Property flipping has become a popular way to make money with property, but you need to make sure that you structure the finance correctly with equity and one of the property flipping loans.
It’s very differently to a standard home loan, because of the short-term nature of a property flip and also that there is no rental income and therefore in most cases the debt to income ratio would mean that normal lending options with banks are not available.
As a mortgage adviser I deal with property flippers and have also done property flips myself. When you deal with me you are talking to someone that has first hand experience – and very few bankers or mortgage advisers can say that!
There are a lot of Kiwi Property Investors that have struggled to build a portfolio with the lending rules. Many love property but get limited to just one rental (investment) property. This is one of the key reasons that property flipping has become popular again.
As mentioned, Kiwis love property but struggle with the debt to income ratios and other bank rules for financing of investment property. There has also been too much tinkering with the tax rules and with the long-term nature of property investment it can make it quite difficult.
This is where flipping is a good option,.
With property flipping the finance is based on having equity and then quickly doing the renovations so you can sell the property, pay off the loan and bank the profits. Then you can do the same all over again.
Many accountants (and advisers) will suggest that a loan supporting investment should be interest only at least in the initial years.
Property flipping is relatively easy in concept: you buy a property, you renovate it, and you sell it for a profit.
That sounds really simple, but lots of people have tried property flipping and not made any money.
Why haven’t they made any money? It’s probably because they have started with no real plan and purchased the wrong property.
With most people that are not established and professional property flippers I talk about the three-step process. (1) you buy, (2) you renovate, (3) you sell. But where most people get this wrong is they focus on the buying first.
I suggest that you need to focus on the selling first. You need to establish what your market is so that you know who is going to buy the house that you’ve just renovated.
Where I’ve seen the most success is when people focus on the buyer of their property being a first home buyer. First home buyers are not restricted with the fact they have to sell anything else so they’re essentially cash buyers. They are also buying a home to live in and therefore they don’t mind spending a little bit more money to get the right property that has the “good feel” about it and where they can see themselves living. I personally love creating homes from run-down houses, and then seeing a new family enjoying what I have created.
If you agree that your buyer will most likely be a first home buyer, then you need to work out what type of property they want, in what area, and ensure that you can take the property to the market so it’s not competing directly with too many other properties. You need to focus on a suburb and learn about what is for sale. At the moment, we know that in some areas there are a lot of new builds that are two bedroom and so you should ensure that you are not working in that same market.
Working with Mortgage Managers I have access to most banks and non-bank lenders so you know that you will have the options to consider.
If you need to finance your property flip then we should look at your situation, the options and what is important to you.
Most people when they want to do their first property flip will need to use the equity in their home and then finance the property they are buying to flip too. If you have your mortgage with a bank then they are unlikely to provide the property flipping loan.
In most cases I will get the equity from your home to fund the deposit (30%) plus the cost of the renovations and selling. Get this done properly and you can use this over and over again to do your future property flips.
Then we use specialist lenders to fund the property that you plan to flip. There are a couple of non-bank lenders that will lend up to 70% as property flipping loans and once approved make it easy to get the funding multiple times to fund the future flips.
It costs nothing to have a look, and at least then you know what is possible.
