Secret to Flipping Property and Professional HMOs

There is a hidden secret to flipping property that only the most experienced real estate investors know anything about. You’re about to discover what most people will never know about flipping property.

Firstly will say it is not easy! There are always surprises and costs. This life changing lesson was revealed to me through the real world of property. It started out as a hunch after flipping houses  years ago myself and then it became more clear to me after time.

What is the Secret to Flipping Property?

Before I reveal this investing breakthrough to you, let’s take a walk through of the typical house flipping deals or even a Professional HMO.

1. A property in need of significant work is for sale for 85,000 in a decent neighbourhood of Manchester. The property investor gets a quote from 3 builders and goes with the one who tells him there is no way it will cost more than 25,000 in order to bring it up to a level where he could sell it for top market price. An Estate agent who is selling the property shows him numerous comps to support a conservative sales price of 160,000. He can make it into a private house or he thinks a Professional en suite HMO.
2. The profit looks incredible and the investor can’t believe it and is ready to quit his job. He conservatively estimates it will take 2 months to complete the work, even though his “trusted” builder promises it will be much faster than that. Then, he adds another 2 months to sell it. His best funding resource is a bridge loan at a cost of 1% interest fee plus 1% in and out  because it requires no credit checks or down payment and it will also fund the fix up costs.
3. He negotiates the seller down to 80,000 and after closing costs, he is in the deal at $80,000 plus SDLT. So far, he is the happiest guy around. He is even bragging to his friends and family how awesome he is. Buying a home that will sell for 160,000 for 80,000 without using his own cash or credit. He’s on top of the world. He is ready to get another 100 properties after this first success.
4. The repair work starts off great but soon, delays begin to creep in due to unforeseen difficulties. Some of the builders fall behind and that throws off the schedule of upcoming subs which creates more delays. The investor overlooked a few details and that adds to the cost of the renovation. Week after week, month after month, the owner drives to the property to inspect progress and seems to always find more and more problems. It feels like a never ending saga. Rather than 2 months, it takes 4 months to complete the work. Rather than 25,000, it costs 35,000 all in.
5. The now-exhausted flipping houses tycoon puts it on the market for 160,000 and after 2 months, has no bites. His estate agent says he should drop the price and offer to pay for the buyer’s closing costs.
6. After 3 months on the market, he finally gets an offer of 130,000. The offer is accepted but during the inspection, the new buyer finds several problems that must be fixed prior to closing. Another 2,000 in repair work later, the new buyer is happy and they go to closing.
7. Mr. No-Longer-Happiest-Guy-Around looks at his final profits in absolute shock:128,000 Sales Price
   – 122,000 Total Purchase Amount
   – 2600 esate agent Commissions
   – 1.200 Buyer’s Closing Costs
   – 1,200 Seller Closing Cost
8. -10,000 cost of funds from the bridger

   Total Cost 135,000
   ======================
   -9000 Net Loss to the Investor

This is reality. I have seen this so many times. Compare this with a ready made cash flowing tenanted property? What is there to think about?