Investors That Fix and Flip Property - Basic Knowledge You Should Have to Flip Houses

When it comes to flipping properties successfully, a little bit of knowledge can go an awfully long way. You want to be able to hedge your bets as well as possible to ensure the greatest return on your initial investment, so you should never go into a transaction without having a good idea about everything that you need to know in relation to the property you are aiming to purchase.

There are many things that you should know before you try flipping for yourself, so here are the basics.

Your Own Budget

It's your money that is going to be invested into the property, so you should know exactly how much you are willing and able to spend before you ever even think about making a purchase. Create a budget plan and stick to it. Too much deviation and you may find that the investment that you thought would reap huge rewards ends up becoming a sinkhole into which you simply throw your cash away.

Where To Look

Estate agents can help you when it comes to flipping properties, particularly if they specialise in locating foreclosed homes. What you are aiming to purchase is a property that has potential and is being sold for less than the market value. As such, you should try speaking with banks to see if they have a list of properties on their database and search out specialised estate agents, rather than ones that will try to sell you properties that don't need any work doing.

The Right Workers

Nobody is an island when it comes to flipping houses and it is practically guaranteed that you won't have all of the skills that you need to do it on your own. As such, you need to gather a team of people below you who can do the jobs that you need doing in a cost-effective manner and to a high level of quality. In some cases this will often be a trial and error procedure, but if you can get good word of mouth from people who have used the workers before then you are off to a good start.

The Location

The location a property is in can make a large difference when it comes time to setting a price for it. A house that may look like a steal on the surface could show its true colours if it is located somewhere that nobody wants to live in. Look up crime statistics and local amenities before making a purchase so you have something beyond the house itself to offer buyers.

The Property

Wherever possible you should never go into a property purchase blind, particularly if you are aiming to fix a home up. Always have a good idea of what needs to be done so that you can budget accordingly and plan the work out properly. Try to have a house inspector look over the property and have them highlight any issues that could hold up the work or lead to you losing money in the investment. There's an initial cost involved in this, but you will be thankful if they reveal issues that leads to a property getting scratched off your list.

What To Do If You Are Thinking of Buy to Let in 2014

If you are thinking about buying your first property to let or expanding your portfolio in 2014, you need to consider the tax implications of adding property to your wealth, then you need to work out the risks and rewards of buy to let investment, and finally, know your exit strategy.

Tax Implications of Adding Property to Your Wealth

You need to know that any property you add to your 'wealth' will be taxed. And the tax you pay won't just be the net income on rent or the capital gains on the property. It may be that the property income or capital gains adds so much to your wealth you end up paying more tax because you lose benefits.

For example, if you earn £50,000 and have kids who receive child benefit, then adding rental income to your property may well mean you lose the benefit. If you earn over £100,000, then the rules on personal tax allowances may mean you end up losing tax relief rather than benefiting from it.

Only a property tax expert can help you, so get started by reading our Buy to Let Tax Checklist.

Risks of Buy to Let

Many people get excited at the thought of buying another property, and there are plenty of newspaper reports around telling you it's a great idea. However, there aren't enough reports explaining the downsides of buy to let, so here's a list to make sure you know what you are up against:-

• Property prices can fall by up to 20% - so make sure you have a back-up plan if this happens.
• Rents can fall by up to 20% too - so make sure you are still cash flow positive in this case.
• You might have a low interest rate of around 2.5 to 3.5% but when interest rates rise, rates are likely to be around 5% long term and could reach 7%.
• Tenants might not pay their rent - have you savings to cover costs if this happens?
• Tenants can cause serious malicious damage to your home - make sure you reference tenants carefully, don't go for cheap options.

To cover yourself from the risks of buy to let, read our Buy to Let Insurance Checklist.

Know that if you invest in a property with a 75% loan to value mortgage, at rates of 5%, properly maintain it, then with the average 5.5% yield, your net income is likely to be zero. This is fine if you are investing for capital growth, but means you need a 7% plus average to secure an income or a lower loan to value such as 50%.

Rewards of Buy to Let

Although there are downsides to buy to let, there are upsides too. Capital growth, on average, is around 4-5% per year in most areas over time, so ideally, you want to buy a property where you can 'force' capital growth through renovation or adding space to give you an immediate uplift in value. In addition, if your rental income is 7% plus, then you are likely to make enough money to cover all your costs and net some extra cash.

For the future, property price increases are expected to be from 4 to 8% for 2014 and the same for 2016, so use these figure to work out what your property investment is likely to deliver over the next couple of years. To make sure you analyse any deals by using our checklists.

Your Exit Strategy

Finally, it's essential NOT to buy a property without knowing when and how you will exit from it. Working out if you need to pay off the mortgage and secure the income by the time you exit or if you want to sell up. In this case, you need to know the right time to sell without incurring a huge tax bill.

Three Ways to Get Great Cashflow in Property Investment

People choose to invest in property in order to build a portfolio of cashflow that can be used as a pension or that can replace their current income. This gives them a fall back plan in an economic time that seems pretty uncertain. I personally consider this to be a great idea. Property is unlikely ever to reach a value of zero as it is a required part of daily living - having shelter. If you are buying for investment purposes, then property, in my opinion, cannot be beaten for great return.

Here are three ways to get great cashflow.

• Single residential lets

This is the most common strategy when considering property investment. Investors buy a property at a discounted price and then rent it out to a single family. The rent then covers the mortgage and more, giving them a profit. It is the least time-intensive method. It is also the least lucrative in the short term but, of course, you are in this for the long term, aren't you? If you have bought at the right price, in the long term you will not only have positive cashflow but you will also have capital gains.

To maximize the cash flow in this strategy, ensure the purchase price is appropriate for the rent that can be achieved on the property

• Multi-lets

Split a house into rooms or self contained units (flats) and rent them out on an individual basis. This is a great strategy for cash-flow but may involve slightly more management than the single let option. Of course, you can always leverage the experience of a local letting agent. This will further minimize the time you need to spend on the property.

In this strategy, a yield of 12% and above is usually easily obtained as long as the investor again has been careful about the purchase price and money spent on updating the property.

• Flipping Property or Buy-To-Sell

Another viable cash-flow strategy though most think of it as capital gains. Some investors make a steady income without holding a single property. You can sell to investors, estate agents, owner-occupiers, or put it in an auction. All you need is property at a great price (Hint - there is a lot around!)

These are 3 cash - flow strategies to consider.

In order to further improve your understanding of cashflow and the various methods available to maximise it in property, consider playing the cashflow game designed by Mr Kiyosaki, author of Rich Dad, Poor Dad. It is pretty surprising what playing a game like that can do for you.

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