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Investing in real estate continues to remain one of the most popular wealth creation strategies in Australia. However, not every investor buys to hold, revelling in the comfort of owning an extensive property portfolio. Of course, holding an investment property for long offers the benefits of rental yield and better capital growth, but many investors today are looking to make a quick buck, bringing real estate flips in fashion.

In simple terms, flipping a house means buying a property and then selling it further before the first transaction is settled, and hopefully for a profit. A very lucrative way to make money, indeed, but flipping houses poses its own set of challenges in terms of finding a buyer within the stipulated time, taxes and other costs associated with the process. However, there’s another way to make a kill – buy, renovate, sell – that finds favour with many investors and looks especially appealing.

 

 

“The success of flipping houses as an investment strategy hinges squarely on your research and market knowledge. Before you decide to get into flipping, it helps to acquaint yourself with the real estate market and understand how the properties are performing in your area of interest. Buying at the right price and buying right – that’s what you need to keep in mind,” explains Andrew, an astute property investor.

“When I purchase a property, first, I look for houses that are below the market price. While a discounted property is hard to come by, some sellers need money quickly and would agree to offer a discount for a hassle-free sale. Second, it is imperative to take into account the cost of repairs while purchasing a house. If you buy a house for $400,000 and need to spend $100,000 on structural repairs, and are also aware that no house in the neighbourhood ever sold for more than $500,000, you might just be stepping into the hot water,” he adds.

On his part, Andrew chooses to buy properties that can be uplifted with quick cosmetic renovations within three to five weeks without dabbling in any structural renovations to keep the costs low.

Though, a few flippers may beg to differ – often, it is possible to find great deals on neglected or abandoned houses that come quite cheap but require substantial renovation, including some structural changes as well. If you are ready to take up the challenge, such real estate flips can often yield enormous returns unless your research was poor and you bought in the wrong area or underestimated your costs.


In case flipping is on your mind, don’t let your flip flop by letting these expert tips guide you:


Research the market
– A golden rule of investment that stands true for any property you buy is researching the real estate market to zero down on areas that have performed well in the past and are expected to grow in the future. Many areas that boomed in the past have almost reached a saturation point. Instead, investing in an upcoming area will ensure a reasonable entry point and the potential for future growth. ( Grab your free property report here )


Buy at the right price
– Because you would be spending money on renovating the house and would want to make a substantial profit, too, look for properties that are priced at least fifteen to twenty percent below the market price of similar properties in the neighbourhood. For this, you must build a rapport with real estate agents in the area who could sound you in when something like this comes up.


Know your buyer
– Very often, finding a buyer within a fixed or short time frame is difficult. To improve the chances of finding a buyer quickly, study your target buyer in advance to make buyer-friendly renovations. For example, if it is a single-bedroom house you are flipping, adding a study or a loft bed could appeal to youngsters, who may be your target buyers in this case. 


Keep the costs low
– Flipping a property involves several costs that will eat into any profit you make. Apart from the renovation expenses, you would also be paying stamp duty, mortgage costs, legal fee, etc. Keep these figures in mind before you decide to buy a dilapidated property requiring significant repairs.

Always look at the floor plan and the construction of the house; it will give you a good idea of the amount of work involved. Further, experts suggest that it is best to cap your renovation costs to ten percent of the market price of the property. For starters, it is best to buy homes that can be given a major makeover with cost-effective renovations such as a fresh coat of paint.


Have a plan
– When you are investing in something as valuable as property, it is important to have a plan. Would you rather build your income passively through a property portfolio or actively flip to make money? If you choose the latter, the rising property prices and accessory costs may dampen your profits. However, if you know what you are doing, you could always hold on to one (or a few) of your properties, using the equity in it to further expand your real estate footprint.

Another popular option is to buy, renovate and rent, keeping the property long enough, which offers three main benefits: ongoing rental to fund your mortgage repayments; building equity in the property that can be used for renovations or as deposit for another property (read useful tips for building equity faster); and, saving on capital gains tax, as no exemption is available if you sell your property within twelve months of purchase.

It is true that a profitable investment cannot be made on impulse. When you are investing in property, you also need to have a clear financial strategy, as you’d be required to put up a deposit as well as arrange for finance for the property. However, you may find it difficult to get a competitive investment loan due to increased restrictions placed by APRA around investment lending recently. Mortgage brokers at HashChing can help you finance your investment property and get you low-interest rate investment loan deals (compare home loan rates online) from over 60 lenders across Australia.

Get in touch with a mortgage broker by filling in the quick form below.

 
By Vidhu Bajaj
HashChing Content Writer
 

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