- Making a clear plan of action is the first step of any flipper
- 1. Analysis of the situation in the real estate market
- 2. A clear plan for spending funds
- 3. Options for compensation for potential losses
- 4. Analysis of legislation on registration of transactions for the purchase and sale of real estate
- How to choose the right item to buy
- 1. Undervalued housing
- 2. Collateral property
- 3. Forced urgent sale of housing
- 4. Apartments without renovation
- Having a team of professionals is the key to success in flipping
- Competent repair with a minimum of costs is the key to success
- The art of selling a home quickly
- Option 1. Impromptu auction
- Option 2. Telephone auction
- Option 3. Selling to a real estate agency
- Tax issue
- Method 1
- Method 2
- Method 3
Flipping – buying a home for the purpose of its quick resale, an extremely popular way to make money in the West. In Russia, this method of generating income is not yet popular. In this article, we will give tips that can help readers successfully make money on flipping..
Making a clear plan of action is the first step of any flipper
Well planned – half done. This aphorism is especially true for people who are flipping. Without a clear, scheduled action plan, making money on the quick resale of apartments is almost impossible. It is necessary to clearly understand the sequence of actions.
1. Analysis of the situation in the real estate market
A novice flipper needs to carefully study and understand the current situation on the real estate market: the average market value of various types of housing, the forecast for changes in their prices in the future, the level of demand for these objects and similar issues. This will allow you to choose the right property to buy and increase the chances of its quick and profitable sale..
2. A clear plan for spending funds
It is also important to clearly plan how much money will be spent on the entire resale operation, taking into account the price of the property, the costs of improvements carried out in it, advertising for potential buyers, legal support, paying taxes.
Since the transaction must be carried out as quickly as possible, you should not get involved in a mortgage or apply for a loan to receive the missing funds, because all the paperwork will take a lot of time, and the interest on the loan can “eat up” a significant part of the profit.
When budgeting your financial transaction, set aside a small amount for contingencies. After all, in the most ideal sense, something always goes wrong. It will be very disappointing if, due to some little thing, like an unexpected increase in the price of building materials, your carefully planned deal is threatened..
3. Options for compensation for potential losses
Another important aspect that needs to be thought over in advance is the calculation of options for compensation for losses in the event that the property cannot be sold for a long time. You can calculate the possible income from the rental of real estate that you plan to purchase for rent.
4. Analysis of legislation on registration of transactions for the purchase and sale of real estate
It is important to analyze the legislation on the execution of such transactions. It is important to clearly understand what documents are needed from the buyer and the seller when concluding a contract for the sale of housing, where to go to register ownership and many other points. This will allow you not to waste time when buying or selling an object..
How to choose the right item to buy
There are several types of real estate that flippers can earn from.
1. Undervalued housing
Apartments or houses, near which important infrastructure facilities will soon be built, will certainly rise in price after their construction is completed. These can be metro stations, hypermarkets or large office centers..
In Russia, speculation with apartments in new buildings in Sochi was widely publicized. Enterprising businessmen, who bought apartments in them in advance and sold them before the crisis, earned a lot of money in just a few months.
A similar situation, according to experts’ forecasts, should occur on the eve of the 2018 FIFA World Cup. The rise in housing prices in the cities hosting the championship matches should begin a few months before the start of the World Cup.
2. Collateral property
Banks hold auctions for the sale of debtors’ property. As a rule, the cost of such a lot starts at 80% and can go down to 40% of the market value of the property. Information about auctions is often posted on banks’ websites. True, the flipper will have to constantly monitor them in order to obtain the necessary information, while the most valuable objects are bought by interested persons not at public auctions, but privately, but nevertheless, some Russians manage to get decent housing at the auctions on the cheap.
3. Forced urgent sale of housing
It happens that the owners of an apartment or house have decided to move to another city or country, or they urgently need a large amount of money due to unexpected unforeseen circumstances. In this case, they will not bargain for a long time and their housing will most likely be purchased at a price below market value. Such options are not common, but the profit made more than compensates for all the difficulties in finding them.
4. Apartments without renovation
The easiest option for a flipper is to buy an apartment without finishing or in a “dead” state. According to some reports, good repairs increase the cost of housing by 5-10%. And after high-quality finishing of elite real estate, the profit can be 20-25% of the amount invested in the apartment.
Whichever type of real estate Flipper chooses, he needs to remember that the easiest way is to sell affordable housing that a family with an average income can afford. Of course, on the resale of an elite house or apartment, you can get much higher profit, but finding buyers for such an object is much more difficult..
Having a team of professionals is the key to success in flipping
The apartment resale operation is divided into many stages and each of them requires special knowledge, therefore, for people who want to do flipping, it is very important to select a team of professionals, where everyone will be responsible for their part of the work..
It can not do without:
- an experienced real estate agent who has a good knowledge of the market conditions, who will be able to select a suitable property and then find buyers for it;
- people who will carry out home renovations or at least (if the flipper is doing repairs himself) a good designer who will make a design project;
- a competent lawyer who can take over legal support of transactions.
Competent repair with a minimum of costs is the key to success
In order for the interior of an apartment to impress buyers, it is not necessary to invest tens of thousands of dollars in renovations. After all, expensive does not mean stylish. It is much more important to make a good housing design project.
Thanks to him, you can rationally arrange furniture and change the lighting, which will help to visually increase the space. And correctly selected color combinations of walls, pillows, carpets, curtains, furniture upholstery and various accessories, such as paintings on the walls or figurines on the shelves, can add individuality to the interior of an apartment and change it beyond recognition..
The art of selling a home quickly
There are several options for the quick implementation of real estate, which have been successfully used by all realtors for many years..
Option 1. Impromptu auction
Several potential buyers who have expressed interest in a property are invited to view the property at the same time. This creates an illusion for them that the apartment is in demand and it is necessary to quickly “stake it out for you”, until the object is “taken away” by competitors. Some enterprising realtors invite fake buyers to a meeting, who, with their heightened interest, provoke real customers to spontaneous purchases.
Option 2. Telephone auction
The seller alternately calls several potential buyers who have agreed to purchase. After the first buyer agrees to purchase housing at a predetermined price, he dials the number of another, says that the conditions have changed slightly and calls a slightly larger amount. If the second customer agrees, the number of the third is dialed and an even larger amount is called. Thus, you can get the maximum selling price for an apartment without spending a lot of time negotiating with clients..
Option 3. Selling to a real estate agency
If for a long time you cannot find a buyer for housing, you can try to sell the apartment to a real estate agency. This option is relevant when for a long time the buyer is not at the facility or the flipper for some reason needs to quickly exit the project. A significant disadvantage of this scheme is the selling price. The agency will be interested in an apartment if it sees an opportunity to make money on its resale. And for this, its price must be below the market price. With a growing housing market, the difference should be 70-80%, with a falling market – 50-60%.
The main reason why flipping has not become widespread in Russia is the peculiarities of tax legislation. The buyer of the property is not taxed, but the seller is obliged to pay 13% of its sale value. Let’s say a flipper bought an apartment for 4 million rubles, made improvements in it for 500 thousand rubles, and then sold it for 6 million rubles. In this case, the amount of sales tax that he is obliged to pay is 780,000 rubles, which eats up a significant part of the profit. But there are a number of ways to minimize tax risks..
If the selling amount of the dwelling is less than three million rubles, the sales tax is the same 13%, but the seller has the right to receive a tax deduction from the state in the amount of 260 thousand rubles, and the buyer – 130 thousand rubles. It is necessary that the purchase and sale were carried out within one calendar year (tax period) otherwise the parties to the agreement will not be entitled to a tax deduction.
In some cases, when the actual value of the property exceeds the legal limit, the buyer and seller agree that the agreement will indicate an amount less than three million, and the rest of the money will be transferred in cash. Although this scheme is illegal, those who want to save money in this way are still.
According to the Tax Code of the Russian Federation, if the seller of real estate owned it for more than three years from the date of the contract, he is not obliged to pay sales tax at all.