Have you ever heard of the term property flipper? Or have you ever watched the variety show Flip or Flop on HGTV? Flipping properties is a potentially lucrative but somewhat risky form of real estate investing. Why is that? Check out the discussion below.
What is Property Flipper?
In the world of real estate Property flipping is the activity of buying a home or property for resale in the near future. This real estate investment practice is quite common in the United States. But it is not widely practiced in Indonesia.
Typically, property buyers purchase second-hand homes that need repairs, renovate them, and then sell them again. This service is an ideal solution for homeowners or property owners who want to sell their property but do not have the time and skills to repair the property.
Advantages of being a Property Flipper
1. High profit potential
The profit or profit of a real estate flipper is derived from the difference between the sale price of the property and the cost of purchasing and repairing it. To increase profit, real estate buyers often take on older homes that have been neglected or the owner needs money, so the purchase price is cheap. However, these types of homes often require a lot of repairs.
For example, you buy house A for about IDR 350,000,000, which is really cheap compared to the surrounding environment. Since the house has not been lived in for 10 years, if you want to repair it, you need IDR 100,000,000, although IDR 50,000,000 is usually enough.
2. Repaired property can be used as collateral.
When you purchase a house, repair it and manage it, but the property has not yet been sold, it can be taken as collateral at the bank. This way, your business liquidity will remain intact.
3. Help improve the environment
One of the problems in today's modern world is that there are so many vacant homes that owners cannot afford to take care of them. While many people do not own a home because it is expensive. This can make the environment look more dilapidated and deserted than it should be.
House flipping could be a solution to this problem. On the one hand, flippers allow homeowners to repair and sell their homes. On the other hand, they can help buyers purchase similar homes at a lower price than buying a new build.
4. Can be used as a source of passive income.
The property flipping business is great for a passive income stream because you don't have to be there during the repair and sale process for 8 hours every day. You only have to conduct inspections every few days and be present when there are potential buyers interested in buying the property.
Disadvantages of Being a Property Flipper
1. Large amount of capital
To become a real estate flipper, you need to have quite a lot of capital. The reason is that you will not only have to buy land and houses, but also have to repair them often. Not to mention the unexpected repair costs. Therefore, opening this business requires careful inspection and survey of the house.
2. Fixed assets take a long time to sell.
Because it has enormous value Fixed assets Just like a house or store takes a long time to sell. In addition to the problem of repair time, It also includes administrative arrangements at lawyers and BPN.
3. Asset condition risk
The longer it takes to sell an asset, the longer it takes. The higher the potential risk to the condition of the asset, in this case, during the sales process. Fixed assets will definitely face risks such as leaks, tall grass, etc. so that during this process The quality of assets may deteriorate. Therefore, it is not surprising that the main focus of real estate flippers is to sell assets as quickly as possible. Instead of selling at the desired selling price
Profitable Real Estate Flipper Business Strategy
1. Define your financial risk tolerance first.
This risk acceptance includes a maximum asset purchase price limit, a maximum asset repair and maintenance cost limit, a maximum asset marketing cost limit, and a range of asset sales prices to allow for a faster sale.
Report from page InvestmentOne way to determine a business's financial risk tolerance is to ensure that the purchase price and repairs of the property do not exceed 70% of the selling price. For example, in purchasing a home. You need a capital of 300,000,000 IDR plus repair costs of 120,000,000 IDR, so the total cost to flip the property is 420,000,000 IDR. Therefore, the selling price you set for this asset must be approximately IDR 600,000,000.
2. Cooperate with relevant persons
For maximum profit, you need to cooperate with stakeholders who are most likely to be involved in this business. These stakeholders include contractors, lawyers, banks (if necessary), building and furniture shops, and even BPN employees. The aim is to make working with these assets faster and more efficient.
For example, by working with a lawyer, the process of selling land and buildings and purchasing title deeds is faster, and because you are a member, the lawyer's fees can be reduced.
3. Use the best home buying and selling apps
There are many nowadays. Home buying and selling application that you can use to market these assets. Take advantage of this application to help your house or property for sale sell quickly, for example by placing a home ad in the application or using the filter feature.
4. Provide virtual tour services
To market these assets and anticipate potential buyers who might not be able to explore them physically, you can offer virtual tours. In this case, you can use a meeting application like Zoom or Google Meet, but you can also provide a virtual tour that potential buyers can access at any time on YouTube.
Don’t forget to market your home or property using image-based social media like Instagram and Facebook to attract more potential buyers.
5. Reduce risk by converting to rental property.
Is the property or house you are repairing not yet for sale? Instead of leaving it idle, you can turn it into a rental property, such as a house or commercial building for rent. To avoid future problems, make sure that when you have a tenant, the terms of the lease are clearly written so that if the tenant does not extend the lease, the house or property can be resold.
This way, at least you will have liquidity in your pocket, although it will not be as big as selling your house. In addition, at least this way, there will be someone to take care of the property, so you don't have to clean and maintain it yourself.
Property flipping is a high-risk type of real estate investment that requires knowledge, patience, and perseverance to make huge profits from this business.
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