Estate Agents (Part 8)
Last week we began to think about flips and crucially how to find our flip properties so that we can find deals to sell on for a profit. Now, where you are going to find these properties is going to be largely determined by the type of flip that you’re going to undertake. In other words, a flip to other investors or a flip to owner occupiers – and, depending on which route you’re going down, you’ll be looking for different types of property.
If you’re going to flip to an investor, then most likely you’ll be looking for cheaper properties that are sound and which will be good for renting out. But, the big problem with flipping to another investor is that they are potentially going to want some kind of a discount, particularly if they want to follow the BRR model to create an extra-large margin so that they can refinance the property and get their money back out.
The great news is though, that this isn’t going to apply to every investor that you meet.
When you’re out there doing viewings, you’re going to find properties that may not suit you but will suit other investors, and these properties could potentially be flipped on to those who don’t need to buy BMV. Whilst this may come as a surprise, you have to remember that not everybody is going to be doing the same thing and not every investor will be concerned with buying BMV.
There are many different strategies out there and many different reasons for buying property. Some investors, particularly if they’re not professional investors, are not necessarily interested per se in following a BRR strategy. What they’re more interested in is parking their money safely into ‘bricks and mortar’.
This is not uncommon. I was talking to an estate agent in Nottingham not so long back who was telling me about his list of ‘London investors’ who pay near to full asking price. When I asked why an investor would do that, he responded that these investors were simply interested in buying good, sound property for around £80K-£100K, which they know they can rent out to a decent tenant. What they look for is fairly decent cash flow; a return on their money of maybe 6-8%.
This is very interesting because it is possible to flip properties such as these onto these types of investors – particularly if you can get them cheap enough. (Of course, if they want a 20% or 25% discount, then this would be trickier).
Now, you may be wondering why an investor would do this? Why would they buy these properties from you rather than go onto Rightmove and find the properties themselves?
I think the answer is this. Before they spend their money, they want certainty that they’re not spending their money on something that is going to turn out to be a disaster.
Any profit you make is really a ‘compensation’ or ‘recognition’ of the fact that you can provide the certainty that the property in question is as a decent property in a decent area that is likely to be snapped up by a decent tenant that will give you decent cash flow. You will be able to tell them what the rent is likely to be – and in essence, they’ll be paying for local knowledge.
As such, the reason why these investors are prepared to buy at full asking price is because they’re paying for someone to look over their shoulder and say, “That’s a good property”. If instead they’re sitting in London and looking at properties on Rightmove in Nottingham, they’re going to be questioning if they’re making the right decision. In my opinion, if you can flip a property on and give this kind of guarantee or assurance, then investors will want to do business with you.
Interestingly, finding deals like this doesn’t just have to be done through an estate agent. Another way that you could find properties to sell on to other investors is by going direct to vendor. How do you do this? Leafleting, running newspaper ads or doing guerrilla marketing etc. can all get you direct to vendor.
Now, when a vendor gets in touch with you, you might not know what the deal is to be done. It could be that you take the property and retain it in your portfolio, or that you buy it and flip it on, or that you take it on an “option”. Equally, it might be that you don’t want the property at all or that you package it up as a deal – which is another way of approaching this strategy.
More of a tweak on flips rather than a full-blown flip, if you package a deal you could do everything EXCEPT buy the property. You could agree a price, offer the services of a solicitor or broker, and even have a tie in with a local management agency to let it out, for example. You could even project manage a refurb or, at a very basic level, you could just agree a price and then offer the property on to an investor in return for a fee. In this way, you’re still getting control of the property by having an offer accepted, but will then allow somebody to step in and take over.
The advantage to you is that you don’t have to buy the property and you don’t have to get finance or pay stamp duty, etc. Likewise, you don’t have to pay solicitor’s fees to buy the property to then sell it on, so there are definitely savings involved. However, the downside is that your fee is going to be less than the profit you could make if you were to buy the property and flip it.
It’s horses for courses, but if you find yourself in a situation whereby you find a property that would make a great flip but are having trouble raising the finance, then packaging it up as a deal could be the next best thing.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to: www.ThePropertyTeacher.co.uk/the-successful-property-investors-strategy-workshop