The secret to making money from house flipping

Private Property South Africa
Lea Jacobs

Buying neglected old homes, renovating them and selling them for a profit can be lucrative, but certain rules need to followed to prevent your flip from becoming a flop.

A great deal of money can be made by dabbling in the real estate market, particularly for those who buy up old, dilapidated homes, renovate them and then sell them on. Of course there are exceptions, times when investors fail to turn a profit. However investors are able to minimise the risk of this happening by following a few general rules.

Location, location, location. Yes, we know we've said it a million times, but location really is key in all things property. As a rule, a less than perfect home at the right address will sell at a profit while a perfect home in a bad location won't. It's that simple. In other words, just because you can pick up a property for a song, doesn't mean that you will be able to renovate it and automatically sell at a handsome profit.

So what should you be looking for as far as location goes?

Firstly, potential investors need to do their homework thoroughly before making any kind of buying decision. Check out the statistics of the particular area in which your ‘rough diamond’ is located, noting at what price nearby properties have been selling. Don't assume that just because a suburb has a good reputation all properties there sell for a profit - some areas within a particular suburb may be less desirable than others and this is probably going to affect the price. Good schools, access to public transport and nearby shopping centres will often have a positive impact on price. Likewise, property in an area with low crime rates will more often than not achieve a better selling price than one in an area known to be a crime hotspot.

Emotions play no part in an investment property venture: this is business. In other words it really doesn't matter if you don't like the design or style of a home, all that really matters are location and price.

Have a plan in place before you buy an investment property. Determine how much work needs to be done and how much it is all going to cost before you make an offer to purchase. Work out at what price you are going to sell the property before you start renovating. Have an overall budget in place and stick to it. Remember that renovating homes for financial gain is a business and although you may find nicer kitchen units or more attractive tap fittings, it's unlikely that the future buyer is going to be willing to pay more for a nicer looking kitchen or bathroom. That said, it's imperative to have some sort of contingency fund available to cover any unforeseen, additional expenses which will almost always crop up.

Employ the right people to do the job and if possible take your electrician, plumber and builder with you before making an offer to purchase. This will help you gain some understanding as to what work will need to be done. Time is money in this game and as such investment buyers need to set out clear timelines as to when the work needs to be completed. It's important to work with a team which not only understands deadlines, but which can do what needs to be done in the allotted time.

Practice makes perfect and it's the same with renovations. Yes, things may go wrong and take time to resolve during your first project, but builds generally become easier and should run more smoothly the more experienced you become.

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