What is house flipping? Unlock the keys to a successful buy, renovate and sell strategy.

Flipping houses is a popular form of real estate investing. In flipping, a home is often purchased in poor condition, which is then renovated to sell profitably and quickly. Successful flipping often requires a broad understanding of the housing market, investment activities and renovations, as well as good networks. Extensive background work and hunting for the right property can be time-consuming, so a flipper needs a lot of patience and resources. Flipping is perhaps best suited to someone who has experience and skills in renovating on their own, as hiring an outside party always eats into the profit from the sale. However, you cannot undertake all the renovations that may be needed on your own without the relevant permits.

Finding and purchasing a property

The most important step in flipping is buying the property itself, as this is when you make a profit. You need to know how to buy the property at the right price so that after all the anticipated expenses you still have the desired margin. In addition to the purchase price, you need to estimate the renovation costs, taxes and fees, and have enough cash on hand in case the property does not sell immediately. Even if the property cannot be sold immediately, the owner still has to pay the building fee, any loan repayments and renovation costs. When buying a property, it is therefore also worth considering how easily the property can be rented out or whether it is possible to move into it yourself for a while. When making calculations, you should not be too optimistic so that unexpected expenses do not completely dilute the margin and there is room for positive surprises.

When you come across an interesting property, it is important to check the condition and finances of the housing company. If the housing company’s papers show that major renovations are expected in the near future, such as plumbing renovations or facade renovations, you should reconsider the property. Joint renovations bring costs to each shareholder of the housing company, which reduces the profit from the flip.

The expected return on the apartment depends entirely on the flipper – for some, the target amount may be a few thousand, while for others it may be tens of thousands. Often, the flipper does not intend to move into the apartment themselves, so they will have to pay capital gains tax on the sale profit, which is either 30% or 34%, depending on the profit received.

Finding a suitable apartment to flip can be challenging. Good networks and relationships with real estate agents are a big help, as many properties may be privately traded without ever coming onto the public market. If you do not have your own reliable broker and are looking for an apartment through public sales and portals, you must be prepared for fierce competition and make quick moves. In order to be able to buy a suitable apartment as soon as you find it, it is worth applying for a loan agreement from a bank in advance. The loan agreement is usually valid for several months.

‘‘Roof receives information about residential investment properties of various sizes through its extensive networks nationwide and partly from Europe. Our services include the sale and purchase of residential investment portfolios of all sizes – from single apartments to apartment buildings. Roof has purchase orders from residential investors of various sizes and through us, investment portfolios worth millions have been sold from different parts of Finland.

In addition, ROOF cooperates with various institutions, foundations, construction companies, pension companies and residential investors of various sizes. Each year we sell multiple pocket listings.’’

Location of the property

An important rule of thumb is that the condition of the property can be changed, but the location cannot. The possibility of making a profit from renovation depends largely on how valuable the area is. Strong demand in the area also has a positive effect on the saleability or rental of the property, which reduces the risk. However, it can be difficult to buy a property in a valuable area for much less than the market price.

The location of the property has a lot to do with what kind of renovation is worth doing. A basic renovation is often enough for a property in a less expensive residential area, while the renovation of a valuable property in a good location should be of a much higher standard. Buyers are very price-conscious when buying a property these days, and a really expensive renovation in an affordable area is unlikely to pay for itself.

What kind of property to look for

When doing background work, carefully study the prices per square meter in the neighborhood, renovation companies and their prices, housing companies and the condition of the apartments for sale. You should aim to buy the worst apartment in a good housing company, never the other way around. The size and floor plan of the apartment are important criteria when choosing an apartment. The size of the apartment you want to buy is completely influenced by the strategy you follow and how much money and time you want to spend on renovation. The larger the apartment you buy, the more money you spend on renovation, but on the other hand, the greater the possibility of an increase in value.

When considering a property, consider whether changing the number of rooms can potentially increase its final sale price. If the floor plan of the apartment allows, converting a <50 square meter studio into a two-room apartment or a <60 square meter two-room apartment into a three-room apartment can increase its value. Compared to a studio, a two-room apartment and a three-room apartment have a larger potential buyer base, as they can be suitable not only for a single person but also for a couple, a small family with children or roommates. A small two-room apartment or a three-room apartment are also safe options because they are also well suited as investment properties.

Renovating a one-room apartment is typically almost the same price as a two-room apartment, as both often have one bathroom and one kitchen, which are the most expensive to renovate. However, it is not possible to increase the value of a one-room apartment as much as a two-room apartment, even with a good renovation.

How to renovate

When planning a renovation, it is worth considering how big the project is and how certain it is that you will get the renovation money back when you sell the apartment. It is best if you can do it yourself, in whole or in part. Small surface renovations, such as painting worn walls or wallpapering, can easily be done yourself and can make a significant improvement.

As mentioned, additional rooms can be built in apartments with a lot of square footage but relatively few rooms, if it fits the layout. Modifying the number of rooms and space may result in a significant increase in price, such as turning a two-room apartment into a three-room apartment. Other space modifications can also be used to increase the attractiveness of the apartment, such as adding a sauna or a walk-in closet.

A high-quality kitchen and bathroom sell an apartment and you should definitely pay attention to their condition. However, their renovations are the most expensive, so it is not worth renovating them completely for nothing. If the kitchen has seen its best days on the surface, but is otherwise in good condition, it is worth focusing on, for example, replacing old cabinet doors, countertops and, if necessary, household appliances. If the budget is tight, the surfaces of the countertops can also be covered with self-adhesive PVC film. It is not worth undertaking a very expensive renovation without reason, as there is a risk that the buyer’s taste will not match the seller’s. Smaller changes are usually more likely to get your money back.

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Otsikkokuva: ©Anastasia Shuraeva

Sources cited:

Maksupäätehuolto. Asuntojen flippaajat! Lue tämä ensin. 18.2.2020. https://maksupaatehuolto.fi/asuntojen-flippaajat-lue-tama-ensin/

Maarit. Flippaus: Näin me se tehdään. Asuntoblogi. 26.5.2020. https://asuntoblogi.k2h-investandinterior.fi/flippaus-nain-me-se-tehdaan/

Väänänen, P. Flippaus – Osta, remontoi & myy- strategia asuntosijoittamisessa. Asuntosalkunrakentaja.fi. 4.2.2018. https://asuntosalkunrakentaja.fi/asuntosijoittaminen/flippaus/

Hänninen, H. Asuntojen flippaus – 9 kysymystä ja vastausta. Sijoitusovi.com. 30.8.2017. https://sijoitusovi.com/asuntojen-flippaus-9-kysymysta-ja-vastausta/

Asunnon flippaus. Asunnot.lehto.fi https://asunnot.lehto.fi/fi/asuntosijoittaminen/asunnon-ostaminen/flippaus/

Hyttinen, T. Miten asuntoflippaus toimii? Tokko.fi. 7.9.2020.https://www.tokko.fi/lukupaketit/miten-asuntoflippaus-toimii

Ariel. Flippaus eli, osta, remontoi, myy. Lessismore.fi 31.8.2020.https://www.lessismore.fi/flippaus-eli-osta-remontoi-myy/

Huusko, A-K. Asunnon ostaja, tiedätkö kuinka paljon rahaa menee remontoimiseen? OP-media.fi. 7.3.2018. https://op.media/asuminen/oma-koti/asunnon-ostaja-tiedatko-kuinka-paljon-rahaa-menee-remontoimiseen-39c747818c194b1185bd5dc4f1af08d4

Neuvonen, H. Asuntojen flippaus – näin onnistut ostamaan asunnon ja myymään sen voitolla eteenpäin. Sijoitusasunnot.com https://sijoitusasunnot.com/asuntojen-flippaus/

Teksti: Mikaela Laukamo, ROOF, copywriter.