updates in every room, you can quickly flip a house and achieve a great return on your investment.
The importance of ceiling value
When the time comes to sell a flipped home, it is important to have an understanding of the ceiling value. This is the maximum asking price that you can put on the property. If you ask for too much, the home may sit on the market for a long time, which can be off-putting to potential buyers, and which will hold your finances.
To help determine a fair market value for the property, consider working with an experienced real estate agent. They can provide insight into current market trends and help you set an appropriate asking price.
It is also a good idea to leave room for negotiation by starting with a slightly higher asking price and being willing to negotiate with buyers. BY DAILY NATION