If you’re thinking of buying a property to flip but you’re not really sure what to look for or how to find a gem, then you’re not alone. In my short time as an on-the-side house flipper, I have learnt some invaluable lessons that I felt I must share.
Before buying your first project home, keep these tips in mind to ensure you stay in the green and not the red.
Do Your Research
This is probably the most obvious, yet important step on your flipping journey, you have to do your research and carefully consider some important factors before purchasing the property. Always remember, you want the worst house in the best street.
- Are you buying in a good area? Is it up and coming (i.e is it surrounded by expensive suburbs but this one is yet to boom)?
- What is around you? Are there schools, bus stops, shops all in walking distance or a short drive away?
- What are the other houses in the street/suburb doing? As houses around you are starting to freshen up their properties, the value of other properties is going up.
- What is the market doing? Have a look at allhomes and do some comparison on past sales.
- Does the house have street or curb appeal?
- Check out the houses around you, do they appear to be well looked after? Are there skid marks on the streets or any signs of ‘dodgy’ citizens living in the area?
- Is the house specially zoned for dual occupancy? This will increase the value of the property as there is potential to sub-divide and build a second dwelling.
Look for Good Bones
Take it from someone who is currently having to deal with the local council to get approval to build our own home, you do not want that sort of a headache in a flip house. If you think the house will need extensive work done (i.e second story, extension) you will be able to find information about whether or not development approval is required through your state council. if you don't believe me, have a read of my previous post about hidden fees!
When you’re looking for a property to flip, find something with great bones that is just a little run down and in need of some TLC. It is much easier and more cost effective to give a property a ‘facelift’ than to do major structural work (obviously). Look for old bathrooms and kitchens, peeling paint, run down gardens etc. These are easily fixed and will automatically add value to the property.
If the house needs a more open planned design and therefore walls will need to be knocked down, check for trussed roofing – if you have a trussed roof, that means you can knock down every internal wall without compromising the structural integrity of the home.
To avoid approvals and expending unnecessary money, try and keep external windows and doors the same – these are not only expensive, but many councils will have a something to say about you moving them and may make you submit a development application.
Finally, try to leave your major pluming works as is, not only will this reduce labour costs, but in most cases your council will have a copy of the plumbing plans and any variation to these will need to be redrawn and resubmitted to council which could cost you well over a thousand dollars.
Set a Timeline
Unfortunately, shows like The Block have set us up with unrealistic expectations on the length of time it will take you to renovate a house. Generally speaking, it takes four to six months to flip a house.
If you know this going in, make sure you factor into your budget the six months worth of mortgage repayments you will need to make on the property. This will help you set a realistic budget to ensure you will make money on the property.
In order to make a profit on a property, you want to buy and renovate the house for 70% or less of what the final selling price will be. Make sure you take into consideration any additional costs that you may not have considered such as stamp duty, capital gains tax and government fees.
Speak with a real estate agent and ask them for recommendations on the layout of the home. They may well give you insights into the area and the type of buyer you should be aiming to sell to.
Always remember, factor in your real estate commission fees if you’re going to sell through an agent, this is generally anywhere from 2 to 4 per cent of the final purchase price.
Know your Buyer
This is probably the most important point to keep at the forefront when you’re renovating for profit – always, always keep your buyer in mind. You are not building your dream home, so try to not impart your specific tastes on the property too much.
Think about who your target audience is for the property and what is going to make them fall in love with the place?
If you’re buying close to a school, perhaps it is a family that will be your buyer, so they will want nice bedrooms with built in wardrobes and an open plan living space with a landscaped, kid-friendly backyard.
Keep your design pallet neutral so that anyone can picture themselves living there.
Keep this in mind always, and always make decisions with the buyer at the forefront!