We are Wealth Clinic Team
When an investor buys assets in real estate and generally sells them quickly for a profit, is commonly known as property flipping and it’s a western concept. It is still finding its ground in the Indian market but property flipping is very popular in western countries. Why property flipping hasn’t caught on in India yet and what exactly is property flipping? Let’s find out below.
What is property flipping?
At least with some type of investment in the real estate sector, almost 90 percent of millionaires of the world make their wealth. Flipping houses is a good strategy to pursue if anyone wanted to maximise their profit in real estate. The idea and meaning of flipping houses are simple. Buy a home in the hope that the value of the home will increase quickly and sell it when you get the expected profit, or buy a home and remodel it to increase the value and price of the home and then make a profit by selling the property. The goal as a real estate flipper is to make profits and money in a short duration of time. So, it is the best choice to buy a property that is priced below the market price during purchasing the property. The work as a flipper is to find a motivated seller who wants to sell the properties as soon as possible and is very desperate to do so. There are several factors to consider when buying a home for migration purposes, such as location, price, and structural value.
“Real estate flipping in India is a fairly new and unclear concept reserved for only a very few investors, unlike the developed markets like western countries where it is very common. Flipping properties are especially smart and informative. It is based on, useful for those who are constantly doing due diligence, and helps to generate decent profits, but it is also very dangerous for those who are not informed. “
Modus operandi or Tricks
However, the major challenge for India is that “a very large amount of real estate properties are mostly sold at the construction stage when the project is not completed yet. In this phase, flipping is usually not allowed. However, once the occupancy certificate (OC) is set, it can be resold without any problem.
“Investors may have bought a property at a 25 to 30% discount during the pre-launch stage and achieved attractive returns after the project was completed. But delaying in ownership can hurt the investment for the purpose of flipping. Therefore, it is always better to invest in real estate from a well-reputed and well-established developer in the real estate sector who is also registered with the Real Estate Regulatory Authority (RERA). It’s important that you can make a lot of money if done right, but that’s a dangerous outlook. It’s always wise to seek professional help to achieve maximum profit.
What are the challenges in flipping properties?
“In developed countries like the United States of America, real estate flipping is very common and is usually defined as buying and selling a home in the same period (one year). Investors are overlooked or in need to buy properties in good locations, renovate them, upgrade them with the latest equipment, and sell them at higher prices within a few months. This has been a trend in the United States of America for years.
Real Estate flipping may seem like a simple process and a very easy way to make a profit, but it’s not easy. Property flipping is very speculative in nature, especially in India. The return on investment in property flipping depends on the short-term capital gains. Stagnation and lack of demand in the real estate market can delay your reversal. In addition, the risk can be increased severely if the developer or builder fails to complete the project on time.
Tax restrictions in flipping real estate
One of the reasons why this concept is not widespread in India is: “Revenues achieved within two years of investment are subject to short-term capital gains, which can be as much as 30% of realized profits. High tax rates are one of the major obstacles to the rapid sale of real estate which makes property flipping a very difficult task. In addition, investors must pay in advance to buy real estate before launch, which is commonly difficult for most homebuyers. “
Is it advantageous to flip houses?
Only when property flipping is done correctly, it be quite profitable. Investors must follow the house flipping checklist provided below in order to make a reasonable profit from flipping.
• Follow the 70 percent rule
This is one of the most effective flipping strategies. This rule might help investors figure out how much they should spend for a home they plan to flip. Ideally, investors should not spend more than 70% of the home’s value after repairs and renovations, excluding remodeling costs.
• Begin at the bottom
Investors should be cautious about the number of properties they invest in when it comes to property flipping business ideas. Investing in numerous homes involves significant outlays for things like insurance, renovations, and capital gains tax (when the property is sold), which can quickly become unmanageable.
• Knowledge of the market
The key to success in the property flipping business is to understand the local real estate market. The property’s circle rate, local development authority rules and regulations, RERA guidelines, and other factors should all be considered by investors.
• Conduct an inspection of the property
Instead of acquiring property online, investors should visit the site in person to thrive in the property flipping business. Before making an informed selection, they should properly check the property’s condition.
• Developing sales strategies
Before flipping land for profit, investors need to develop a sales strategy. If property appreciation is unlikely in the near future, investors should try renting it out for a while.
• Selecting the improper investment partner
Investors are not always able to invest in real estate on their own. To raise finances, they approach private investors, seek a loan, or use crowd funding. Each of these sources, however, has its own set of benefits and drawbacks that, if not properly considered, could result in a disastrous consequence.
Despite the fact that property flipping is still a relatively new concept in India, investors can benefit in two ways. The first is already described: an investor invests in a rapidly appreciating market and reaps immediate profits. Another option to make money in this market is to do reno flipping. Real estate investors who want to do a reno flip should start by investing in developing locations with low-cost buildings. The properties are then renovated and modified to boost their worth before being sold for a big profit margin. Property flipping, in any case, necessitates research, strategy, and caution.
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