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“Flipping” and “homesteading” have become new words, but not new phenomena for the St. Petersburg real estate market. Investors buy promising apartments, renovate them, arrange furniture and create a comfortable atmosphere for life — and then sell for more than they bought, or rent above the average market price. What kind of activity is this and how profitable it is in conditions of high mortgage rates, the participants of the Fontanka round table told.
“So you’re a flipper.”
— Flipping is an investment strategy in which profit arises from the resale of real estate, and marginality in this resale is due to its improvement, — says Igor Galuzin, founder and CEO of the real estate investment agency Todayprice. — That is, it is a full cycle of work: selection of an object, purchase, improvement, sale and making a profit.
Many of the people who started flipping didn’t even know what it was.
— In 2019, I bought a two-euro apartment in the Moscow district — they made designer repairs in it and thought to rent it, but then decided to sell it. It was before the pandemic — the very beginning of 2020, supposedly winter is not the season, but demand was unexpectedly high,” says Alexey Petlevany, founder of New Stage Invest, about starting a business. “I didn’t even know it was flipping then. We just thought that we were buying, repairing, selling. Then we bought two studios in Shushary on Valdai Street. And already in 2021, friends say, “So you’re a flipper.” I started to study: it turns out that flip is a coup in English. This is very popular for country houses in the USA: a house is bought in poor condition, repairs are being made, furniture and appliances are being improved. That’s how the business started, which now has 16 employees, we are “flipping” 26 apartments in St. Petersburg and 6 houses in the suburbs.
According to him, flipping is a deeper immersion into the project, when repairs are done literally “from A to Z”. For example, a “grandmother’s” apartment is being bought, where there has been no repair for 30 years, new walls are being built there, windows are being changed, floors are being poured. Then the apartment is fully furnished, sometimes even with curtains, towels and spoons and forks.
— And homesteading is an easy transformation, when a small repair or even just a change of furniture and putting things in order is enough, — explainsAlexey Petlevany. — Sometimes it is enough to do cleaning to sell an object for more. In general, we are engaged in creating a visually attractive picture, because with bare walls it is more difficult for people to imagine themselves living in an apartment.
— Homesteading is one of the stages of flipping, which is carried out after the renovation and furnishing of the apartment, — added Igor Galuzin. — This is a kind of neuromarketing: it allows you to bring an apartment closer to the target audience, which is potentially buyers. Due to this, to increase the liquidity of the facility means to reduce the time of implementation and increase the price.
Select an object
There is no single vision of which objects are better to acquire, Igor Galuzin noted. Flipping is possible in different segments: economy, comfort, business, suburban real estate, luxury housing, old stock. And depending on the real estate segment, you need to study different sets of characteristics for purchase.
— If we talk about the characteristics, then at Todayprice we have more than 60 characteristics that we evaluate together to understand whether an object is suitable or not for flipping, — he added.
Alexey Petlevany believes that apartments on the secondary market are still more popular now. At the same time, you can also work in the secondary market either in the economy segment, i.e. in residential areas, buying apartments in relatively poor condition, or in the center of St. Petersburg in the old fund – there are wooden floors, complex approvals, and this process is much longer, but you can earn much more money at the exit. In addition, the expert notes, there are not always cool objects in the economy that are worth buying.
— The purpose of flipping is not to buy the cheapest apartment — sometimes it is not cheap for nothing. It is necessary to understand which object has the potential for growth,” explained Alexey Petlevany. — It is possible due to the fact that there is a polyclinic, a school, a kindergarten or a shopping center nearby. Either there is a promising development in the area, it is developing. At the peak of activity — in 2020-2021 — it was possible to buy anything, repair, sell and make money on any object. Now, due to the increase in the key mortgage rate, demand has definitely fallen, so you need to be more attentive to the choice of facilities.
The “checklist” may include parameters such as neighbors, view from windows, layout, availability of documents, etc.
— I always say that apartments that have investment attractiveness are suitable for quick resale of an apartment, — Igor Galuzin confirmed. — And when we make a financial calculation of the project, we look so that after investing money there for improvements, we can sell the object with a certain marginality.
At the same time, when choosing an object, it is necessary to try on the characteristics that you are studying for the target audience, he believes. So, for business class and economy class, the availability of underground parking plays a different role. If in economy class you focus more on public transport, then in business class the target audience is most often with a car, that is, the role of parking is growing.
The primary market, according to Alexey Petlevany, can also be considered, but, firstly, the transaction cycle will be longer if you need to wait until the residential complex is completed. Then it will take some more time to repair. And in this case, there should be an interesting entry price so that the apartment will rise in price at the exit. The expert cited the experience when the company bought two apartments in 2020, hoping to sell them when they will be commissioned in 2022. But then there was a small “drawdown” of the market, as a result, it did not work out to sell them “in concrete”, so we had to make repairs there, install furniture — and then the sale turned out to be successful.
— If the apartments are just built, then you can make investment repairs in them, they can be improved, – says Igor Galuzin. — This will be another advantage when, after the developer, you can change the ergonomics and thereby add liquidity to the facility. This is not only possible, but also necessary to do in the primary market. And more than that: now our company Todayprice, together with the company Airplane Plus, is launching a joint project that will improve new buildings throughout Russia.
How much is a plus
The main question that interests investors who are going to engage in flipping is how much you can earn on such a resale of apartments.
— The record of my income from one apartment is now 7 million rubles, now there are expectations of 10 million rubles, — Alexey Petlevany shared. — But you need to understand that in this case the volume of investments should be about 30 million rubles. Of course, you can’t earn such sums in an ordinary apartment in a residential area.
— The classic benchmark of marginality is 15% of the invested money, — says Igor Galuzin. — That is, if we invested 10 million rubles in an object, its purchase and improvements, then we should earn 1.5 million rubles on average from this apartment.
According to him, the margin ranges from 10-20% and further depends on the timing.
— In a good active market, we maintained the deadlines for 3-4 months, and the yield was 35-60% per annum. Now the average return on capital is 45-50%,” Igor Galuzin added. — You need to implement the object without squeezing the maximum amount out of it. For a flip project, it is often more important to implement the project faster, rather than more expensive. If you have invested 10 million rubles in a project and can sell it for 11.5 million rubles, but in six months, then the yield will be 30% per annum. And if you sell it for 11 million rubles, but in 3 months, the yield will be 40% per annum. It seems that you earned less, but from the point of view of capital efficiency, your money worked more efficiently.
— Many people think that if you buy the cheapest apartment and make repairs in it, you will automatically be able to earn money, — said Alexey Petlevany. — We recommend watching ads for the sale of apartments with designer renovation in order to calculate how much it will be possible to sell an apartment. You can also study liquid locations where renovated apartments are in demand — we analyze all this too. After all, you can buy an apartment in the same house for 6 million rubles and 10 million rubles. And, of course, check the documents as much as possible so as not to get caught by scammers who, for example, bought an apartment from some grandmother.
Another aspect to consider when doing flipping is the legal one. If the apartment has been owned for less than 5 years, you are required to pay taxes.
— There are two options: you work as an individual and pay tax on the difference. For example, you bought for 6 million rubles, sold for 7 — pay a tax of 13% from 1 million rubles, — explained Alexey Petlevany. — I advise you to work in white, open an individual entrepreneur: then, when reselling real estate, the tax will no longer be 13%, but 7% (if you are registered in St. Petersburg) or 5% (if you are registered in the Leningrad region). In Moscow, by the way, the rate is 13%. In addition, when working as an individual entrepreneur, you can take into account the expenditure part for construction, materials — and you will have to pay tax not just from the difference, but also taking into account all expenses. It is much more profitable, even if you plan to renovate and sell only one apartment.
Kitchen-living room and soft colors
In order to implement the project as quickly as possible, you need to make such repairs so that potential buyers will definitely like it.
— Repair for flipping (investment repair) and repair for the homeowner are two different repairs. The owner, when he does it for himself, takes into account his needs and personal tastes, — says Igor Galuzin. — When we make an apartment for flipping, we need to reach a wider target audience with this renovation. This means that we must apply neutral solutions that will not scare people away — be neutral about colors, furniture, plumbing, interior solutions. At the same time, a feeling of comfort and homeliness, interior design aesthetics should be created. And we try to get into the taste preferences of a large number of people. We are catching trends in terms of colors, some furniture solutions. Our designers in the company are studying this point
— We tested very cool, cool, bold design solutions and realized that we had made a mistake: blue, red walls had to be repainted, green ones are still questionable, — says Alexey Petlevany. — Therefore, now we are trying to make more classic versions that are suitable for greater audience coverage. Moreover, mortgage rates are high now, and in conditions of low demand, we need an offer that will appeal to the largest number of people.
At the same time, it is necessary that the apartment evokes emotions, so that there is a wow effect, he is sure: it is for this emotion that people are willing to overpay.
— It is no longer possible, as before, to stamp identical apartments in economy class – there is a lot of competition in this segment now, as more and more people want to do this business, — he explained. — There is less competition in the more expensive segment, it is more difficult to make repairs there, but you can also get higher income.
According to Alexey Petlevany, even small things are important for investment repairs: a mirror at the entrance, underfloor heating, air conditioners and air purifiers, a smart home – all this is inexpensive, but it allows you to create the desired effect. Among the things that are often used in flipping, he attributed: the organization of a kitchen-living room, an increase in the bathroom (due to the corridor), comfortable beds with a retractable mechanism so that there are more storage spaces, large cabinets to the ceiling.
— We do room tours of our facilities from time to time: we come, sit down at the table ourselves and imagine that we are buyers. How comfortable would it be for us to have a spoon lying here, how does the dishwasher open, where will a person sit and watch TV? It is important not to do this only in order to earn money, but to really think about how a person will feel comfortable. That’s when you’ll get a good financial result. The market has changed, but in any case, it is there — and there are people who are willing to pay a certain amount of money to buy cool housing, and not to repair themselves.
It is important that the improvement of the facility be done in the right quality, in the right budget, in the right time frame, with the right target solutions and solutions for the target audience, Igor Galuzin noted: “If you need a desktop, then make it. If there is a potentially small child, then make a bath to bathe the child. We must adjust all aspects of improving the facility to the target audience that we have identified.”
Igor Galuzin He added that the average check depends on the level of repair and in which region it is done — even in the same segment of real estate, but different regions have different checks.
— For example, the repair of economy class in St. Petersburg is different from economy class in Moscow, – he explained. — And at the same time, our economy class in St. Petersburg is better than the comfort class in Perm. This is because the apartments are in different price categories: a one-bedroom apartment in St. Petersburg after renovation costs 9-10 million rubles, and in Moscow 14-16 million rubles, that is, the difference is almost 50%. And the level of customer needs varies in different cases, so different materials and different techniques are used. And the buyer’s claims to the apartment in Moscow will be higher than in St. Petersburg.
For St. Petersburg in economy class, the average repair bill for flipping now amounts to about 40 thousand rubles per square meter on a turnkey basis with furniture, appliances, and homesteading, Igor Galuzin said.
Understand the risks
Like any investment activity, flipping carries certain risks. First of all, it is not to receive the expected income.
— I used to say that in flipping there is only a risk of earning less, respectively, for a longer period of time, — says Alexey Petlevany. — Now the main risk is to take out an expensive mortgage and pay interest even if the apartment is on sale for a long time. There are really a lot of risks, it is important to evaluate them and count on what you can take on and what you can’t. For example, there may be problems with documents, especially when settling communal apartments in the old fund, etc.
Igor Galuzin sees his risks at every stage of flipping.
The first stage is the selection of an object. At this stage, you can make mistakes in terms of liquidity characteristics, misjudge them, underestimate something.
— For example, many underestimate how the condition of the entrance affects liquidity, — the expert explains. — We picked up an object — a good house, a good location, good with documents and an entry point, but a bad entrance with smells and maybe problems with neighbors. All this affects the price and timing of the sale of apartments
The second stage is the improvement of the facility.
— You can incorrectly calculate the estimate, that is, initially assume that a million rubles will be spent, but in the end the costs will amount to 1.5 million rubles, i.e. 500 thousand will be deducted from your marginality, — said Igor Galuzin. — It is also possible to delay the work and not meet the deadlines. At a construction site, you depend on third parties — foreman, contractors, employees, and so on, thereby you can incorrectly calculate the deadline. And if the implementation takes longer, then you will get lower profitability with the same marginality. When working with a new team, there is a risk that they will do the job incorrectly — this will affect the attractiveness of the apartment for the buyer. You will lose people who want to buy an apartment, which will delay the implementation period. Also, to compensate for the quality of the work, you may have to reduce the price
Well, the third stage is the sale. Here, according to the expert, there are risks that are already obvious in the market: high mortgage rates, a decrease in the activity of the purchase period. They can also affect the timing of the sale of an apartment, if you do not take them into account in advance.
Find your niche
Despite the fact that flipping is quite popular, there are not many professional players in this market.
— I think there will be fewer small players. Those who make 1-2 apartments will sell them and, perhaps, will not continue due to high mortgage rates, – Alexey Petlevany believes. — Another option is to change the direction of business. For example, we have partially gone into housing and communal services, housing construction: we also buy houses for flipping, equip them in order to sell them later. Or we build houses from scratch on the site.
The direction of the ready—made rental business is also developing – when, after completion of the renovation, the apartment is not for sale, but for rent.
— Sometimes it is enough to rent a homesteading — we have a case when, after a small renovation, the apartment was able to rent twice as expensive, — added Alexey Petlevany. — There is a very high demand for rent now, given that the rate is high and people are not ready to buy apartments, but they need to live somewhere.
And in order for flipping to be successful in the current conditions, it is very important to approach all stages as professionally and meticulously as possible, Igor Galuzin is sure: when selecting, evaluate all the characteristics correctly and immediately understand which target audience the apartment falls under.
Photo: iStockphoto.com/Rawpixel
Источник: www.fontanka.ru
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