Is there still life in property flipping?
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It’s a sign of the times when there’s almost an entire TV channel devoted to property flipping, with a hungry audience hanging on every lesson and word of wisdom.
The 9Life channel is full of shows with titles such as Flipping Houses, Flip or Flop, Property Ladder and Flip This House that are big on entertainment and, often, even bigger on the profits that can be achieved. And there’s even more shows on Foxtel’s LifeStyle channel!
But in this time of an over-inflated property market sending house prices through the roof in Sydney and Melbourne – the nation’s two biggest markets – fears over housing affordability have never been greater.
Which is why some have assumed the property flipping boat has sailed, scaring off even the best renovator investors from taking on a fast-turnaround property project.
With housing price at sky high levels, valid questions have been raised over whether there is still good money to be made by the approach of buying, renovating and flipping property all in the same market.
However, there is a range of key players in the real estate game who insist there is real value to be had in property flipping. It all comes down to making the right choices.
The definition in the site, Investopedia, describes flipping as, “a type of real estate investment strategy in which an investor purchases properties with the goal of reselling for a profit. Profit is generated either through the price appreciation that occurs because of a hot housing market and/or from renovations and capital improvements”.
It’s in the planning
Any time or place you look at it, flipping comes down to making informed choices, doing the research, knowing the right markets, and having a mission plan. Then there is a whole lot of sweat equity involved, along with long hours spent at the local hardware warehouse.
“There are doomsayers claiming it’s all too late, but you simply need to undertake better research and due diligence and avoid the herd mentality by following the crowd,” says Australian Property Advisory Group’s Andrew Crossley, author of the book Property Finance Made Simple.
“There are markets within markets, and there will always be locations that rise in value as different locations have different cycles.”
The right market
Sydney real estate guru Rosalie Gordon of Planet Properties says now is the time to look beyond the headlines about Sydney and Melbourne, and take a better look at opportunities throughout the rest of the country.
“There are always opportunities in different areas, so the secret is to pick a growth area and then find the right project that offers plenty of potential,” Gordon says.
“This is when research is the key. You need to pay attention to know exactly what you are buying into, and then have a very clear idea of what it will need done to it to make the profit.”
Starting out small
Taking on a small project that requires a simple but effective makeover is the best first approach for newcomers to flipping, advises Gordon.
Having a plan is key: map out a clear budget and be realistic about what you can achieve
“Turning an ugly duckling into a swan so it will present fabulously once it’s done is the best approach, working with the original footprint and framework as much as possible and doing all the cosmetic work that can be cheap to do but make a huge impact,” she says.
The advantage that most mature homeowners have in stepping into property flipping is being in a position to take advantage of the growth in value in their existing homes over recent years, adds Steve Jovceski of financial comparison site Mozo.com.au,
Turning equity into profit
With interest rates remaining at an all-time low and with some banks still offering mortgage rates for as low as 3.64 per cent, getting into the game remains a viable option.
“Older home owners who have held onto their property have probably seen massive gains in their equity, and could definitely leverage this windfall to build further wealth through investing in property,” Jovceski says.
“One of the most important things to remember with property flipping is that you’re earning a profit from the improvements you make to the property. So you need to ask how much of the renovations you are going to contract out to tradespeople and what that will cost, versus how much you can do yourself, and how long it will take.”
Taking the risk
For all the big profits the TV shows often show the hard-working flipper walking away with, there’s not always the guarantee of big returns in a quick makeover. Making over and flipping a property for a fast sale is an investment plan, and just as with any investment, comes at a risk.
“Some people prefer to buy and hold, as flipping does not suit every situation and the real profits could come further down the track,” Andrew Crossley adds. “Flipping can definitely involve more risk than buying and holding.”
It’s a warning echoed by Steve Jovceski. “Older homeowners who have experienced an equity windfall should consider purchasing an investment property, renovating and holding it for the long term to reap the gains of capital growth well into their retirement.”
Flip or hold?
Rosalie Gordon insists that it all comes down to doing the research to know what the market is doing in that location.
“The whole idea about flipping is to keep costs to a minimum to make a profit,” she says. “If the market is moving, it might be ideal to flip it the moment it’s finished. If it’s a slow-burn growth market, then holding onto it for a few years might be where the payoff comes.
“Remember, it’s an investment so it’s about going into this with your eyes wide open – and then keeping them open throughout the process.”
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