Property flipping involves buying a property, adding value to it through renovations, and selling it within a short amount of time for a higher price. Sounds good really, but does it work? Here are some tips to find out if property flipping is really for you.
Firstly, you shouldn’t forget to consider transaction costs, holding costs, selling costs, and interest repayments when deciding whether or not a property flipping project can be profitable – not to mention the tax you would need to pay on your profit.
Never flip a property in a fickle market where the money you make would come from a strongly rising market, not exactly from any special skills you’ve got. The same goes with flipping in a flat market – making money would, realistically, be quite hard. Set realistic expectations as well! Property flipping can’t get you rich overnight. After interest, selling commission, holding costs, and tax, there can hardly be any profit left!
Remember to keep your property a fixer-upper, not a tear-it-downer. Maximise your renovation budget and avoid over-capitalising on structural changes that don’t add any tangible value. Choose a property that just needs a lick of fresh paint, upgraded flooring, window furnishings and light fittings, and perhaps an updated kitchen or bathroom. These are usually where you can maximise your renovation money.
You need a budget and follow it! Before you buy a property that needs work, get a professional building and pest inspection. Ask builders to quote on all the necessary work to upgrade the property so you can set a working budget and have an idea of your cash flow by the time the property is all ready for tenancy. Consider all expenses and make sure you have at least a 10% contingency budget for the unanticipated extras.
Identify your target market or the typical owner-occupier and tenant demographic in the area and renovate according to their expectations. Compare properties and see the type of improvements you can take to be able to charge the same prices (or even higher). If the local demographic in the neighbourhood are professional singles and young couples, you won’t buy a family home with three bedrooms, and just the same – if they are families, you won’t buy a studio or one-bedroom apartment in the area.
Stick to your budget when renovating and don’t spend extra dollars on a dream kitchen, for example. Don’t forget that you’re doing this to make money, not lose it! Consider the wear and tear and maintenance of the renovation as well.
Instead of property flipping, you can buy, renovate, and hold. Breathe new life into a neglected property and offer it as a welcoming home to your tenants. It’s a good way to manufacture equity for your property investment portfolio.
Are you interested in property development? Let’s turn you into a property developer without the hassle. Leave the financial admin side of things to us and focus on your property development journey. We’ll even throw in a wealth of tips for you. What are you waiting for? Give us a bell now!
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