Work with what you know best

Last week we talked about the business of flipping properties, which consists of acquiring houses or condos that are priced under market value, perform a fast renovation and resell at an increased price, thus generating a profit.

I have received emails from the Oman Daily Observer readers asking for clarifications on specific points, which I am going to address in today’s column.

A reader that requested to stay anonymous, shared that he attempted a property flip abroad, but he lost money. The deal sounded great on paper — according to his recount — but he did not factor in a large amount of costs, so it turned into a loss.

The property was a beautiful farm house on the hills of Tuscany, Italy. However, our reader did not consider that many areas in Italy fall under conservation scheme.

Thus, strict rules apply when attempting to renovate both the interior and the exterior.

Also, EU regulations impose standards for energy saving. Those who do not adhere to such standards would have a hard time reselling the property, seen as “inferior” in the market.

Especially because potential new buyers would have to face the standards adaptation expenditures themselves, since the property flipper did not absorb them.

Most renovations and adaptations need to be vetted by professional architects and engineers, in order for the local municipality or relevant authorities to approve. The mortgage application comes with upfront costs too.

And let us not forget that property taxes could be a real pain in the neck... especially in countries like Italy. Not to mention that our reader had to travel to Italy a few times, bearing the costs of his trips.

Lastly, upon reselling the property, he incurred in more administrative costs. His loss summed up to 45 thousand euro after completing the flip.

Another reader called Maya, shared with me that with her husband successfully flipped 6 properties in the past 10 years. She mentioned that their secret is to buy properties in their area of comfort.

Of 6 properties that they flipped at a profit, only one was not in their city. She did not disclose in which country or city they flipped properties.

I found Maya’s story quite important as a lesson. For example, Martin, a friend of mine, a German living in Malaysia, is actively flipping properties really close to him. Not in the same city, not in the neighbourhood, but in the same condo where he lives.

The property development counts more than a thousand units, and he flipped ten or more in just 5 years. He knows the condo very well, and he has perfected a flipping formula that is applicable to his condo specifically.

Same contractors, same vendors, same furniture. Everything is the same. Copy and paste renovation.

He shared with me that using the same suppliers grants him up to 20 per cent discount on each transaction. This offers him almost a wholesale price on his renovations. Martin sees flipping property as a pure business. He profits between 8 per cent and 15 per cent on each flip.

To conclude, I think the lesson from this column for beginner property flippers, is to view the venture strictly as a business. Work with what you know best, and avoid unpleasant surprises — such as hidden costs — due to lack of research.