Home flipping reached a 12 year high during the Pandemic, as the average investor made £40,000+ on flipping property. This may entice others to get involved, so here’s some advice for those people.
Plan Potential Exit Strategies
When renovating a property it is important to start with the end in mind. You should consider what you will do after you finish the renovation. Some things to consider are:
- Will you sell or rent?
- Are you in a position to remortgage and hold the property after the renovation?
- Are there any future economical changes that could impact your exit strategy?
- What will happen if you are unable to sell the property?
Do Not Try a Project That’s Too Big
This is especially true for those flipping a property for the first time Though a large project could have a huge profit projected, it’s is also likely to have huge costs. Smaller properties are likely to be simpler projects and unlikely to have as many hidden issues. For that reason, pick a property with lower costs for repairs and refurbishing.
Buy Below Market Value
When buying below market value you’re essentially securing equity at the point of purchase rather than buying and hoping that the value of the property and your equity increases. Buying BMV insulates you against the market falling which is something that can be very key especially with the current economic turmoil surrounding Brexit.
Furthermore, a key part of flipping is selling for profit. Therefore, if you start off with positive equity, you already have a head start!
Only Spend Money on Improvements That Will Add Value
If you spend £150,000 renovating a property, this doesn’t necessarily mean that you will be adding £150,000 to its value. Don’t spend when it’s not necessary. Discuss your plans for the property with a local estate agent beforehand; they will be well placed to tell you what sort of improvements will add value to the property and will also have first-hand information on recently sold prices. Don’t get carried away and try not to get too emotionally attached to the property!
Know and Follow the 70% Flip Rule
The 70% rule states you should not spend more than 70% of the after-repair value of the property, in order to renovate the home. The after-repair value is often called ARV, and investors should estimate what that value is likely to be after renovating the home. With that calculated, you should not spend more than 70% of that figure on renovations themselves.
Tightly Control Costs and Avoid Budget Blowouts
Ensure you make a note of all outgoings/orders. This will allow you to keep an eye on what you have spent and on what; and most importantly, will allow you to easily see if you’re staying within your designated budget.