Post to Facebook on 4/3/2018 at 12:34 PM
Commenting on “Flipping houses? Is it worth it?”
https://binvested.com.au/flipping-houses/
A former student and her colleague in construction related business are considering to try out house flipping, and ask me for advice. They have contacts with many tradespeople who can help in tarting up or renovating the properties. They intend to do it as a side income.
What is house flipping? An investor purchases a property not for his own use, but with the intention of selling it for a profit. That profit is typically derived from price appreciation resulting from a rosy real estate market or capital improvements to the property – or both. An investor might buy a rather "tired" property in a "hot" neighborhood, renovate it, and then put it back to the market.
Such concept is not new. In fact, more than 30 years ago before I worked in the real estate industry, I saw potential in such venture. I did not have enough fund to buy another property, because I was just about to pay off my housing loan. I approached my close friends to pool our money to invest in a run down house, and fix up the property together.
We were all having full time jobs, and the only time available would be after hours and weekends. Most of them were not financially well off, still had children attending schools. Furthermore, none of us was a tradesperson. I was probably the only one that was more "handy", because I worked on my first home, and single-handedly landscaped the architect-design house I was living in then. Unfortunately, that proposal did not get a thumb-up.
In recent years, popular TV shows such as The Block, House Rules, Homes and Garden have excited a lot of viewers, especially the Generation Y, to believe that there is big money to be made in flipping. According to CoreLogic, the percentage of properties owned for less than two years has grown – coinciding with strong capital growth in the major cities.
The highest rate of flipping for the year to June 30, 2017, occurred in Sydney, was 8.3% and in Melbourne 7.7%. The days of buying just about any property in Sydney and Melbourne, re-selling it quickly and being almost guaranteed a profit is over.
Besides all those TV shows, there are many gurus giving free seminars explaining how to make huge profits in house flipping. How can they afford and make money by giving free seminars; they need to hire the venue, promote the seminars, employed a few helps on the day, free coffee/tea, and may be a giveaway token present? After all the salivating seminars, you find so tempting to sign up to learn more - what so big deal for a couple of thousand dollars if you can make tens or even hundreds f thousands by signing up some courses.
If these gurus are so good, why don't they continue to use the same method to make more money for themselves, instead of flying down from the sunshine coast state - "beautiful one day, perfect the next"?
Some house flipping experts, including Charyn Youngson from Adelaide, have some simple rules which can possibly help you to make a fast profit:
What are the cons?
If you are serious about giving a go at house flipping, I suggest you go to attend some handyman courses, paid or free ones, and start with the property you are living in, provided you are not renting the property. One of my former neighbours who was a painter by trade did exactly the same. The following is a list of pros and cons:
Thank you for reading.
Commenting on “Flipping houses? Is it worth it?”
https://binvested.com.au/flipping-houses/
A former student and her colleague in construction related business are considering to try out house flipping, and ask me for advice. They have contacts with many tradespeople who can help in tarting up or renovating the properties. They intend to do it as a side income.
What is house flipping? An investor purchases a property not for his own use, but with the intention of selling it for a profit. That profit is typically derived from price appreciation resulting from a rosy real estate market or capital improvements to the property – or both. An investor might buy a rather "tired" property in a "hot" neighborhood, renovate it, and then put it back to the market.
Such concept is not new. In fact, more than 30 years ago before I worked in the real estate industry, I saw potential in such venture. I did not have enough fund to buy another property, because I was just about to pay off my housing loan. I approached my close friends to pool our money to invest in a run down house, and fix up the property together.
We were all having full time jobs, and the only time available would be after hours and weekends. Most of them were not financially well off, still had children attending schools. Furthermore, none of us was a tradesperson. I was probably the only one that was more "handy", because I worked on my first home, and single-handedly landscaped the architect-design house I was living in then. Unfortunately, that proposal did not get a thumb-up.
In recent years, popular TV shows such as The Block, House Rules, Homes and Garden have excited a lot of viewers, especially the Generation Y, to believe that there is big money to be made in flipping. According to CoreLogic, the percentage of properties owned for less than two years has grown – coinciding with strong capital growth in the major cities.
The highest rate of flipping for the year to June 30, 2017, occurred in Sydney, was 8.3% and in Melbourne 7.7%. The days of buying just about any property in Sydney and Melbourne, re-selling it quickly and being almost guaranteed a profit is over.
Besides all those TV shows, there are many gurus giving free seminars explaining how to make huge profits in house flipping. How can they afford and make money by giving free seminars; they need to hire the venue, promote the seminars, employed a few helps on the day, free coffee/tea, and may be a giveaway token present? After all the salivating seminars, you find so tempting to sign up to learn more - what so big deal for a couple of thousand dollars if you can make tens or even hundreds f thousands by signing up some courses.
If these gurus are so good, why don't they continue to use the same method to make more money for themselves, instead of flying down from the sunshine coast state - "beautiful one day, perfect the next"?
Some house flipping experts, including Charyn Youngson from Adelaide, have some simple rules which can possibly help you to make a fast profit:
- Buy below market value - 20% below
- Buy at lower end of the market - less risky, more buyers can afford to buy
- Cosmetically renovated not structural - around 3 to 5 weeks
- DIY and upstyle - style with furniture, artwork and accessories
- Hire the right team - engage trustworthy tradespeople who also charge a reasonable price
- Build a good team around you - engage tradespeople who are ready to work on it ASAP
- Think positive - have the right mindset
- To do or not to do - DIY or engage skilled tradespeople to work on the project
- Be realistic and do your research
What are the cons?
- Lack knowledge of the local market
- Difficult to pinpoint the real estate cycle
- Most low end run down properties need more than cosmetic touch up
- Require contingency or reserved fund when things go pear shaped
- Profit gets eaten up by associated costs which normally exceed the budget
- Difficult to find reliable and good tradespeople
- Need time, skill and experience to coordinate the project
- Loss opportunity with money tied up
If you are serious about giving a go at house flipping, I suggest you go to attend some handyman courses, paid or free ones, and start with the property you are living in, provided you are not renting the property. One of my former neighbours who was a painter by trade did exactly the same. The following is a list of pros and cons:
- No initial capital outlay
- Know your local market
- Style it and enjoy it
- Associated costs are absorbed since you are the occupier
- Learn the nightmare of finding the right tradespeople
- Coordinate with tradespeople
- Best of all, there is no Capital Gains Tax (CGT) on selling the property
Thank you for reading.
