At the start of the week (here) we took a look at flipping to other investors so now it’s time to consider how this differs from flipping to owner occupiers. Flipping to owner occupiers means it’s likely you’ll be sourcing a different type of property. The reason for this is that investors, by and large, will be concerned with buying a relatively cheap property that is great for renting out. This is likely to be a property that is not in the very worst area, but not in the very best either. (Remember, properties in the very best areas are going to come with a price tag that is likely to be so high that there won’t be a return or yield).
So, let’s think about what we are looking for when we are flipping to these very different buyers.
When it comes to others investors, on a scale of 0 to 10, this type of buyer is probably going to want a property that sits around the 4 or 5 mark. An owner occupier on the other hand, is probably going to want a higher priced property and would therefore be interested in those that are around the 6 or 7 mark. Properties that rank at 8, 9 or 10 would be out of the question as they would be of such a high value that there would only be a very limited number of buyers able to afford them.
If you want to do ‘flipping’ as a business, you need to know that your property is saleable – and quickly – as speed of sale is important in order to get your funds back out and release your profit.
So that you can make sure of this, you really need to fully understand your target market. You need to have firm in your mind who you are selling your property on to, and this will help you figure out what types of properties you need to look for in the first place.
If you are going to pursue first time buyers, then it’s likely you’ll be searching for properties at around mark 6 on the scale. If you want to attract second or third time buyers, then mark 7 will probably be your goal instead. Figuring this out and having a real understanding of your market will help you to refine your search when going on Rightmove or when you’re in front of estate agents.
This being said, there is something else to be mindful of and to take into account. With both the economic cycle and the market cycle, things can change and particular types of property which are suitable for owner occupiers now might not be suitable when the market dips. On the flip side, if the property market jumps, then it might turn out that more expensive property might be an option as there may be a little more certainty that it will sell on more quickly.
Really, it all comes down to the availability of finance and on the ease of your buyers obtaining finance for your property when you put it back on the market. Taking this into consideration might lead you to a look for a particular type of flip property. It will all depend on what’s happening in the economy and what’s happening in the property market at the time of looking.
Depending on what’s going on, you might think to yourself that actually, first time buyers are going to find it quite hard to raise finance at that moment, so instead you may choose to focus on properties for second and third time buyers. So, you need to bear in mind the current situation of both the economy and the market in order to be guided by the types, areas and prices of your properties.
When it comes to flipping, all in all you need to be certain that you’re going to make a profit – either by buying at a significant discount or buying in a condition whereby you can add enough value. Or, somewhere in between.
As a rough guide, property developers usually work towards achieving a 20% profit – in other words, selling a renovated property on at a price which gives a 20% profit on the cost of the purchase price.
Would this be right for you? Well, that all on depends on a few questions that you need to ask yourself. For example, how much money do you need and how much can you afford to give away? How quickly do you want to sell the property and do you have to hold out for a particular asking price? Can you perhaps be more flexible?
If you are prepared to reduce your profit, then you need to consider how much you’re going to make when the works are complete. You can then consider if you can spend the same money BUT add more value.
As time goes by and as you do more projects, answering all of these questions will get easier.
In my opinion, if you are interested in doing flips then you should just get out there and start to make it happen. Get onto Rightmove, go and visit agents on your patch and perhaps do some guerrilla marketing to get you direct to vendor. Because by doing so, opportunities WILL come your way.
Peter Jones B.Sc FRICS
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