Flipping Houses Lesson No 2 - Buying the right property for your buyer market.
Once you have a buyer profile (discussed in Lesson No 1) you need to find the right property. So you need to look for properties that match your potential buying market.
So you've chosen and area, you've done your buyer research and your established that most people moving into the area you have selected are young families on a medium income. So how does this translate into a property.
As part of your research you would have established that most of the houses that are selling quickly are 3 bedroom 2 bathroom houses, with a modern feel. To have a quick successful sale you need to give the market what it wants, a 3 bedroom 2 bathroom home with a modern feel. So you need to find a property that can be turned into this. If this is your first flip, starting slowly and carefully is probable they way you want to go, especially if you have no experience in renovating a property.
I heard some horror stories of people jumping in head first with a complete build or rebuild first time only to seen their profits eaten away by trades people and expensive fitting and fixtures.
Here is some good news. With a simple repaint and refresh flip, you can learn most of the skills either from short Tafe courses or even your local hardware store, like Bunnings often have sessions on "How To Do..." The other answer to learn how is the internet. I learnt how to lay timber flooring through YouTube, and I have to say the results were fantastic all 180 square meters of it. But don't get too excited about DIY just yet, we'll talk more about that in later blogs.
But back to our topic of buying the right property. Before you sign anything you need to have a building inspection done. In some states such as the ACT, this is part of the sellers responsibility, but it is a must for any purchase. There are some nasty things that can come up that could cost you tens of thousands of dollars and not only eat away your profit, but end up costing you a lot of money. Two of the biggest things that come to mind are termites and asbestos. Most states now have rigid asbestos laws that mean you can't remove the product yourself and you must engage a licensed asbestos remover, and this is a very expensive exercise. Termites might be small, but the damage they can do, like asbestos can cost you thousands. There are other things to consider like the age of the plumbing and the wiring, you don't want to have to re-plumb or rewire the entire house.
There are two important lessons here.
- Buy a house that has the potential to become just what buyers in the area are looking for.
- Get the house inspected so you know what you are dealing with.
The final part of this lesson is about money. Most people don't like talking about money, and often budget is the last thing people want to think about when flipping houses. But it is important to know what you can spend. Some basic calculations that can help is $2,500/m2. Yep you read that right. I did a bit of research on this and looked at some industry figures. The span in the research was anywhere from $1500 to $2900 per square meter on average to renovate a home. So you need to budget on around this per square meter plus a contingency of around 10 to 20% on top of that figure for those things you just don't know about. Oh and I've definitely learnt from experience.
Lesson No 2 - Know your potential buyer and match your property to this, know the property you are thinking of buying and know your budget.
Lesson 3 - You've got the property now what do you do with it?