Four Tips for Choosing the Perfect Property to Flip
Flipping houses is not as simple as it seems on TV. There’s a lot you need to consider for a successful flip.
Watching the TV shows might seem like enough to convince any real estate investor that flipping houses simple. You buy a home, renovate it, and sell the house for a huge profit.
Obviously, it isn’t that simple.
This article looks at what it’s like when you’re at the coalface. It offers some useful tips for flipping properties. But first, let’s look at some of the key challenges you’ll face.
Why Is Property Flipping Challenging?
Many misunderstand how challenging it is to flip homes in real estate investing. Just take what happened in Sydney as an example. Those who bought properties to flip prior to 2018 didn’t know that prices would soon fall.
An article published in the Australian Financial Review looked at this issue. Ercan Ersan, who’s the Director at Ray White Surry Hills, says:
“Anyone who bought in that period [between 2016 and 2017] and is now selling is doing it tough and they either have to accept current conditions or look at holding onto that property for at least the next three to five years.”
So, changes in the market represent a key challenge. A decline, as we saw in Sydney, could result in your property having to sit on the market until prices increase again.
Beyond that, many investors simply aren’t sure what they’re doing when they decide to flip houses. They don’t have the process down to a fine art, which means they struggle as the project goes on.
It’s important to understand that there’s a limit to the profit you can make when renovating a property so you can sell it on. You have to consider the cost of the renovation, plus the money you’re paying to tradies. There are also carrying costs, such as taxes, insurance, and mortgage payments. You likely borrowed money to buy the property. That means you need to meet your obligations while you work on it.
Finally, you have to consider the fact that the market can see the past sale price. A savvy buyer will jump online and see your purchase price. If you bought for $500,000 and try to sell for $800,000, they’re going to ask why there’s such a massive increase.
After all, when you flip you sell homes mere months after buying them. When it comes time to sell you may have to work hard to justify the higher price tag.
This all sounds rather negative.
However, it’s important to note that flipping houses is possible. For one thing, market conditions have started to improve, as Westpac economist Matthew Hassan points out in The Guardian. He says that Sydney’s price correction is at an end and points to the 1.3% rise seen in August 2019 as proof.
The key is to create a well-oiled machine so you can get it right more often than not. Here are some tips to help you to do that.
Tip #1 – Don’t Buy Unique Properties
When you buy for yourself, uniqueness may be a desirable quality. But when you buy houses to flip, it’s likely to count against you.
A unique property will often take longer to renovate because presents challenges you won’t find in standard homes. Plus you’re limiting your market appeal to the small niche of people who’ll find the property charming.
Ideally, the property you buy should conform to what the local market wants as far as possible. That means you only need to worry about renovating to bring it up to, or beyond, the required standard.
Tip #2 – Always Calculate the Renovation Costs
You’ll deal with a range of renovation costs, including:
- Costs related to getting planning permission
- Removal costs for old materials
You may also have to deal with costs for getting finance for the renovation. Then there are the costs of holding the property as you conduct the work on it. Remember that you can’t take on a tenant when you’re renovating. That means the property isn’t generating an income.
Account for every possible cost. And remember that they’ll vary for each property.
If the renovation costs added to the purchase price exceed what you expect from the sale price, move on to another property.
Tip #3 – Look for Motivated Sellers
A motivated seller means room for negotiation. If they want to sell as fast as possible, you may be able to lower the asking price if you can offer a quick deal.
Try to discover the reason behind the sale before making your offer. The vendor may have had a change in circumstances that you can use to get the property for below its market value. This leaves you in a good position to make a profit when you flip the house. When you buy below market value, you place yourself in a position to have equity from the moment of purchase.
Tip #4 – Educate Yourself
Don’t rush into buying a property just because it seems like a good opportunity.
You have to educate yourself on the right way to flip houses before you move ahead. This means learning about the types of renovation that generate the most profit. You also have to understand all of the challenges that lie ahead for any house-flipping project.
Learn How to Flip Houses the Right Way
This last point may be the most crucial of all.
It’s certainly true that flipping houses is a lot more challenging than it may seem on shows like The Block.
However, that doesn’t mean it’s impossible. Many investors make a very good living from flipping properties.
Education is the key.
We educate clients about the pitfalls and potentials that exist in the Australian property market.
And with our Property Uplift Program, you’ll learn exactly what to look out for when flipping houses.
If you’re interested in learning more about property investment and profiting from distressed property, join the upcoming Real Estate Rescue webinar with Dominique Grubisa.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.