So I guess the first question to ask is “what is flipping property?”
Well, it’s the process of buying low, selling high within a short space of time and sometimes doing work to that property in the process. Let’s say I find a property that’s worth 150K (if it was in a good condition), it’s not so I need to buy it below market value. So let’s say I buy it for 100K. I put in 20K of my own money to make it worth 150K. Then I sell it for 150K on the market, making a 30K profit. That’s pretty good.
Does flipping property mean “doing work”?
Most of the time, however sometimes you don’t have to. You could just find a property that’s below market value because the seller’s desperate and you could then go and sell it on. It’s a strategy that’s very popular in Dubai right now because there’s a lot of desperate sellers who want to get out of their investments. So you could buy a property, let’s say, for 40% below market value and maybe sell it for 20% below market value within a short space of time.
Of course, there’s a lot of risks involved in that strategy, but I want to be clear that this is a business strategy, it’s not an investment strategy. When you’re flipping property, property becomes your product. So you’re buying low, selling high. It’s kind of like an arbitrage play, and of course, there is a time delay.
So when you’re following the strategy, you have to take things into consideration. How much time do you have? how much time it’s going to take to renovate the property? How much money you’ve got? And even if you’re using contractors to do the work for you, you still have to watch them and be very careful about the money that you’re spending.
If you have the time and the cash to do that, it can be a good strategy.
The Market Moving
But the problem is this strategy does rely a little bit on the market moving or the market staying where it is.
And that doesn’t always happen. So there are risks. So let’s say, for example, we buy that property for 100K, we invest 20K into it. But now the market’s moved. Let’s say the contractor didn’t do a good job and we had to find another contractor and things got delayed and then life got in the way. And all of a sudden it’s been a year and the property is now on the market. But the market’s moved and the property is now worth 120K.
That’s the risk that you had to take. And now you haven’t really made any money, but you’ve “wasted” a lot of time. So you’ve got to be very, very clear that this is a business that you’re going into. When you’re going into a business, you’ve got to be very clear on the time-frames of cash flow management and all other things that you need to take care of when you’re a business.
So is it a good strategy? Absolutely. It’s a good strategy, but remember, it’s not an investment strategy. It’s a business strategy.
Speed is of the Essence
And you have to be quick because it’s easy to buy. It’s hard to sell. Now, you can go by probably tomorrow if you wanted to. But if you wanted to then turn around and sell that, it could be a few months before you find a buyer. And then what price is that property going to sell it? So you’ve got to be very clear on your numbers.
You got to be very sure about what you’re doing. And if you can, it’s a great strategy.