How you could make a profit from property flipping
This article is part of The Homeowner’s Journey series, featuring case studies from homeowners and property professionals.
Property flipping – the process of buying a home, renovating it and selling it for a profit – may seem like a good investment technique, but be warned: it’s not for the faint of heart. Property flipping as a viable property investment strategy requires a keen eye for valuable property, lots of hard work, and a genuine interest in fixing up homes. When done right, it’s sometimes possible to turn a profit, and in rare cases people can even make a living out of it.
Mat is one of those rare cases. An avid property flipper now onto his 9th property renovation project, he has experienced a lot over his last 20 years of renovation. Here, Mat shares his top property flipping tips:
1. Start with location
“It’s amazing how much money people will spend to live in the right location,” Mat says. That’s why he believes successful property flipping is all about investing in a good location.
“I often invest in properties that I’d like to live in myself,” he explains. “Places that are close to public transport, schools, hospitals, grocery stores and so on.”
Beyond the geographical location of a property, Mat encourages property flippers to also research the demographics of the area. “You have to consider who you’ll be pitching to. Will they most likely be families, young singles, couples or businesspeople?”
He highlights that you can do your own research on this by going to auctions, observing the types of people who show up and bid, and by talking to real estate agents. You can also look at what other houses in the area are selling for and what styles seem to be most popular.
Obviously, where you can actually afford comes into the equation too when deciding on locations. Mat gives an example: “You can buy a house in Ringwood for $400,000, but you can’t buy a house in Toorak for less than $2 million.” Every suburb has a hot spot – that is, the most desirable location in the area. Usually it’s a street or even a few streets. The idea is to locate it and concentrate your search to that area.
2. Understand the process
Understanding the renovation process can feel strangely similar to learning a new language. However, Mat believes that when it comes to property flipping, it’s essential to “do your research properly and understand what you’re about to do.”
There are a few ways you can do this:
Look for resources
“The reality is, there aren’t a lot of resources out there for people to learn about renovation and how to make a profit from property flipping,” he says. “There are courses you can do, but I’ve been to a few of them and they’re often just sales pitches. If you’re quite inexperienced, you can probably get a lot from the free information sessions they sometimes hold. Other than that – talk to people. Pull your tradie friends aside and start asking questions.”
“You’ll find that a lot of people who do property flipping successfully come from trade backgrounds,” Mat notes. “My grandfather was a builder and my dad was a bit of a handyman, so I kind of grew up around the industry. If you don’t have access to that yourself, I recommend getting out there and working alongside builders to see how they work.
"Immersing yourself in renovation is the best way to build an understanding of it, as well as researching and looking at properties.”
Build good relationships
“Yes, they make it look really easy on reality TV shows, but you’ve got to think about how many paid people they actually have working behind the scenes! In the real world, tradesman don’t just silently do their jobs behind the scenes. They can be horrible to work with,” Mat warns. “They won’t always prioritise your work, can do a dodgy job and may even take advantage of your lack of knowledge by promising prices and timeframes they can’t deliver on – just to get you to sign the contract. If you are relying on trades, you’ll want to build good relationships with your tradesmen. Logistical and people management skills will come in handy, and you’ll learn as you go along.”
3. Keep it generic and basic
While you may have your own particular tastes and preferences, property flipping is not the time to be doing crazy stylistic experiments with them.
Mat points out, “your favourite colour might be purple, but that doesn’t mean you should paint a bright purple feature wall in your lounge room. You need to keep your renovations generic in order to appeal to a larger amount of people.”
Doing basic renovations that will appeal to a wider variety of people is the way to go. And, Mat adds, you can save costs by keeping your renovation work straightforward.
“Purchase a place with a solid structure,” he says. “I’m open to adding an extension, but I won’t knock down and rebuild a place. I’ll only do a cosmetic renovation. Steer away from anything that requires getting a council permit (i.e. swimming pools, sheds) – these only cause nightmares and stretch out your timeframe. It will often take a minimum of 12 months to get a council permit.”
4. Think about your financial capacity
The last important point Mat makes about property flipping is that you need to have a solid financial backing.
As he puts it,
“you need to understand more than how to pick up a hammer and bang a nail in. You need to understand the financial side of property flipping as well.”
This will probably mean working with a financial adviser.
“I work with a financial adviser who has helped me put together an investment strategy so I can understand where I’m at financially,” Mat says. “It’s important to have a good understanding of your money. Work with an accountant or financial planner to determine what your costs will be and if property flipping is financially viable for you.”
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