Long before house flipping was popularised by reality television, handy people bought run-down houses, renovated them and turned them over fairly quickly—‘flipped’ them—for a tidy profit.
Now it seems everyone is a DIY expert out to make a fortune flipping houses.
If you’re planning to buy a house to fix up and sell for a profit, here’s what you need to know to avoid your flip becoming a flop.
House flipping: Choose the right house for the right price
Consult a professional financial adviser to ensure that you don’t overcommit financially and that your numbers add up—it would be heartbreaking to get to the end of your project to discover that you had actually lost money.
Your financial adviser will also talk you through Capital Gains Tax, how it applies to your project and how to legally minimise your obligations.
Work with a professional local real estate agent to ensure that the house you buy is within your price range, has a functional layout and is located close to popular amenities.
To avoid nasty expensive surprises down the track, have a qualified building surveyor inspect the house to ensure it is structurally sound before you sign a contract.
House flipping: Time is money
If you are working with a partner or friend, agree from the outset how much time each of you can realistically commit to the project and how the profits will be split on sale of the house.
To succeed you need to treat your project as a business, not a hobby; for this reason you should avoid getting attached to the house and keep in mind that it’s not your home.
Remember that your labour isn’t free, there is an opportunity cost in the activities you forgo to work on your project; so you need to ensure that your efforts are productive.
To put matters in perspective: If you plan to work on the house for 2 hours each weekday and 8 hours each weekend day, that’s 26 hours a week you could be working in a second job, earning what could be a significant amount over the life of your project.
House flipping: Budgeting matters
Keep your project on track by setting a budget at the start and regularly monitoring your progress against it.
Your budget should include provisions for any work that needs to be done by professionals, including electrical, plumbing and drainage.
One of the most important functions of your budget should be to ensure that you do not overcapitalise the property with your improvements—you need to be sure that you can more than recoup any money you spend on renovations.
Your selling agent can help you with prioritising the work you do to ensure it meets the requirements of the local market.
House flipping: Do what you do well
When renovating, don’t cut corners or use cheap materials—it will show and affect your sale price and profit.
Don’t attempt a task if you don’t have the right skills and tools.
It’s cheaper to pay a professional to do a job properly than to have them rectify a botched attempt.
Higher-quality (but not top-of-the-range) taps, mirrors, light fittings and floor coverings look better, last longer and will give your renovation greater appeal.
Don’t be tempted to personalise the décor to your tastes; a neutral palette will suit a larger number of buyers and allow them to envisage the house decorated in their own style.
House flipping: We’ll find you the right house to buy and sell it for too
The McGrath Real Estate team knows where all the little dusty treasures are hidden in Adelaide’s western and coastal suburbs.
It just so happens that the three hotspots named by Money Magazine for renovation in Adelaide this year sit right in the McGrath region: Semaphore, Edwardstown, and Findon.
We’d be delighted to help you find just the right fixer-upper for your renovation project and guide you towards a successful outcome and a sale price that rewards you for all your efforts.