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30 May 2006

The art of flipping off plan property and new homes

Definition of Property flipping: To sell on or assign a contract.

Property speculators place deposits on units before they are built (off plan), with the intention of selling them on at a healthy profit before they have to pay the rest of the purchase price. Investors buy at a discounted price when a development is launched and before construction has started. Once construction is well underway and is close to completion assigning the contract is the next priority. This saves the initial investor a substantial amount of money as they don’t need to pay all the completion costs including a mortgage.

Some pointers to note:

1/ Selecting an area and location of property

This is the most important point. Location Location Location is always mentioned in the media, but it is imperative that you do choose a location, which will attract future buyers.

Differentiate yourself and buy a good unit, this will help maximise the capital growth and rental income potential, and therefore the resale potential and value.

2/ Invest in time as much as property

Research is key, know your market, know whom you are going to sell to and start to use your networks and marketing avenues to look for potential buyers to sell the contract to.

3/ Negotiate terms of payment

Tying up less capital in a project is preferable. Extra funds could be used to buy multiple units. 30% down is typical for Spain; try to negotiate better terms for multiple purchases. Go for projects that have long completion dates, this gives you more time to find a potential buyer.

4/ Check that your strategy is legal in the country that you are buying in

Some countries will not allow the exchange of contracts and as such any investors that proceed with this activity are doing so illegally and face severe consequences if found out.
Cash or black money changes hands in many countries, be aware that it is an illegal practice!

5/ Check what fees are involved in selling your contract on before completion

Does the developer want a cut?

6/ What resources do you have if it all goes wrong?

Can you afford to lose the deposit and walk away from the development, if the market changes?

Remember on completion you will need to pay:

Property Taxes
Completion costs; notary, lawyer, land registry etc.
Mortgage opening costs + repayments
Furniture packages if you have to rent the property out
Community fees
Local taxes like council tax

7/ Work with developers who have a good reputation and a historical track record, and deliver what they promise, on time.

Try talking to buyers that have bought previous projects.

To sum up

Competition is far greater than in years gone by and amateur investors have flooded the overseas markets with properties that were supposed to be sold before completion. Many clients are now stuck with properties they cant sell as there weren’t enough buyers to take all the properties that had been sold to investors.

Once you hear about a new market the likelihood is that you have missed out on the largest profit. The media normally catches onto a hotspot after it has been explored by the savvy investors, who have seen the potential long before the mass-market dives in. They will be selling up to the wave of second investors, who are trying to cash in on a media property boom. This is not to discourage you as it is still possible to turn a profit, it just may be lower than you expect.

If property flipping were easy then many of us would be doing it now to make a living! Don’t listen to the hype that many companies will tell you and be realistic about what you expect. You are not going to become a millionaire over night, but with careful planning and risk assessment you can do very well over a longer period of time.

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