The Art of Real Estate Flipping: How to Turn a Poor Apartment into a Profitable Investment
In Tallinn alone, hundreds of apartments are being "flipped" – purchasing residential properties in poor condition, renovating them to be attractive, and attempting to sell them for profit. Kinnisvara24 CEO Urmas Uibomäe and experienced real estate investor and "Kinnisvarajutud" podcast host Siim Semiskar share advice on how to get the maximum benefit from flipping.
Flipping means purchasing real estate, increasing its value through renovation, and then selling it for profit. On the Kinnisvara24 portal, there are currently over 900 apartment listings marked as "renovated." Not all of these are flipped apartments, since a renovated apartment can also be someone's first home that the owner has gradually improved.
"An apartment is suitable for flipping if it is available at a price that allows earning sufficient profit after renovation and sale to compensate for the work done and risk taken," explained Siim Semiskar.
According to Urmas Uibomäe, there are currently 117 apartments on the Kinnisvara24 portal in Tallinn that are awaiting renovation or major repairs and whose price per square meter ranges from 1400-2500 euros. Of these, 37 are located in Lasnamäe, 25 in North Tallinn, 23 in Mustamäe, and the rest in other districts. "Of course, this doesn't mean all of them would be suitable for flipping. Each property must be assessed for its real potential, the resources required for renovation, and the possible selling price," clarified Uibomäe.
How to choose the right property?
The real estate market must be monitored and potential properties sought based on specific criteria. Investors typically look for residential properties with a lower price per square meter, which are often located in residential areas. One of the most important principles is the so-called 70% rule – investors should not pay more than 70% of the property's estimated final value after renovation, minus renovation costs. This helps ensure sufficient profit margin.
Both when purchasing and selling, it's worth using real estate portals with reasonable listing prices – euros saved at each stage ultimately increase the profitability of the entire project.
"As the golden rule of flippers says – money is made when buying," noted Semiskar. He himself has done simpler flips in several areas near Tallinn, including Kehra, Vaida, Laagri, and Jüri. Flipping with major renovations is more difficult in cheaper price areas, since the selling price of the product may rise to a level that the market no longer accepts. Therefore, it is important to conduct thorough market research, identify areas with growth potential, and understand buyer preferences.
"It's a rule of thumb that the more liquid the market and the higher real estate prices, the more profitable flipping becomes," explained Semiskar. When talking about Tallinn, Mustamäe has been one of flippers' favorite locations throughout the ages, as has North Tallinn, Kristiine, Downtown, and other "hills." Choosing the right location is critical to successful flipping.
How to maximize profit and minimize risk?
There are several practical tips for successful flipping. First, one should avoid over-renovating. The best way to define what adds value is to consult with experienced brokers and research which apartments in the area find buyers faster.
Second, it is important to set a budget and stick to it strictly. The main goal is to make money and increase profit margin, so reasonable and well-thought-out expenses must be made.
"Flipping doesn't necessarily mean only major renovation. Sometimes it's enough to clear out old junk from the apartment, do some light painting, or install a new kitchen," explained Semiskar.
Uibomäe emphasized that the apartment's visual overall impression significantly affects sales success, since buyers find it difficult to overcome a negative first impression. According to him, special attention should be paid to the kitchen and bathroom, as these rooms are key to getting a good price. A good-looking kitchen and bathroom significantly speed up the sales process and increase the attractiveness of the property in buyers' eyes.
What makes flipping a more profitable investment?
Often, the most profitable approach is to increase the number of rooms in an apartment, especially if flipping it as a rental property. Increasing the number of rooms, for example from one to two or two to three, dramatically increases the property's value. Changing the apartment's layout, however, requires drawing up a building project and coordinating it with both the apartment association and the local government. Such reconstructions require significantly larger investment.
Experienced flippers have cited an example that if an average of 500 euros per square meter is spent on renovation, a two-room apartment can generate 10,000–20,000 euros in profit. This is, of course, provided that the apartment was previously purchased at a favorable price.
Pitfalls that an investor must consider
"Flipping seems much simpler at first glance than it actually is. Therefore, many who only talk about it never get to actually doing it, or if they do, they have an unpleasant experience," warned Semiskar.
Flipping comes with multiple risks. The real estate market can change unexpectedly, affecting property values. Renovation projects often bring unexpected additional expenses. Construction work can drag on, which in turn increases costs.
How to get started?
Especially with first properties, one must account for the fact that money and time will be needed more than planned. It is also important to remember one fundamental rule of real estate investment success – location is critical.
Finding apartments suitable for flipping is a skill in itself. Semiskar pointed out that apartments in adequate condition requiring major renovation sell quickly on real estate portals. According to him, particularly for apartments in very poor condition, there is also a significant private market – professional flippers actively advertise apartment purchases themselves or arrange buy-sell transactions in Facebook groups.
According to Uibomäe, real estate flipping can be a profitable investment strategy if approached wisely and thoughtfully. For example, he recommended setting up an automatic notification system on a real estate portal that immediately alerts you when a potentially suitable apartment for flipping comes on the market. When starting to flip, it is important to conduct thorough market research, choose the right location, keep renovation costs under control, and focus on renovations that truly increase property value.
