Is Property Flipping a Valid Strategy?

The other night, while browsing through the channels on my television, I came across this programming called Flipping Vegas. If you haven’t already seen this show, Flipping Vegas is an American reality program that showcases a random guy and his wife who flips houses for a living.

It didn’t take long before I began to entertain the process of flipping houses for my own financial plan. After all, if that guy on Flipping Vegas can do it so effortlessly, why can’t I, right?

Here is what I have found after doing some personal research into the process of flipping a house for profit:

Before I get started, I just want to point out that I have zero experience in purchasing a home. All the information is just speculation and simply my opinion.

Hunting for Potential Properties

The first and foremost important step to flipping a house would be to hunt for potential properties either through personal research or through a realtor.

The general idea of flipping a house is to find a property that may not be in the best condition, fix it up to raise the property value and then to sell it for a profit. With this in mind, a property that has the sole purpose of being flipped may not exactly be the ideal property you would want to purchase if you are looking for a place to move the family.

I believe that the key concept to hunting for the right flipping property would be to search for one that requires minor renovations. These properties are usually sold at a discount of their neighbourhood value and have a higher profit margin.

However, before purchasing the cheapest house you can find, it is also important to consider the type of renovations the house will require to make it look attractive to buyers. At the same time, if the cost of the renovation is higher than your budget, purchasing the home may not be worth it.

Other things I would consider before purchasing a property:

• Are there any schools nearby?
• Is transit convenient?
• Are there any parks? (Parks usually raises the property value)
• Is the neighbourhood safe?
• What are demographics in the area?
• Who are the targeted buyers of the property?
• Other amenities (groceries, malls etc.)

The Renovation Process

Once the property has been purchased and the mortgage, down payment and paperwork have all been sorted out, the next step to flipping a house would be to get started on the renovations.

Even though renovating the property is simply optional and it is feasible to flip a property without getting any work done on the house, I believe that most discounted properties will require some sort of “fix-up”.

Personally, I think buying a brand new property and flipping it for a profit is extremely difficult. This is why my premise of property flipping involves renovating a discounted property that requires some sort of touch up.

Here are some of the things I would think about when renovating my first property:

1. Who will be performing the renovations? Although I can fix some small stuff around the house, I am definitely no handy man. To renovate the house, I will have to contract the work out to the professionals. Good news is that I have some family members who are in the renovating business that might do the work at a family discount if I ask nicely. : )
2. When will the work get done? I like to set myself a deadline whenever I start a major project. A deadline will give me the accountability I need to get things done. Otherwise, I will just procrastinate till who knows when.
3. What is my budget? Having a budget is crucial before proceeding with any sort of renovation project. By staying within the budget, I make sure that I don’t overspend on unnecessary things.
4. Who will be doing the interior designing? Another job position that needs to be filled is the interior designing part of the renovation. Finding someone who can sell a lifestyle and appeal to potential buyers is the key to selling the property at a profit.
5. When will the open house be held? Once the renovations are complete, an open house would give the buyers an opportunity to look around the property. Setting a date for an open house ahead of time will ensure that the renovations are completed by a certain time.

Total Cost Required in Flipping a House

To determine the cost of flipping a house, I have simulated this list based on a $450,000 property:

• Realtor Fee (5%) – $22,500
• Home Inspection – $400
• Property Appraisal – $200
• Lawyer Fee (2% Closing Cost + Disbursement) – $9000 + $2,000 + $1000 Tax
• Renovation Budget – $20,000 (very generous!)
• Mortgage discharge – $200
• Land Transfer Tax – $10,200
• Optional: Home Insurance
• Optional: Title Insurance

Total cost for flipping a house – $65,500

According to my calculation, in order to make a profit, the house would have to be sold at over $515,500.

Conclusion

After doing a little bit of research, I can already see that flipping a house is no easy task! It is definitely not as effortless as the TV show makes it. On top of the fees required to buy and sell a property, a lot of time and energy must also be spent on a variety of things.

Currently, I do not have the capital nor the expertise to flip a house. Perhaps this will change as I get closer to the 2020 mark of my financial plan. However, as it stands right now, my opinion on flipping houses for profit is that it is simply not worth it. Instead, investing in a property that will appreciate over-time may probably be the better option.

What do you think about the process of flipping properties? Have I missed anything or have been misinformed? I would love to hear from you in the comments!