Saturday, April 20, 2024

Investment strategy: Reaping the rewards of real estate flipping

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House flipping, if done correctly can offer tremendous benefits and help reap greater returns. Flipping involves buying a property at a lower rate, investing in the renovation, and then selling the same at a premium price. Not only it is a lucrative business but also has other benefits. If done correctly, it can help remodel and makeover old and/or low-value properties and make them more valuable. In this way, flipping can be instrumental in turning around stuck inventories and rendering them a new life.
All although flipping looks simplified, it requires the right approach and meticulous planning to make the right returns. If the right approach is not followed, the ROIs will be suboptimal.

proven strategies one can adopt if looking to make higher returns
Know the pulse of the market: Before investing, it is important to learn about the pulse of the market. Real estate investment always requires detailed planning and strategies and one has to do a lot of homework. Anything done in haste might be counterproductive and won’t give the required results. Knowing and learning about the market entails keeping track of the trends, learning more about the demand drivers, estimating future price movements and projections, etc.

Find the suitable property: Once you thoroughly know the market, it is now time to identify the suitable property option. There might be few alternatives, and as a seasoned real estate expert, one has to zero down to the most suitable one. While evaluating the property price, the 70% golden rule should be followed. As per the rule, one should not pay more than 70% of the proposed selling price minus the renovation charges. For example, if one is planning to sell a 2-BHK apartment for 80 lacs and the makeover/ renovation charges are 15 lacs, the cost of the property should not be more than – 0.7* 80 lacs- 15 lacs =  41 lacs. Here negotiation skills are also important so that one doesn’t overpay for a property.

Spend strategically on makeover: The premium that one will charge on a property will largely depend on the makeover and redesign. One has to spend smartly to give a strategic, functional, and aesthetic makeover to the property. Hire skillful resources who can add value to the property and enhance its marketability. Enhance paints, décor, security features, furnishing, flooring, etc. to give it a new relook, so that its market value can be improved significantly.

Redesign into high-demand assets:  During
the makeover, one can also mull redesigning
the property into high-demand assets such as student accommodation, bachelor accommodation, rental property, etc. which are in high market demand. Redeveloping and redesigning a property into a new asset type will naturally
push the market value. For instance, take the organized student accommodation market, which is growing at a staggering pace. As per Colliers, by 2036 India will be home to 31 million migrant student population. Such a huge market demand naturally pushes the value of an asset northwards.

Resale the property: As the final step, one has to resale the property. Once again negotiation skills are essential, as they can help in reaping the best benefits. The objective is to sell the property at a top value.  Patience is also important, as reselling is not always easy and can include a good amount of stress. However, with the right approach and planned strategies, one can lower risk and maximize ROI.

(The author, Aman Gupta, is the director of RPS Group)

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