Home Real Estate How to stop a flip becoming a flop

How to stop a flip becoming a flop

What to consider before renovating for sale.

Azal Khan

Digital Journalist, Your Money

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Buy a property, give it a slick makeover and sell it for a profit. It sounds like a simple and foolproof way to make some cash.

The business of flipping properties combines Australians’ perennial love for real estate and our appetite for beautiful homes and design, with the promise of easy profit.

But some say flipping is not as simple as a shopping spree at Bunnings and some DIY painting, contrary to what home reno reality TV shows portray.

Chris Bates, a financial adviser and mortgage broker who runs Wealthful, believes the idea of buying low and selling high in the current market will only lead to flipping flops.

Chris Bates from Wealthful believes flipping isn’t worth it in the current market.

Bates says he has to convince people out of their The Block aspirations on a daily basis.

In the current market, flipping isn’t worth the end result.

“The reward is $50,000-$100,000 when it should be $200,000 to $300k.

“If there’s any market decline, you’ll be running backwards fast.

“You’re better off buying good property and holding it and doing a renovation in five to 10 years because the market will have generally gone up by then,” he said.

However, not all experts agree.

Buyer’s agent Amanda Gould runs High Spec Properties and has a string of successful property flips under her belt for herself and her clients over the past 25 years.

Amanda Gould is a keen flipper and believes it can make a good profit.

A profit is still money in your pocket, regardless of where the market is at.

“I think it’s a fair time to be flipping. I’ve bought and sold in highs and lows and you can make a profit, as long as you’re buying well,” Gould said.

She recently helped a client buy an apartment in Sydney’s beachside suburb of Bondi for $1 million. After a quality renovation, the property sold for $1,470,000 in January 2018, when the market still buoyant but starting its decline trajectory.

The interiors of the Bondi apartment pre-reno.

While the house prices in Sydney have come down further since then, Gould is still getting strong results from flipping property.

“Instead of getting $200,000 you might get $50,000 from a property flip. It’s still money.”

What should aspiring flippers be aware of before they embark on the process? Here’s some advice from experienced property flippers to ensure your flip isn’t a flop.

The drab kitchen of the apartment in Denham St, Bondi that Gould’s clients bought for $1 million and flipped for $1.470 million after a renovation.

1. Do the numbers first

Before you buy, work out what you can sell the property for afterwards.

Gould says a successful flip is all about buying right in the first place.

“When you buy in a buyer’s market, you have to make sure you get a serious bargain,” she says.

Despite the current slump in property prices, a good buy can return a healthy profit.

Gould’s recently helped a client buy a property in the Sydney inner-city suburb of Darlinghurst for $746,000. She believes they will be able to achieve a sale price of $1 million, after spending $70-80,000 on a quality renovation. Worst case scenario, Gould says the owners will be able to sell it for $950,000.

“Instead of getting $200,000 you might get $50,000 from a property flip. It’s still money.”

A 20 per cent profit after costs is the figure you should be aiming for, Bates says.

“You need to be making a huge profit margin based on current house prices, not the profit you might hypothetically make if prices started moving upwards again,” he warned.

2. Factor in costs

This is one element that aspiring flippers often overlook.

After buying the property, an investor will be slugged with additional costs like interest, architect and design costs, capital gains tax, stamp duty and building costs.

“One of the tips is to do it on a home you live in because you don’t pay capital gains tax, if it’s investment then you pay capital gains tax,” Bates said.

Rookie flippers often underestimate the time and building costs, something Bates has seen often.

Building takes time and renovating is a time-consuming venture. But flipping requires a focus on speed, because with every day that passes, the more money you’ll be spending on a mortgage, utilities, insurance and more.

“Unless you are a builder or you’ve done it before, you’re at the mercy at what other people want to charge you. If you haven’t had the experience, you can lose six months of time.”

3. Buy the right property

Gould sticks to flipping units rather than houses, which involve more cost and sometimes development approval from the council which causes more hassle and delay.

She warns against taking the word of real estate agents who “can still be quite misleading in what property might be worth.”

“An agent might say the property is worth $800,000, but they might be comparing to a property next door, which might be on a different floor, get a different sunlight aspect or have a better renovation. When you drill it down, you might find out it’s actually worth $750,000.”

She suggests checking the price against other renovated properties in the building which have set a precedent in price.

Gould believes the type of unit isn’t a huge factor and says any type of unit can be flipped for profit.

“If you haven’t had the experience, you can lose six months of time.”

Bates sits on the other side of the argument and believes only houses that suits families can be successfully flipped.

He speaks of people who bought in the property boom in the last five years with the intention of flipping and paid top dollar for a good renovation. Those people are now losing money because they bought the wrong type of property to begin with and are now feeling the effects of the house price slump.

The right property for flipping should suit a family, with space the number one buying requirement.

“The right kind of property once renovated should suit a family with two children, so it should have three decent sized bedrooms and some type of outdoor space that is actually usable,” Bates said.

People are renovating the wrong properties, making them harder to offload in a buyer’s market.

“Once it’s renovated, people just aren’t that excited to live in it. Families have options now rather than live in a tiny space.

“They will still sell but they won’t find a buyer who will pay what will make them a profit.”

4. Location, location, location

A central location, close to transport and amenities and a well-presented home will always attract buyers, Gould says.

“In a market like this, people want a turnkey approach and they don’t want to have to renovate. Nine times out of 10, people want the work done for them and say they don’t want the headache or stress,” she said.

Gould’s rule is to buy within 10km of the city or a beachside suburb that is popular with plenty of infrastructure and amenity to service the area.

Gould’s clients were looking for a unit to flip and she helped them buy an apartment on Bondi Rd, Bondi that ticked all the boxes: it was in a popular beachside suburb that will attract buyers.

“Make sure you know the area you’re buying in.”

Bates’ insider tip is to buy in an area that is likely to go up based on the suburbs around it.

“Don’t buy in a booming suburb, buy in a suburb ahead of the market where it might boom later on.”

He admits these hidden gems are hard to spot, so renovate to the right target market and you’re likely to snap up a buyer.

“You can buy with downsizers in mind, including all the luxuries they would love and renovate it in a style they would like. Pick a building that downsizers would love like an art deco building with a lift and view of the harbour,” he said.

Buying the worst house in the best street is a common piece of real estate advice and Bates says it has merit in some situations.

“It’s generally good advice because it’s the land value that goes up. If you’ve got land in the best street then that’s what matters.

“The challenge with buying the worst house is it might be on the end of the street, which might be on the main road, or on the south side, or it could have some kind of random building next to it or behind it.

“So, while it might be on the best street it might have ugly things near it and will all impact price,” he cautioned.

5. Do a quality renovation

A renovation doesn’t need to have a high-end price tag, but it does need to look high end, Gould says.

“I’ve seen a lot of bad renovations and they don’t sell as well.

“In a market where there’s a lot more choice, and there’s a declining market, people will buy a property with a better quality renovation if they can get it for a similar price.”

“I’ve seen a lot of bad renovations and they don’t sell as well.”

Her advice is to spend on the best you can afford.

Gould likes to “add wow factor” with stone, such as benchtops and tile finishes, and taps and hardware that add an edge to the design.

Shop around for a good deal and your hip pocket will thank you.

“You can get a tap from Bunnings that looks the same as one from Reece,” she said.

Read more: How to renovate an entire house for $15,000
More: Renovating a unit to maximise profit
More: What are the risks of buying off the plan?

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