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Thursday 20 September 2018
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Property Flip Ups: The Sweet And Sour To Investors

Property Flip Ups: The Sweet And Sour To Investors

 

Renovations of immovable property can only be done in either of two ways. The sweet way which of course is the correct way or the sour way, the wrong way which property investors should avoid, if they are to realise profits in their transactions.

Most property investors renovate either to flip the property, that is to resell it as soon as possible at the maximum attainable profit or to rent it out. Both are after the same thing, to make money. In both cases, it is true that you make money when you buy, not when you sell. This points to the fact that, when assessing a property deal, one should start with the end in mind.

When considering renovations, identify high demand areas that are growing in terms of property value and demand. These are areas where the demand for properties is quite high and outweighs supply. Some examples are strategic areas in terms of location, for example close to town, schools, some socio economic activity like a university, but with archaic buildings. Consider what can be done to “upgrade“ the property. However, beware of homes with structural defects. Attention needed on the roof or problems with the foundation of the building is more often than not a red flag. These projects are not advisable for amateurs but the more experienced renovator can venture in.

Once a growing area is identified, do your research first before jumping into a deal. How is the town spatial planning going, what is the zoning in the area you are purchasing? Would the municipal by – laws allow for a change of use, for example to student accommodation or offices. One can visit the town planning department at the local municipality in the area purchase is intended. This will help you to zoom in on an area, then, find a property that suits your intended use rather than first getting a property and then trying to persuade the municipality to give special use rights.

If you are buying to flip, do not overcapitalise on the property, profit is what you are after. Stay away from personalised finishes, the next buyer just needs a safe, neat modern home that is well secured. Traditionally adding a bathroom to a one bathroom house, converting an outbuilding into an office or flatlet or modernising a kitchen will give a great return on investment.  Are any of these possibilities at your intended purchase?

Have a thorough understanding of how prices are doing in the area. Consultation with a local realtor, who can inform you on the general average selling price. Factor in all costs such as bank charges, transfer costs, agent commissions, contingency allowance before you purchase the property. Allow then, for a profit of at least 20% before tax.  Will the resale price you arrive at still be within the average of the area? If not you may be setting yourself up for a harvest of lemons.

When you have purchased the property, there are steps to be taken in renovating the right way. Firstly come up with a brief, preferably in writing of exactly what the renovation project entails. Also be clear on the budget allocated to the project and the timeframe in which you would like it completed.

Appoint a professional architect, who should be able to work out a proposal based on your brief. At this stage, a few consultations may be necessary before you are satisfied.

When you have obtained detailed drawings and building specifications from the architect, these can be used to obtain reliable quotes from building contractors. You need to ensure that the architect has included all building specifications as any future changes may have huge cost implications. It is also your responsibility to ensure that all building plans are approved by council before work commences as to avoid costly demolitions and rework should your initial plans not be approved.

Select your building contractor, this is not just about obtaining several quotes and picking the most cost effective one. Check the reputation of the building contractor. What previous work have they done and what is the quality of that work? Are they registered with any regulating boards in your area? Appoint a project manager to see to the smooth running of the project, this person should monitor progress on a daily basis and ensure the project will be completed in time and within the allocated budget. It is good to outsource a project manager especially if you have other commitments but for the professional property investor one can be their own project manager.

As soon as renovations commence it is wise to start with advertising the property for sale. Models can be used to show prospective buyers what the completed project will look like. To minimise on costs of maintaining the vacant property, it is good for project completion and the purchase of the house to take place simultaneously or within a short time frame of each other. This can help maximise profits for the investor.