If “flips” form part of your strategy, where you find your properties will very much depend on the type of flip that you are going to carry out. For example, if you are going to flip to an investor, then this type of property will probably be different to a flip property for an owner occupier. It’s likely that this type of property will be relatively cheap and yet great for renting out.
When it comes to flipping to other investors, a big challenge is that some investors will potentially want some form of discount to enable them to follow the BRR model of buy, refurbish, refinance. However, this doesn’t apply to ALL investors. Whilst this may come as a surprise, you’ll be pleased to know that not all investors will be concerned with buying below market value.
Today, there are many different strategies out there and each individual investor has a different reason for doing property. What’s more, some investors – particularly those that are not necessarily “professional” investors – are not always interested in following a BRR strategy per se. Instead, they are sometimes more interested in parking their money in ‘bricks and mortar’ for the future.
Just a few weeks back in a previous blog post, I mentioned a conversation that I recently had with an estate agent in Nottingham. He told me that he has quite a list of London-based investors that are willing to pay (more or less) asking price for a property up on his patch. In essence, these investors look to buy a decent property in a good area that will attract potentially decent tenants to enable them to get a fairly stable return on their money of maybe 6-8%.
This is very interesting because when you’re out and about viewing properties, you’ll find properties which WILL suit what you want to do, but will also come across properties that you’re NOT interested in yourself. And, whilst these properties may not be what you’re looking for, they could potentially be properties that could be flipped to investors such as these – particularly if you can get them at the right price.
But, why would an investor such as this buy a property of this type from you? Why wouldn’t they just go onto Rightmove and find them for themselves?
I think the answer is this. This type of investor is looking for a property away from home and is seeking some sort of certainty that they’re not spending their money on something that will turn out to be a disaster. Your role in this is to provide somewhat of a “guarantee” that the property in question is a decent property that will give them a decent return on their investment. You’ll be able to tell them (before they buy) the type of rent that it could command, and they will be paying for your local knowledge. These investors are happy to pay full asking price (or near enough) just to have the certainty that they’re making a good move.
From your perspective, properties like these don’t actually have to be sourced through an estate agent as it is possible to find them directly from a vendor. For example, by taking a more creative approach such as by leafletting, running newspaper adverts or by undertaking guerrilla marketing.
Of course, when a vendor does approach you it might not be possible to know what deal there is to be done. It could result that you take the property yourself to keep in your portfolio, or you might decide to take it on an option. Or, you may choose to buy it and flip it on. Equally, it might be that you don’t want the property at all or that you package it up as a deal.
Not strictly speaking a flip, with a package deal you can pretty much do everything EXCEPT buy the property. So, you could agree a price; you could offer the services of a solicitor or broker and could even tie it in with a local managing agent. You might project manage a refurb or, at a very basic level, you could just agree a price and then offer the property to an investor in return for a fee. By doing this, you’re still getting control of the property by having an offer accepted, but will then allow somebody to come along and take over.
Of course, there are both advantages as well as disadvantages in doing this. The main benefit is that you wouldn’t have to buy the property and as such, you wouldn’t have to get finance or pay stamp duty, etc. Likewise, you wouldn’t have to pay solicitor’s fees to buy the property to then sell it on. But, this also means that your fee would be substantially less than the profit you would make if you were to buy the property and flip it.
It is worthwhile? Well, it’s horses for courses really. But, if you were to find yourself in a situation whereby raising finance for a flip property was a problem, then packaging it up as a deal could be a good alternative.
Peter Jones B.Sc FRICS
By the way, I’ve rewritten and updated my best selling eBook, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to ThePropertyTeacher.co.uk