House Flipping 101
With the help of TV shows like The Block and House Rules, many Australian’s are giving House Flipping a lot of serious consideration as a property investment strategy.
Property Flipping can be explained as purchasing a property with the aim of adding value through renovating or extending and then selling it for a higher price. It’s generally a short term investment strategy and when done properly can be a quite lucrative property investment strategy.
Before you dive into buying your first run down “renovators delight” there are some very important details you should consider.
The most important thing you should know is that it’s MUCH harder without the support teams you don’t see on the TV shows.
I’ve spoken with a number of my clients who flip property and here’s some of their best advice.
Pre Purchase Rules
- Buy Cheap - Take your time to purchase the right property. Buying cheap is vital to ensure that there’s some profit to be made for you after all the stress and hard work you’re about to commit yourself to.
- Inspect the property thoroughly - Don’t assume you can see all of the issue’s with the property without digging a little deeper. Make sure you take your time when inspecting the property and conduct a building inspection because any additional expense you discover after buying the property will cut into your profits.
- Get your tradespeople through first - If you’re not a tradesman yourself, organise a time with the selling agent to bring your team through the property to make sure there’s nothing you’ve missed.
- Get a rough idea of cost - Your team of tradies should be able to quote up what work will be required and roughly how much it’ll cost to get the property looking the way you want. Knowing your expenses will help you determine if it’s a financially viable project or not.
- Research sale price – When looking to flip a property, you should always be buying with a realistic sale price in mind. Search for recently sold properties in the same area which match the final product you want to deliver. Knowing what a similar property sold for will be the best guide for what your property will sell for once the renovation is over. It’s also worth taking through a real estate agent you will want to sell the property for you – they’ll work with you to help you get the best result.
- Stick to a strict budget – When you’re renovating, you will have some unforeseen expenses, so every dollar you spend counts. Make sure you give yourself a realistic renovation budget and stick to it to ensure there’s a nice profit in the end for you.
- Time is money – The longer your renovation takes, the more holding costs you have. Consider the time of the year and make sure that your tradespeople are all available when you need them. Good project management will be key to flip your property quickly.
- Return on Investment – Every dollar you spend should be giving you a return. There are many parts of the house that can be expensive to repair which don’t give you any return on your money – things like internal wiring, termites, floor stumping and guttering can be really expensive to repair but won’t make a big difference to potential buyers when it comes time to sell. Kitchens, bathrooms, façade are the usual money making area’s for a property.
- Appeal to the potential buyer – A good agent should be able to isolate a few potential buyer segments for your property. You should renovate your property to appeal to these segments. If it’s first home buyers, they’ll want more “fashionable” or “cool” finishings. A downsizer will be looking for something different. Whoever your market is, try sticking to natural colour schemes and stay away from any quirky personal touches which you may think look great but could turn off potential buyers.
It’s not unusual for first time property flippers to feel like they’ve bitten off more than they can chew. But just like anything else you do, the more you do it, the easier it’ll get and the more comfortable you’ll be with it.
Most of our clients who flip property will either do it once and realise it’s not for them, or they’ll make it a serious part of their investment strategy.