Don't be fooled by the TV shows: flipping a house is hard work, but that doesn't mean you can't do it, or that it can't be profitable.
House flipping – the process of buying property, renovating it and selling it at a profit – has become a phenomenon in the US, thanks in large part to the popularity of shows like Texas Flip n Move, Masters of Flip, 5 Day Flip and Flip or Flop, and the (potential) money that can be made.
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The popularity of “The Block” and “Love It or List It” in Australia has brought property flipping to the forefront in Australia.
And while it's harder than it looks, or than the TV stations make it seem, it could be the thing that gets you up the real estate investment ladder.
You just need to know the right way to do it.
Flipping Blueprint
“They make it look so easy on TV shows,” says Ray Ellis, CEO of First National Real Estate.
“You buy a property, you spend $50,000, you sell it and make a $50,000 profit, but that’s not all.
“It doesn't show all the hard work that goes into making it – the luck involved, the market conditions, the bridge loans, the midnight painting, the asking of your uncle the electrician for favours. It's not something you can do for 30 minutes on TV.”
But that doesn't mean you can't do it, or do it well. The same TV shows that give you the false impression of how easy reselling is also provide a blueprint for how to do it.
“There are a lot of traps, but now people have insight into how it's done,” Ellis said.
“Watching a show like 'The Block' helps you understand what you need to do to get the job done. You can also watch it on YouTube.”
“But you have to be very disciplined about what you're doing. Don't fall in love with it and don't overinvest. You don't need to buy an expensive sink; buy something cheaper.”
“You have to decide on a budget and stick to it. You have to decide on a time frame and stick to it.”
“You need to know the area you want to sell to. What are the people moving there looking for? Are they young people or families?”
“If you build a two-bedroom property in a family-friendly area, it's not going to sell. You need to study the demographics of the area.”
As with most housing markets, affordability is a key issue, as is infrastructure, including transportation.
“Is this home in a location that has good transportation access? Because that will increase interest in the home,” Ellis said.
“Perfect reversal”
Andrew Winter, star of TV shows “Love it or List it” and “Selling Houses Australia” and a real estate guru, said despite the high interest in flipping property, it is not as popular in Australia as it is in the United States.
Winter said ideally, he'd need to flip a home between $900,000 and $1 million to make a 10% return on his work.
“At a U.S. show you can buy it for a very low price, say $90,000, and then resell it for $300,000. In the Midwest you can do that,” he said.
“But in Australia that's not possible.”
Some of the 'hidden' costs to consider here include agent fees, stamp duty and the higher interest rates you'll pay as an investor.
But Winter says there are ways to make resale work for you.
“In most decades, there's a year or two where you can resell at a profit if the market changes,” he said.
“Keep it for 12 months. You don't have to do anything. Just keep it the way it is.”
“When the market changes, buy at X and sell at Y. You have to monitor the market closely, but if you do it right, it's the perfect flip.”
Ray Ellis's house resale tips
— Learn about the advantages and disadvantages of the area, the best and worst locations, and upcoming infrastructure.
— Know your next buyer: Don’t let personal preference sway you. You’re not making a statement, you’re making money.
— Don’t overspend. Look for properties that have cosmetic issues rather than those that need major changes.
— Invest in a professional inspection. If you're not in the construction business, you may miss serious defects in the property, from faulty foundations to outdated wiring.
— Research the market to understand the latest sales and how long it takes homes in your area to sell.
— Consider the time it will take to repair the property. Do you have the time and skills to project manage a tradesman?
— Set a budget and stick to it. Expect surprises when it comes to expenses.
“Love It or List It” will air every Wednesday at 8.30pm on Lifestyle and will be available to stream on demand on Foxtel.