I had my first taste of property investing straight after graduating university in 2004. I was working full time and couldn’t believe how incredible it was to make four figures in my spare time doing something that I loved. I was hooked! Since that first property, I’ve bought and sold a further 5 properties in the U.K. and bought one in the U.S.
The first flip
I bought my first “live in flip” in 2004 straight after graduating for literally 0% down. (A live in flip is a property that is your primary residence that you fix up and improve whilst living there with the intention of making profit.) 0% down is unheard of in today’s conventional mortgage market, but at the time house prices were rising so fast that banks were pretty much guaranteed a safe return on their investment.
It was a terraced house built in the 1800’s, a former farm workers cottage, with two bedrooms, an upstairs bathroom (rare in this age of house, most were downstairs), a dining room, living room and a kitchen extension at the back of the house. It overlooked farmland and had a good sized garden/yard. We paid £84,950 for it, which was a fair price given it needed some updating. Comps in the area fixed up we’re around £90,000-100,000.
Having no budget means you need to be resourceful
We had pretty much £0 for the renovation. We were fresh out of university with student loan debt, and I was struggling to find a permanent job. So we did the project slowly, learned a lot of the skills ourselves, and roped in family members to help where we could. It taught me to be resourceful and to renovate on a tight budget. Skills that I still use today no matter how big my budget.
Every penny spent is a penny off the profit
Not only that though, but I always treated our live in flip as a business. Every penny I spent unnecessarily meant a penny less in profit. Whether that was doing the work ourselves or bargain hunting for more affordable products such as clearance tiles over full price.
We probably invested about £3000 into the renovation and eventually sold it two years later for around £98,000. After fees we probably made about £7000 in profit. Not ground breaking by any means, but to get anything back for doing something I enjoyed doing was incredible!
Now I’ve learnt over the years that whilst this is true, I’ve also learned that sometimes if you invest more into the renovations you can expect to get more back. You need to understand what improvements they are by what your target audience values. Which brings me on to my next point.
Understand your potential buyer
House flipping uses some fundamental marketing techniques – understanding who your target audience is, and tailoring your product to their needs / wants. I.e. Understand who may potentially buy your house, learn about them and tailor your renovation to their needs.
How do you do this? There are a number of ways.
1. You can look at online reports of the demographics in your area. Such as ons.gov.uk in the U.K. and usa.gov in the U.S. This will give you a general overview of the types of people likely to buy in your area. For further links in the US, read this helpful blog post by Realtor.com. Or for the UK, this article by smartpostcode.co.uk lists 25 websites for further info.
2. Another way is to assess the type of home. Ours was a small entry level house, so we could assume it would probably suit a couple on their own or with one kid, as it was a little too small to be a family home for multiple people.
3. You can also assess it based on the location. Is it near to shops? A particular business? Is it in a student area? Does the area have fashionable shops and cafes near it? Who do you see walking around the neighborhood?
4. Also check out the nearby listings for clues. What do the houses look like near to it? What style of decor do they have? Industrial? Modern? Or more traditional? Does this appeal to older or younger buyers?
Once you have a good understanding of them find out what they like and what they value. You can gather lots of clues from doing a little bit of research. But also use the experts. Ask your estate agent/realtor about who typically buys these properties as they’ll have great insight. Also ask them what features a typical buyer values. This will help you to tailor your renovations to meet your customer’s needs and wants and produce a product that they want to buy. It will also help you maximize any profit. For example, there’s no point wasting extra money on installing quartz countertops if the potential buyers only expect laminate. However it depends on how competitive the market is and what your potential buyers value.
I think these 3 lessons I learned from doing my first live in flip have stood me in good stead through today.
- Know your buyer and produce a quality product they want to buy
- Treat every penny spent as potential lost profit – Ie. Don’t splurge on a spa like master suite for $50k in a first time buyer home, as you probably won’t see the return.
- Even if you have plentiful budget, watch every penny and be resourceful. Shop around for clearance products and deals and do the work yourself where it makes sense and is legal.
There’s a lot more to flipping houses than just these 3 lessons. I’ll explore more as I continue to learn new things and reflect on what I’ve learned over the years. I’d also love to hear from you what your important learnings have been. Leave a comment in the comments section.
Thanks for reading,