Flipping Property: Is this the goldmine it appears to be?

The term ‘flipping’ relates to the action of buying a property, renovating and reselling it, all in a short

period. For some this is a valid and effective way of making money. But is it as easy as it sounds?

An article in the Sydney Morning Herald in December 2016 cited the case of a couple who purchased a property, declared uninhabitable by the local council, from a deceased estate for the sum of $771,000 and resold it two years later for $1.615 million. Huge numbers and enough to get quite a few people thinking how they could follow a similar path.

However, coming back down to earth for a moment, we should consider exactly what is involved in the process: the physical work, the mental effort, the time it takes, financing, possibly maintaining a family at the same time and so on.

Let’s look at some of the factors:

Financing the investment

  • Unless you have several hundred thousand dollars lying around you will need bank finance to purchase the property.
  • Do you own your own home (mortgaged or not) from which equity can be extracted for the initial purchase.
  • How do you intend to finance the renovation – we’ll come back to this a little later.

Finding a suitable property

  • Do you have the skills to assess an older property and understand what needs to be done to successfully add substantial value to it.
  • Should you refer to a professional in the building industry before committing to a project that is not your primary expertise.
  • When deciding on a property have you researched the location to understand the local demographic, current house pricing, sales within the area, desirability and so on.

Once you’ve chosen a property

  • Are you going to sell-up your own home and live in this property whilst working on it.
  • Are you doing the work yourself or engaging a project manager. Can you manage it yourself and engage tradesmen as needed.
  • If you continue to live in your own home how easy is it to continually travel between the two locations whilst the renovation is ongoing.

Getting to grips with the renovation costs

  • An important thing to remember is this is a business transaction, so create a budget, investigate availability and pricing of items you need for the job and endeavour to work within your clear financial boundaries.
  • Create a work time-frame schedule. Whether you do the work yourself or engage others costs can seriously escalate if the project runs significantly over time.
  • Whilst there is no hourly pay rate for your own time you will need to factor in amounts due to anyone else working on your behalf.

Other considerations

  • If you are going to undertake the renovations yourself, do you intend to continue your normal occupation at the same time. This would certainly help with financing the renovation as it may aid in securing further loan funds. However, how much time and energy will you be able to give to the job? Will you end up spending every weekend and evening on it and how will that fit with your completion schedule, lifestyle and family commitments.
  • If you decide to project manage but employ others to do the work, how will you supervise this if you are in full-time employment.
  • If you have a professional project manager on-site how will that affect the overall cost.
  • If you decide to give-up work and concentrate on the renovations full-time, that would enable to project to be completed quite quickly but there is still the question of how you will finance the ongoing costs as you will have no income.

Obviously, the questions and observations above are fairly generic but they do require some thought. Some of them may not apply to you: perhaps you are a builder by profession, maybe you have no family to consider and can spend a substantial amount of your time working on the property without it affecting others, or you may have a partner who is eager to be involved as well.

Renovations, upgrades and home improvements come at many levels, from a simple paint job and new interior/exterior fittings, to new bathrooms & kitchens and right through to knocking out walls and rebuilding sections and extensions.

If you decide to go down this route choose something that fits with your strategy, something achievable both in the way of workload and finances: A project that you can jump into, work on, finish in a timely manner and realise the rewards. It’s not an idea to take lightly and you should be prepared for unexpected hurdles, time-delays and cost over-runs.