What you’ll learn after reading this article
- What is a property flip?
- How to flip a property without using any of your own money
- The importance of knowing your credit score when you flip and how to check it for free.
- Useful websites that will help you in your property search and area research.
- Why time is literally money when you flip.
- The type of area or suburb that is ideal for flipping.
- The importance of becoming an area specialist, and a simple strategy to help you achieve that.
- The type of property that is ideal for flipping and how to identify such property.
- Why you should build rapport with real estate agents in the area where you want to flip.
- How to decide on a contractor and getting your contractor on board
- How to calculate and run the numbers before you decide to buy
- How to make a 20% profit before you even make an offer.
- How to sell quickly after you’ve renovated the property.
- Why speed equals higher profits.
A property flip is when you buy an older and slightly rundown property for below market value, fix it up, value it, and sell it for a profit within a short space of time. I have flipped a couple of properties very successfully without using any of my own money. This is how I did it.
Check your credit score.
The first thing that you want to do is to check your credit score. Since the success of this strategy is hugely dependent on you making good debt, you will need an excellent credit score. There are many credit bureaus where you can check your credit score and some of them offer you one free credit report per year, but the best one is probably www.clearscore.com/za/ because you can draw as many credit reports as you like, and it remains free.
Flipping a property without using a cent of your own money
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I’ll get to the actual flipping of the property in a minute but let me just quickly explain how you can flip a property without using any of your own money. You will apply for a 100% home loan on the property. If you buy a property way below market value (which is the only way you should flip a property), the bank will see value in that property and will more than likely grant you a 100% home loan. You never go to one single bank. You either apply through all the banks directly or you apply through a bond originator who will apply at all the banks on your behalf. Just as a side note, the services of a bond originator are completely free.
The renovation cost to the property and all other related costs like water and electricity, rates and taxes, and levies, get paid for with credit cards which you pay back the minute you have received the profit from the sale of the property.
Great. So, you go to all the banks and apply for credit cards with the maximum limits that you can get on each of those cards. As mentioned, you are going to need these credit cards to pay for transfer costs, renovation costs, and holding costs while you are waiting to sell. You might also have to finance the deposit with a credit card if the banks won’t grant you a 100% home loan. It is very important to note that these credit cards are only to be used for your property flips.
As mentioned earlier you have to pay this credit on your credit cards back the minute you get the proceeds from the sale of the property. When the deal is concluded and you’ve paid all your credit cards back, you must hide these cards from yourself. Don’t keep them in your wallet. I keep mine hidden away in the linen cupboard under loads of blankets that I hardly use. These credit cards are only to be used for your flips. In fact, you may want to refer to them as finance cards instead of credit cards.
Home loans and credit cards are called good debt because you make debt to make more money for yourself. Bad debt is the kind of debt you want to stay away from. This is when you use your credit card for things like shoes, a holiday, a new TV, etc. It is especially important to understand the difference between good debt and bad debt. Good debt makes you more money and bad debt takes money out of your pocket.
Applying for a pre-approval certificate
As mentioned earlier, you should apply for your home loan from all the different banks or get a bond originator to apply on your behalf. However, before you even think of looking for a property to buy, you have to apply for a pre-approval certificate from your bond originator. This normally takes about 24 to 48 hours once they’ve processed your application. A pre-approval certificate is basically a certificate that indicates the value of the home loan that the banks are willing to offer you. This pre-approval certificate is based on your affordability and credit score. It is normally valid for three months provided you don’t make any big credit purchases during that three months that will change your affordability.
Great, you now have an excellent credit score, you know what home loan amount you qualify for, and you have two to four credit cards that you can use. Now the flipping process starts.
Get started flipping houses.
The most important thing to know to flip successfully is to flip fast. I cannot stress this enough. Every day that the property is in your name it is literally costing you your profit. You’ll see in a bit what I mean.
Identifying the right area or suburb to flip
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You start by identifying the area where you want to flip the property. You want to flip the property in older areas. The reason for this; this is where you’ll find older homes that need modernizing. These are also the areas where people have lived in their homes for twenty years or more. This means they have paid off their home loans, or at least most of them. For this reason, they might be willing to sell the property for less, because they will still make a substantial profit on the property.
Many of these homeowners are older and will be downscaling or moving to retirement accommodations. You are not likely to find any of these factors in newer areas or suburbs. If you look in newer areas, chances are that you will not find a property below market value easily. These properties are normally newer, do not need much fixing up, and the sellers still owe a lot on their home loans and are less likely to sell for below market value.
You should also consider lower-income to middle-income areas. The population is bigger in these income groups, which means there are more buyers, with stable jobs and incomes. These include potential buyers like teachers, police officers, nurses, and other government or public service employees. You also don’t need to spend a fortune on the most expensive fixtures and fittings. As long as the property looks good, clean, and modern. More expensive homes take longer to sell, mainly because there are fewer buyers in those income brackets and they are also more choosy buyers. I’m going to say it till I’m blue in the face. This strategy only works if you move with speed. Your profit depends on it.
Moving into the area and starting to view properties.
Now that you have identified the area, you go on the property portals like www.property24.com or www.privateproperty.co.za, and you start setting up appointments with real estate agents for viewings. Now initially don’t worry too much about looking for old run-down properties. Just set up as many appointments with real estate agents in those areas as possible. The reason for this is that you want to get an idea of what the other properties look like in the area. For instance, when they are not run down you know what you are up against both from a price and a quality point of view.
What I’m about to say now is crucial to the success of your property flip. You must view as many properties as possible and you must meet as many real estate agents as possible in that particular area. Why? You want to become a specialist in the area, and you want to befriend as many real estate agents as possible.
Becoming a specialist in the area or suburb where you want to flip
This is what you do. You spend every weeknight going through listings on the property portals and you set up appointments for the weekend. Schedule your Saturday and Sunday with viewings from 09h00 to 16h00 with a lunch break in between. I promise you, if you don’t put all in, you are not going to build momentum. Friends and family must just understand that for at least a month or two you are out of action on the weekend. You have the rest of your life to catch up with everybody. Remember, you are building wealth for yourself and your family, and at the end of the day, we get what we put in.
You have just spent your weekday evenings setting up appointments. It is now Saturday morning, and you are ready to go view it. Be equipped with a notepad and a pen and take lots of photos. You are going to see so many properties, you need a system that will help you remember what you saw, who you spoke to, and what information they shared about the property.
Choosing the right property to flip
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As I’ve mentioned, you also want to look for properties that are in good condition so you can see what gives them their market value. However, what you are ultimately looking for in order to flip successfully, are properties that need work.
Now here is a big distinction; You don’t want to buy properties that have structural defects, and you don’t want to buy properties that are hugely rundown or require a lot of work to fix. I cannot stress this enough. What you are looking for, are properties that just need some TLC (tender loving care). You want properties that require a facelift. These are the best flip properties.
What do I mean by this? You want properties that you can clean up and modernize. Examples include painting walls and ceilings, ripping out old carpets and putting in modern tiles, removing old and dated kitchens and bathrooms, and putting in new ones. You don’t want to break down walls and rebuild new ones. You also don’t want to fix leaking roofs or any major structural problems.
Even though old and slightly run-down, you want to buy properties where you can see potential. For instance, the flow and layout must be perfect. You don’t want to buy a property that has a strange layout or where rooms have been added without architectural design sense. You want to sell it quickly, and your buyers should not find any fault with the property at all.
The only time you would break out a wall is when you want to make the kitchen and the living area open plan, but even then, you must be sure that it is not a supporting wall that you want to break out. So be on the lookout for all these factors.
The importance of building rapport with the real estate agent
Building rapport with real estate agents in your area is crucial. While you may not currently find the perfect property, you never know when that agent will list the ideal one that aligns with your strategy. To ensure you’re the first person they think of, be top of mind. Clearly communicate your requirements and ask pertinent questions about the area, property, and the owner’s motivations for selling. Collect their business cards and request permission to follow up regularly. Inform them of your company’s policy of not accepting sole mandates but assure them that when you’re ready to sell, they’ll have the opportunity to sell the renovated property. This offers them the chance to earn commission twice within four months, making it an enticing incentive for any real estate agent.
Finding the perfect contractor
Discover the key to finding the perfect contractor who gets the job done right, on time, and within budget. Don’t settle for anything less!
While you are setting up appointments and viewing properties, you also need to start scouting for a contractor who can renovate the property for you. So, hop onto Facebook and ask for recommendations. You’ll get a long list of contractors that you can interview and be sure to get references. Ask about the quality of their work, how you need to deal with them, how fast do they work, and their costings. When you speak to the contractors, be upfront about what you are doing and why you require their services.
Now here is the important part; you need to find a contractor that can assist you with quotes on properties that you like before you make offers on those properties. You need to know how much the renovations are going to cost before you make your offer. The renovation cost needs to be considered when you run the numbers, which we will get to shortly.
Since you are going to ask the contractor to give up his time to quote on a couple of properties which will not necessarily translate into a sale, you must compensate the contractor for his time. Negotiate between R300 and R500 per quote. This way you will also not abuse the services of the contractor and only get him to quote on properties that you are really serious about. Again, make sure you choose someone with whom you can build a report. Your team needs to be on your side all the time and they need to understand the importance and urgency of working really quickly.
There are two types of contractors to consider. You’ll find the smaller company that may be more affordable, but you have to micromanage the process, for instance, you have to be very clear on what you are looking for, you have to buy the material yourself and you literally have to be very clear on what exactly you are looking for. If budget is a huge concern, then this is your guy. I would also recommend this type of contractor for smaller jobs.
On the other hand, there are bigger contractors with a bigger team, and cost a bit more, but you don’t have to micro-manage. You can tell them what you are looking for and they will quote on the labor and material. You don’t need to be so involved. Regardless of who you choose, you must be very clear on your expectations. Never assume people know what you are looking for.
When flipping a property, I ensure my presence on-site every morning to monitor progress and conduct evening quality control after the contractor’s departure. Immediate identification of mistakes is crucial as time is of the essence, allowing prompt rectification by the contractor. One evening during a routine check, I discovered that the bathrooms were being tiled with two different shades of grey. The next morning, when I addressed the issue, the contractor was oblivious. Further inspection revealed that the supplier had delivered the wrong tiles. Fortunately, we caught the error early, preventing further tiling with incorrect tiles. Stay vigilant and remain hands-on throughout the project—it’s your responsibility to check and ensure its success. Avoid blaming others; the ultimate responsibility rests with you.
Being informed about property prices in the area
We mentioned earlier that you must become an area expert. This means you have to know how much properties sell for in the area so that you know how much you have to offer as well as how much you can resell the property for. For this, you cannot go on ‘FOR SALE’ prices that you see on the property portals. You must work on what these properties actually sold for.
Access the valuable information you need by visiting www.lightstoneproperty.co.za. Lightstone, South Africa’s premier property data institution trusted by banks, valuers, and real estate agents, provides comprehensive reports on areas and properties. Focus on the suburb report and property report, which offer key insights. The suburb report reveals the age groups and residency duration of residents, as well as current buyers and sellers in the area. This aids in determining whether it’s a favorable area for flipping. Meanwhile, the property report provides essential details about the property owner, purchase year, and price. Armed with this valuable information, you’ll be well-prepared to initiate negotiations. Don’t miss out on the power of data – explore Lightstone Property today!
You make your money when you buy.
Make a mental note of what I’m about to say: You don’t make your money when you sell, you make your money when you buy. Read it again and let it sink in. This is the single biggest mistake that property investors make when they flip properties. You must buy low and sell high, in other words, buy below market value and sell for a profit.
Also, remember that you want to sell the property for slightly below market value. This way your property looks good, but it is more affordable than the rest of the properties in the area. As I’ve mentioned before, you want to move fast and sell as quickly as possible because the longer you have the property in your name, the less your profit will be.
Running the numbers
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Now, let’s talk about the numbers before you make an offer. Go through these numbers over and over and over until you are clear in your head. This is the most important part of flipping successfully. You cannot be unsure about this or get the calculation wrong. This is the part where inexperienced property flippers lose money. If you do this calculation with every property that you are interested in, it will become second nature after a while. You’ll also know immediately whether a property is a good deal or not. This will allow you to move on quickly to the next opportunity.
Firstly, you determine what the market value is for a property in the specific area or suburb where you want to buy the property. You can go to www.lightstoneproperty.coza, and type in your area and the property information. For instance, if you need to run the numbers on a two bedroom, one bath, 60m2, townhouse, you need to look at what other similar properties in the area have sold for in the past twelve months. Always compare apples with apples. The average median price is what you can work on as the market value. This will be given to you in the report. Alternatively, you can add up the sold prices of all the properties that sold in the past twelve months, and divide it by the number of properties to get to the average).
- Let’s say the market value (or average price) for a property in that area is R900 000
- And because the property that you are interested in is not in the best condition, they have it listed for R750 000
- You want to sell your property for R850 000 (as we mentioned earlier, you want to sell at slightly below the market value of R900 000. This way you know you’ll get a buyer quickly. Remember, the name of the game is speed)
- You want to make nothing less than 20% profit on the property (R850 000 x 20% = R170 000). You must work on 20%, because after everything there will be additional costs that might not have been budgeted for, so you are more likely to walk away with 15% (in other words R127 500). This is still not a bad profit.
Now you work out how much you’ll offer for the property.
Determine Your Offer Price with Ease! 🏠
- You start with the amount that you would like to sell the property for. In this case, it is R850 000
- Less the profit of R170 000 (the 20%). You see, your profit is the first thing that needs to be subtracted. You always pay yourself first.
- Less the renovation cost. Let’s assume the contractor quoted you R70 000. You can add an extra R20 000. This means your renovation cost would be R90 000
- Less the transfer cost. Let’s say it is about R50 000
- Less the agent’s commission of around 5% of the R850 000 which is R42 500.
- It will take you about a month to renovate and five months to market, sell and transfer onto the new owner’s name. This means you’ll have to factor in the holding costs for six months. This includes:
- Home loan repayments for five months = R39 000 (R6500 x 6 months)
- Water and electricity = R12 000 (R2000 x 6 months)
- Levies (if you bought in a complex) = R9000 (R1500 x 6 months)
- Credit card repayments = R24 000 (R4000 x 6 months)
- Homeowner’s insurance = R3000 (R500 x 6 months)
- Security = R3000 (R500 x 6 months)
- This leaves you with R850 000 less than all the above costs, which means you can offer R497 500 for the property that is in the market for R750 000.
- You start with the amount that you would like to sell the property for. In this case, it is R850 000
If you just fell off your chair and think that no one will ever take R497 500 for a property that is being advertised for R750 000, think again. The scenario that I just gave you is a real-life scenario for a property that I personally flipped with the difference of a few Rands here and there. In my case, the seller accepted an offer of R500 000 and I sold for R840 000 instead of R850 000. Therefore, you need to work on a 20% profit, so that you make provision for these small differences.
As a side note, I took five offers on the first show day, because it was newly renovated, and it was on the market for slightly below market value. I did receive an offer for R850 000 but it was not as strong as the offer of R840 000. Again, you want to move fast, and if it means you lose R10 000 but you go with a more secure offer where you know the buyer will get finance, you go with that one. You must always be level-headed and not be led by greed or fear of losing out.
What made me so certain that the seller would go for this offer?
- I kept a positive mindset. Instead of thinking of all the reasons why the seller would not go for this offer, I rather kept thinking of all the reasons why he would go for the offer. Our reality becomes what we focus our attention on. If you go into something thinking it will not work, you can stop everything right there and don’t waste your time any further, because it will not work. Always remain positive.
- The other reason I was certain that the seller would accept the offer was that he had already moved, and the property was standing empty for a few months, which meant he had to pay a bond on a property that he was not using anymore. The seller knew that every month that he paid a bond on the property, was taking a profit from the sale of the property.
- This was the second time that I made the offer to the seller. The first time was a few months earlier and he declined the offer. Instead of walking away completely I kept a close eye on the property and noticed that a few months later the property was still on the market. I knew that by now the seller would be pretty desperate to sell and he was not getting any other interest on the property. Not everyone wants to buy a rundown place that requires a lot of fixing up and modernizing.
I cannot say it enough; if you want to flip successfully, the name of the game is speed. You have got to move fast with everything. You saw the monthly costs. And every extra month of costs will eat into your profit.
Putting the property back on the market after you’ve renovated.
During the ongoing renovations, it’s crucial to brief the real estate agents and get them to line up potential buyers for the property. Your goal is to brief at least three agents, as this is not your primary residence and you won’t be giving a sole mandate to one agent. Numbers are of utmost importance, so negotiate a commission of no more than 5% to 5.5%. To incentivize speed, offer a 6% commission to the agent who sells the property within the first month of listing. Weekly feedback on viewings, interest, and buyer feedback is essential. Additionally, request each agent’s marketing strategy to ensure they understand your expectations. Remember, no one will safeguard your money as you do. Stay on top of things and maintain control.
When to jump in and sell the property yourself
If things take too long with the sale of the property you must jump in yourself. Again, you must move with speed. On another property that I flipped, the agents did not bring me any offers within the first two weeks. That was too long. Time is money. I then decided to do a bit of my own marketing. I listed the property on a few Facebook groups that allow such advertisements, I listed the property on a couple of free online classifieds like Gumtree and OLX, and I even placed a small ad with no pictures in the newspaper. The bigger the newspaper ad, the more expensive it becomes. I didn’t want to spend too much money.
Guess what happened next. I took a cash offer for the property from the small newspaper advert one week after it was listed. The buyer was based in another town. He was looking for an apartment for his son who came to the university the following year. You never know who your next buyer will be and where he will come from.
Had I not taken matters into my own hands, who knows how long I would have waited for real estate agents to sell the property, plus I saved on the agent’s commission.
After the sale of the property
Once you receive the proceeds from the sale of the property, the first thing you do is pay back all the credit cards, and what is left, is your profit. In the above example, I made R160 000 profit in six months. Not bad at all.
The taxman wants his cut of the profit.
It is important to pay your taxes, but no need to tip the tax man. Make sure you keep track of every single cent that you spend. This includes all the invoices from the contractor, all the invoices from the attorneys for transfer costs, and every other cent that you’ve had to spend to make the flip possible. You need to subtract all these costs from the proceeds of the property, and you only pay tax on the amount that is left. You cannot claim from the taxman for something that you do not have proof of. So make sure you keep everything.
Flipping a property offers immense financial rewards, but it can also be a stressful endeavor. To ensure success, approach this venture with the right mindset. Maintain a positive outlook, firmly believing that everything will work out for the best. Cultivate a burning desire to succeed and have unwavering faith in your abilities. These emotions elevate your vibration, attracting the very things you desire. In the face of challenges, remain composed, optimistic, and steadfast. Trust that everything will align in your favor. Before embarking on your project, consider reading “Think and Grow Rich” by Napoleon Hill. This book will help foster the mindset necessary for a successful venture. Personally, it played a pivotal role in keeping me positive throughout the entire process.
And this is how you flip a property successfully without using any of your own money.
Final, final words
Make sure you come back and back to this article while you are busy with your flip. Re-read each segment as you are moving through that part of the process, and if you know anyone who is currently in the process of flipping a property, share this article, and help a friend be successful. The more other people we help to become successful, the more successful we become.
Last updated: 4 February 2023