UNDERSTANDING HOUSE FLIPPING

“One might want to flip a property that is high valued and yet there’s no market for it…you need to understand what the market’s buying power is…”

Photo Credit: Inside Biz | Original Interview & Article By Mary Mandlazi (Published In Eswatini Property Review Issue 3)

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Living in a day and age where the unemployment rate is high, and stock prices going up can often leave one frustrated. At some point we find ourselves selling our cars, houses, and trapped deep in our thoughts constantly searching for new ways to make money, just to make ends meet.

If you’ve experienced such, then you’ve probably heard people say “you can never go wrong with property investment”. Well, what if I told you that they were wrong? And that you actually can lose money in property investment especially in this aspect coined as house flipping.

While many of us aren’t realtors and aren’t familiar with this phenomenon or trade, we caught up with someone who is much more adept to house flipping. Former broker owner of Remax Eswatini, Mr Lyle Hutton generously explained the term and identified a few criteria that need to be followed in this phenomena.

Q: House Flipping is a relatively unknown practice in the country and perhaps other countries. Could you please explain what it is and who should venture in it?

A: House flipping is identifying a house that has potential to increase its value based on its location and market conditions once undergoing renovations. A person that understands/ has the knowledge on the property market, has a knowledge of basic construction, has an understanding of the market needs can venture into house flipping. One might want to flip a property that is high valued and yet there’s no market for it, hence you need to understand what the market’s buying power is.

Q: Tell us more about house flipping in the eSwatini context, does it really work locally, because it is considered a tricky venture by people in the property space?

A: The whole trick is knowing what to buy and what is a good price to buy it for, what it is going to cost you to do renovations and what you going to sell it for. Because you could buy too high, and already the trick is not in selling, it’s in buying, if you buy right then that’s where the profit lies. Try to get a property that doesn’t have much issues with it, hence you won’t have to spend much. It will be an easier flip.

Q: In terms of house flipping, some articles state that one cannot become rich by house flipping, but others say one can. Enlighten us about this?

A: It’s a long term, you cannot become rich overnight. If you educate yourself you can make money through flipping, but if you’re not sure what you’re doing then you can lose a lot of money because you think you can sell at a certain price and you don’t. You also need to understand the bank processes. At the end of the day, what you sell your house for needs to be in line with the bank approve evaluator because most buyers use the banks and you have to be in line with what the bank approves.

Q: They say time is critical during house flipping, if you want to make a sizable profit, why is that?

A: It’s critical if your capital comes at a cost to you, like a bank loan then you’ve got monthly instalments to pay. You need to find out what labour costs are per day, so that’s also something that adds to expenses.

Q:- It’s said that one should not go overboard with renovations when house flipping. Does that depend on your location, because what if you have chosen to flip a house in an upmarket area?

A: Yes, If you want to optimise or maximise on your selling price, if it’s in the high upmarket area, you need to be able to look at finishes, you can extend/ increase your budget so that you can sell at a higher price. Be careful of over investing in renovations in a low market area.

Q: They say it is advisable not to seek a loan for purchasing a house and renovating it during house flipping. Walk us through that?

A: The secret is that you need to have your own capital. If you are going to rely on the bank then you’re not going to make money. If you get a loan from the bank to flip a house then it’s not going to work well for you

Q: Property in its nature is a cyclical business, influenced by economic cycles locally and internationally. How do these economic cycles affect house flipping?

A: Currently the economy is a bit sluggish hence it’s a buyer’s market and not a seller’s market, you buy now and rent it out until the market improves and once that cycle changes then you could give a tenant an option to rent or an option to buy. First option should be to buy, in that case the tenant knows they’ve got an opportunity to buy and hence they get time to prepare themselves financially for that commitment. The tenant will also definitely value and look after the property.

Q: Which areas locally would you consider ideal for house flipping?

A: The older suburbs that are closer to town and are older hence in need of renovations, those are in demand since they are closer to town, services are close by which makes it very convenient, schools and hospitals close by and also not far from work. Between Manzini, Matsapha, Ezulwini, Mbabane. Emphasis would be on low and middle class areas.

Q: What advice would you give to someone who is considering to start flipping houses for a living or just to make extra money?

A: Understand how property works, you can’t take every option. With house flipping, it’s with what you pay, at what cost you get it at and what the renovations will be and it depends on what you want to make out of it. If you want to make money through this as a side-line, you have to be hands on with it. If you’re in the real estate field it makes it easier, if you’re not in the field and not able to be hands on since you have a daily job to attend to then it’s going to be difficult. If you have savings or your last savings, don’t venture in it. If you have passion for it, educate yourself on it, speak to contractors, get ideas from the home channel, garden and home magazine on how you can flip in a cost effective way. Even if you have the money to go overboard with renovation, don’t, because you might end up sitting with a property that you’re not able to rent out or sell because the cost of the finishes are all high. You might not be able to sell it at that price and therefore end up making a loss because you over capitalized on the property.

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