“Flipping” real estate used to be about buying some run-down shack, turning it into a palace and selling it for a profit. Then the global financial crisis rolled in and things had to change. But the chance of making a profit is still very much alive.
If you’ve been within fifteen feet of a television set in the last decade, chances are you’re already familiar with the essence of what real estate people used to call “flipping” through TV shows like “Extreme Makeover: Home Edition”, where more or less decrepit houses are repaired, fixed up and given new, glorious life. Especially in the Western World, real estate investors made good money on buying distressed properties under market value, fixing them up and flipping them back on the market at an often greatly increased price. Although time- and resource-consuming, “old flipping” was potentially quite a rewarding and profitable investment strategy – right up until Western property markets started to collapse under bad debts and all the other “blessings” associated with the global financial crisis.
Flipping it “the new way”
“Old” flipping continues to be a viable investment strategy in real estate markets like Thailand, where prices remain healthy. But so indeed does the latest craze among the property gang: Short-term hold resale, or simply (and aptly) “new flipping”. Although a bit of a different investment strategy, “new flipping” is a growing global trend, and is especially popular in fast-growing cities like Pattaya, Thailand.
But how does it work then?
Well: In most condo developments, an average of 20% down payment is collected from buyers who commit to a project in the preconstruction stage, with another 30% (although sometimes even as little as 0%) spread out over the rest of the construction period. With such deposits, developers and their funders receive a layer of protection, as buyers are unlikely to abandon a down payment of a fifth of the value of a property.
After paying the deposit and signing the contract between buyer and developer, the buyer has the right to sell his contract to purchase the condo at the agreed price (buying bulk often helps buyers to negotiate a better price per square meter). During the construction period the prices of the condos increase at a speed determined by the speed of sales as well as construction-related factors such as reaching the middle and top floors.
And now comes the actual flipping part: Just before the last payment needs to be made, selling the individual condo gets interesting – and potentially quite profitable – for the buyer, especially as he/she can offer the property below the developer’s price.
Let’s exemplify: Say that you bought a 2,000,000 THB (Thai baht) condominium at the prelaunch stage, when the prices are the lowest, or just after. You pay a small reservation fee at booking and within a month the 20% deposit upon signing the contract (the height of the deposit varies per developer between 10% and 30%). You have now paid 400,000 THB, with the next installment of 10% most likely to fall in six months.
During the period between your deposit and your first installment, the prices will increase as more and more people get to know about the project. Also, as not everybody feels comfortable buying into a project at such an early stage, you will notice a new wave of sales when the developer starts pouring concrete for the foundation.
So far, so good. Now, what makes flipping so profitable then?
Let’s explain this through another example: In May 2012 Thai Estate Network informed one of our dedicated investors about the prelaunch of a property in the Wongamat district in Pattaya. The early-bird prices were set at 54,000 THB/m2, and because we negotiated a discount for him, he bought two 31.75 m2 units. Just before his first installment of 5%, the investor asked us to unload the units with a profit. We flipped the properties at 67,500 THB/m2, just under the developer’s price of 68,500 THB/m2. Initially our investor paid a deposit of 30%, and as we ended up selling the units for 3,429,000 THB (minus our commission), the investor ended up making a profit of 685,800 THB – a 66.6% return on his initial investment of 1,028,700 THB in just six months!
Flipping with TEN! Even if you already own a property!
So, that’s flipping, new and old. If you want to learn a little more about the concept (especially the new part) and how to make it work for YOU, please don’t hesitate to send us an e-mail at firstname.lastname@example.org.