Although this concept is more famous in Western countries, it has found its footing in India, particularly in urban centres. It is one of the most rewarding ways to invest, particularly for individuals who are completely debt-free (no loans, mortgages) and are maxing out their retirement accounts by putting away 15% of their lifelong income. House flipping, though, can be risky and requires a great deal of work.
If you want to know more about what flipping houses is, why it’s profitable, and the step-by-step process of flipping a house, read today’s blog on Brick & Bolt.
What is House Flipping?
You can understand house-flipping as a process where you buy an old house at a lower price, invest in renovations, and then sell it at a higher price. Since you hold it for a short time and sell it for a profit, this quick-turnaround resale is called a “flip.”
Therefore, instead of buying a home to live in as a residence, you can purchase it as an investment. After fulfilling your requirements for the property, you can later convert it into a profitable asset.
Why is House Flipping Profitable in India?
You can consider flipping houses as a better real estate investment due to the following benefits it offers:
- Market Demand: Based on a recent report by JLL, India’s real estate market expects around 60% by 2030 from millennial and Gen Z demographics. This highlights the growing demand for house purchases. Younger buyers, especially those relocating for career opportunities, often prefer move-in-ready homes since they have limited time for furnishing and setting up a house. Their need for quick and convenient housing solutions further adds to the demand for flipped properties.
- Urbanisation: More and more people are moving from small towns to cities like Mumbai, Bangalore, and Hyderabad. This urbanisation gives various opportunities like jobs, comfortable lifestyles, and business growth. This creates a great opportunity for house flippers to buy old homes, improve them, and sell them for a profit. With more people looking for modern homes, flipping houses in these cities can be a smart investment.
- Higher Potential to Returns on Investment: If you tactically perform flips, it can generate considerable profits within a relatively short timeframe. You can greatly increase the property’s resale value by purchasing properties below market value and enhancing them. For example, if you buy an old house in a growing area for ₹30,00,000, spend ₹5,00,000 on its renovations and modernisation, and then sell it for ₹40,00,000, you make a ₹5,00,000 profit before paying any extra costs like taxes or maintenance.
- Short-Term Investment: House flipping is a short-term effort. Unlike traditional buy-and-hold real estate investments, you don’t have to keep the house for the long term. This helps you (as an investor) get your money back fast with profit.
Step-by-Step Guide to Flipping a House
If you want to do a house flip without confronting serious damage, you need to consider careful planning with strategy, timing, and execution. Here is a detailed step-by-step guide to ease you:
Step 1: Research & Market Analysis
Conduct detailed research about the potential properties before finalising the purchase. You can use online research tools or get help from real estate experts.
Consider the following local trends:
- Location Demand– Shortlist areas where property prices are appreciating with minimal crime rates, infrastructure growth, employment hubs, and rising population. You can consider metro cities like Delhi, Mumbai, and Bengaluru or emerging tier-2 cities like Mysuru, Madurai, and Kochi, which provide good prospects.
- Neighborhood Growth Potential—Always consider city areas where new businesses, homes, metro stations, highways, or IT parks are coming up. These projects can increase the property value over time.
- Comparable Sales—Check the prices of similar houses recently sold in the area. This helps you estimate how much you can sell your flipped house for.
- Target Buyer Demographics— Understand your target buyers. They can be first-time homeowners, working professionals, or investors. With this idea, you can work on the renovation work to spend each rupee effectively.
Step 2: Secure Financing
The right funding is one of the essential aspects of house flipping. You can choose the following options:
- Personal savings will be best for avoiding interest costs.
- You can get a home loan with a short tenure to reduce interest payments.
- Private lenders can strengthen your options but may require a strong business strategy and may also want collateral, such as property or assets.
- Prefer Loan Against Property (LAP) if you own a home. Leverage it to purchase another property.
- Some developers present discounted prices for quick bulk purchases.
One of the main rules to remember is the 70% rule. That means you should invest no more than 70% of the house’s value after repairs (in real estate, this is called ARV (After Repair Value)) minus the cost of repairs. This rule ensures you can still have a decent profit after buying and renovating the house property.
Step 3: Find the Right Property
After finalising a location, find the right house property to flip. You can do that by the following means:
- Direct Seller Negotiations– People in emergencies often search for a buyer to get money below market value for quick transactions.
- Bank Auctions and Foreclosures– Due to loan defaults, properties seized by banks are typically sold at prices below market value. But these kinds of properties need to be closely examined legally.
- Damaged Properties– Properties requiring repair can usually be purchased for less, which can be perfect for turning over.
- Under-Construction Builder Inventory- Certain builders will give you their unsold inventory at a discount.
Step 4: Renovate Strategically
After purchasing a house property, start renovating according to target buyers. Work as per a renovation timeline and set completion deadlines.
Focus on high-ROI upgrades, such as:
- Kitchen– You can install modular kitchens with modern fixtures and updated appliances.
- Bathroom – Do bathroom makeovers with new fixtures, tiles, and ventilation systems.
- Lighting and Electrical Work: Using efficient lighting fixtures and hiding wires are also methods to get the house looking nicer and working more efficiently.
- New Walls and Floors: The best fresh coats of paint (with flower wall painting) and superior floors are a must for an appealing home.
- Landscaping and Curb Appeal: An attractive entrance with a clean entryway, a well-kept garden, and a fresh coat of paint around the outer property provides a good first impression.
Always conduct a final quality check before listing the property for sale.
Step 5: Sell for Maximum Profit
Once renovation work is done, you will then need to do some marketing on the property and attract buyers in order to make a sale. List the property on real estate websites, use professional photos and virtual tours to showcase the home online, and promote it on social media, WhatsApp groups, and local real estate agents. Hosting open house events can also help potential buyers see the property. For pricing, compare it with similar homes sold in the area and set a fair price. Offering special deals, like discounts on registration fees, can create a sense of urgency and encourage buyers to act quickly.
Costs of Flipping a House in India
Purchase Costs
The initial expense when flipping a home is the purchase cost, which varies significantly based on the location.
- Metropolitan Areas: Property prices range from ₹13,170 to ₹45,440 per square foot, depending on the locality.
- Tier-2 Cities: Property prices range from ₹3,541 to ₹8,556 per square foot, with premium locations reaching up to ₹25,000.
Additional purchase-related expenses include:
- Stamp Duty: 5-7% of the property value.
- Registration Fees: 1-2% of the property value.
- Legal Verification Costs: ₹15,000 to ₹60,000 for ensuring a clear title and absence of encumbrances.
Renovation Costs
Renovating the property is another significant cost that can consume 15-25% of the total budget. The expenses vary depending on the scope and quality of work.
- Basic Renovations:
- Mumbai: ₹1,200 to ₹2,500 per square foot.
- Delhi: ₹1,000 to ₹2,000 per square foot.
- Bangalore: ₹800 to ₹1,500 per square foot.
- Kolkata: ₹700 to ₹1,300 per square foot.
- Chennai: ₹750 to ₹1,400 per square foot.
- Premium Renovations:
- Mumbai: ₹2,500 to ₹4,500 per square foot.
- Delhi: ₹2,000 to ₹4,000 per square foot.
- Bangalore: ₹1,500 to ₹3,500 per square foot.
- Kolkata: ₹1,300 to ₹3,000 per square foot.
- Chennai: ₹1,400 to ₹3,200 per square foot.
Specific repair costs include:
- Structural Repairs: ₹2,00,000 to ₹10,00,000 or more, depending on the extent of changes.
- Plumbing and Electrical Work: ₹80,000 to ₹3,00,000, reflecting increased material and labour costs.
- Kitchen or Bathroom Upgrades:
- Kitchen: ₹1,50,000 to ₹5,00,000.
- Bathroom: ₹60,000 to ₹2,50,000.
General Renovation Costs
- Full House Renovation: ₹15,00,000 to ₹50,00,000.
- Room-Specific Renovation: ₹40,000 to ₹2,00,000.
- Exterior Renovation: ₹1,00,000 to ₹5,00,000.
Unexpected issues like mold or foundation problems may arise during renovation, leading to additional expenses. A contingency budget is essential for such cases.
Holding Costs
Holding costs are ongoing expenses during the renovation phase. These include:
- Property Taxes: Typically around 0.5-2% of the property value annually.
- Society Maintenance Fees:
- Mumbai/Delhi: ₹3-₹15 per square foot per month.
- Mysore: Similar rates apply.
- Utility Bills:
- Mumbai/Delhi/Bangalore: Estimated at ₹3,000-₹7,000 monthly.
- Mysore: Slightly lower at ₹2,000-₹5,000 monthly.
- Interest on Financing: Ranges from 8-12% annually depending on market conditions.
These costs can add up quickly if the renovation process takes several months.
Selling Costs
Once the house is ready for sale, selling costs need to be factored in. These include:
- Brokerage Fees: Typically 1-3% of the sale price.
- Capital Gains Tax: 20% for short-term gains; benefits apply for long-term investments.
- Marketing Costs: Ranging from ₹25,000 to ₹1,50,000 for professional photography, listings, and promotions.
Selling costs can amount to 6-12% of the home’s final sale price across all cities.
Contingency Budget
It’s essential to set aside a contingency budget of 10-15% of the total project cost. This allows for unforeseen expenses, such as structural issues or fluctuating material prices. A well-planned contingency fund ensures that the project stays on track financially.
Note: For accurate and context-specific values related to house-flipping projects, it is advisable to consult with real estate experts or other relevant professionals.
Common House Flipping Mistakes to Avoid
Though flipping houses can be profitable, it is surrounded by pitfalls that could put your house-flipping business under financial strain if you don’t know what you’re doing. Here are common mistakes to avoid so that you will not make them again:
Underestimating Costs:
One of the most common mistakes is to underestimate the costs involved, specifically unforeseen repairs or delays in the construction process. It can be a very expensive mistake that could set you back financially.
Overpaying for Properties:
When a property is grossly overpaid for, the profit margins are slender. Avoid this by following the 70% rule, which states you won’t buy a property for more than 70% of the after-repair value (ARV) minus all needed repair costs.
Poor Project Management:
Inefficient project management can lead to delays and cost overruns. Proper coordination is key to completing the project on time and within budget.
Ignoring Market Trends:
You may face slow sales if you do not consider market trends and buy in the wrong location. Always conduct thorough research on the market to ensure you are buying properties in locations with good resale possibilities.
Skipping Inspections:
Without thorough inspections, you may have to face hidden structural problems or pricey repairs that were not anticipated. Inspections are a vital step to avoid unpleasant surprises later on. Verify legal ownership and ensure there are no pending disputes. Check whether the property is RERA-registered (if applicable).
Avoiding these common mistakes can help maximise profits and minimise risks, making house flipping a more successful venture.
By investing in old, distressed and unwanted properties and reselling them after renovation, you can earn a considerable profit. You can also use your temporarily purchased house for this purpose when you’re leaving the city. Always weigh the potential risks, costly repairs, legal issues, and market instability carefully. Seek support from real estate experts to make informed decisions about house flipping.
Hemali Patel