House flipping isn’t as easy as it looks but there is a way to perfect it
Don’t let the TV shows fool you, flipping a house is hard work but that doesn’t mean you can’t do it. And that doesn’t mean there isn’t money to be made.
Houseflipping — the process of buying, renovating and then selling a property for profit — has become a phenomenon in the US. That’s due in part to the popularity of shows such as Texas Flip n Move, Masters of Flip, 5 Day Flip and Flip or Flop and also in part due to the money that can (potentially) be made.
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The popularity of The Block and Love It or List It in Australia has also brought a strong focus on flipping here.
And while it is harder than it looks, or the TV stations make it look, it could be a way for you to propel yourself up the property ladder.
You just have to know the right way to go about it.
A BLUEPRINT FOR FLIPPING
“The TV shows make it look so easy,” said First National Real Estate CEO Ray Ellis.
“Buy a place, spend $50,000 on it, sell it and make $50,000 but there’s much more to it than that.
“It doesn’t portray all the hard work that goes into it. The luck you need, the state of the market, the bridging loans, the painting in the middle of the night, calling on your uncle the electrician for a favour. It’s not just 30 minutes on a TV show and it gets done”
That’s not to say it can’t be done though and done well. Those same TV shows that give a false sense of how easy flipping is, also provide a blueprint on how to do it.
“There are a lot of traps out there but people now have an insight into how it can be done,” Mr Ellis said.
“You can see what you need to do to get the job done on shows like The Block. You can see that on YouTube too.
“But you have to be very strict in what you do. Don’t fall in love with it, don’t overcapitalise. You don’t have to buy that expensive sink. Buy one of the cheaper one.
“You need to set a budget and stick with it. You need to set a time frame and stick with it.
“You need to know the area in which you want to sell in, what are people looking for when they move there? Is it young people moving in there or families?
“If you are doing up a two-bedder in a family area, it won’t sell. You need to study the demographic of the area.
As with most housing markets affordability is also a key issue. As is infrastructure, including transport.
“Is the house close to transport options? Because that will boost interest in it,” Mr Ellis said.
‘THE PERFECT FLIP’
Property guru Andrew Winter, the star of TV shows Love it or List it and Selling Houses Australia, points out that flipping hasn’t taken off here like in the USA despite the intense interest in it.
Mr Winter says ideally you would need to flip a house around the $900,000 to $1 million mark to get a 10 per cent return on your work.
“In those US shows, you can buy so low, $90,000 for example and flip it and sell for $300,00 because in Middle America you can do that,” he said.
“But that’s not possible in Australia.”
There are also the “hidden” costs to consider here, including agency fees, stamp duty and the higher interest rates you pay as an investor.
But there is a way you can make flipping work for you, according to Mr Winter.
“Most decades, there are a year or two when you can flip and make money when the market changes,” he said.
“Keep it for 12 months. You don’t need to do anything to it. Keep it in the same condition.
“Buy for X and sell for Y, when the market changes. You have to keep a close eye on the market. But if you do it right, it’s the perfect flip!”
RAY ELLIS’ TIPS FOR HOUSE FLIPPING
— Know the area’s advantages and disadvantages, it’s best and poorest locations and incoming infrastructure
— Know the next buyer: don’t let personal taste get in the way. You’re not making a statement. You’re making money
— Don’t overcapitalise: try to find cosmetically challenged properties rather than those in need of major change.
— Invest in a professional inspection. If you’re not in the construction business, major property defects from a faulty foundation to old wiring can be missed.
— Research the market so you know the latest sales results and the time it’s taking to sell homes in the area.
— Consider the time it will take for you to fix the property. Do you have the time and skills to project manage tradies?
— Set a budget and stick to it. Expect the unexpected when it comes to costs.
Love It or List It airs every Wednesday at 8.30pm on Lifestyle, and will be available to stream On Demand on Foxtel.