Flipping houses can be profitable, but like many businesses, it has potential pitfalls. If you have seen YouTubers making money in this manner and think it is something you can turn into a successful side-hustle or full-time gig, MortgageMe offers some insight into how to do it and where to start.<\/p>\n
Essentially, flipping a house involves buying a property, giving it a facelift, and reselling it for a profit. Seems pretty straightforward, doesn\u2019t it? Andrea Tucker, director of online bond originator MortgageMe, says it can be, but you need to know what you\u2019re doing.<\/p>\n
\u201cInvesting in a house to resell is a big decision and you need to go into it armed with as much information as possible while keeping the risk\/reward ratio at front of mind,” said Tucker.<\/p>\n
So, here is exactly that \u2013 some valuable information from the experts at MortgageMe to include in your knowledge arsenal before embarking on a house-flipping project.<\/p>\n
Establish a budget<\/strong><\/p>\n Decide what you can afford to invest and find a good bond originator.<\/p>\n MortgageMe has an affordability calculator where you can upload your recent bank statements showing your income and all your monthly expenses, and it will calculate what size home loan you can potentially afford.<\/p>\n Your bond certificate will give you a good idea how much additional credit you can responsibly afford to take on in the short to medium term, taking your current living expenses into account.<\/p>\n Another factor to consider when doing your budget is the \u2018after repair value\u2019 (ARV) or the 70% rule<\/strong>, which, in the real estate world, is the estimated value of the property after it has been renovated.<\/p>\n This allows you to build extra padding into your budget if something goes wrong. So, the buyer should pay 70% of the ARV of a property minus the repairs needed. For example, the ARV is R1 million. Then assume the property will need about R250,000 in repairs.<\/p>\n You should not pay much more than R450,000 for that property, said MortgageMe. Keep this figure in mind when looking at properties, and ensure you look within your budget, it said.<\/p>\n “You\u2019ll need approximately 8% of the value of the bond available to cover the expenses incurred in the process of taking on a home loan and for attorneys to transfer the property into your name. It’s best to have this amount saved so that you don\u2019t need to take on additional credit to fund this. Build this into your budget now,” said Tucker.<\/p>\n Find the right house<\/strong><\/p>\n “You knew it was coming – \u2018location, location, location\u2019\u2013 the most important factor when choosing a property. Look at the home\u2019s proximity to good schools, retail areas and green spaces,” said Tucker.<\/p>\n Speak to a few estate agents in the suburbs that you\u2019re looking at to understand who currently lives in this neighbourhood (i.e., singles, families, older couples) and use this information to guide your house hunting journey as well as deciding what needs to be done to a house as a part of the flip.<\/p>\n Vastly different from looking for your dream home as a first-time buyer, when looking for a house to flip, it is a good idea to find the worst house, but in the best area, an ugly house that ideally only needs cosmetic changes to transform it. Elements of a house that are relatively simple to transform include, floors, walls, roof, cabinets, countertops, and the garden.<\/p>\n \u201cA fresh coat of paint has one of the highest returns on investment compared to any other home improvement. But be wary of anything structural that needs to be fixed or replaced (think a leaking roof), as this is going to be costly and time-consuming to fix,\u201d said Tucker.<\/p>\n Secure your funds <\/strong><\/p>\n Once you know what you can afford to invest and have found the property you\u2019d like to buy, you will need a bond originator to help you to secure a loan. They can also offer advice on how much you can spend on renovations to gain the profit you\u2019re after when you\u2019re ready to sell, said Tucker.<\/p>\n “Acquiring a loan for a second home you plan to flip is a little different to acquiring one for a home you intend to live in and some of the procedures may be a little different, which the MortgageMe support team will guide you through. Keep in mind that if you live in your flip, you will only pay one mortgage and finding finance may be easier.<\/p>\n “By doing this you can also take your time renovating and save money in the long run by finding the right contractors.”<\/p>\n Assemble a dream team<\/strong><\/p>\n A team of experts will make the journey less laborious and possibly more cost-effective in the long run, the property expert said.<\/p>\n “Look around for reliable and competent subcontractors in the form of builders, architects, electricians, plumbers, painters, handymen and landscapers and get many quotes to compare prices. Get recommendations from friends or neighbours who have used these subcontractors before. And if you need, get references before committing.<\/p>\n “Contractors are great for any structural changes like doors and windows, and they have knowledgeable on building regulations, but if you like you can appoint yourself as the main contractor and rely on professional input from your subcontractors. Always be aware of hidden costs and decide on the most important upgrades to transform the house.”<\/p>\n Be aware of home trends<\/strong><\/p>\n When you start renovations and redecorations, rather put your own preferences aside and focus on current home trends. Kitchen and bathroom revamps can be costly but make the biggest impression on potential buyers. \u201cRenovating kitchens and bathrooms show the best return on investment,\u201d said Tucker.<\/p>\n Look at improving the cabinets by replacing or repainting them, and putting in long-lasting easy-to-clean counters, fresh hardware, sinks, backsplashes, warm and practical floors and efficient and eco-friendly lighting.<\/p>\n First impressions count, so put some money aside to create an appealing garden \u2013 minimalist, indigenous where possible, water-wise and low-maintenance gardens are the current trend. If you have a green thumb, you can do this yourself, or hire a landscaper if the budget allows.<\/p>\n Paint the boundary walls and home\u2019s exterior in a colour popular with homeowners now \u2013 do some research in your neighbourhood or speak to your local paint shop to get their advice. Another immediate upgrade is new flooring, with vinyl plank flooring popular in many homes nowadays due to its great appearance, wide variety of styles and affordability.<\/p>\n
\n
\n
\n
\n
\n