How to get into flipping properties

Written by view.com.au in Renovating

Flipping properties can be a great way to accrue wealth through property in the short term and compound that growth into considerable gains over many years. But in a highly competitive market, it is important to understand the practices and principles that underpin flipping properties as well as understand that tighter markets and higher prices make this practice harder for hobby investors but still a feasible and even lucrative source of income for those willing to dedicate full-time hours to flipping properties.

House in the palm of a person's hand

Start small when flipping properties

The best way, or the only way, to build your wealth through flipping properties is by starting small.

Invest in a property that is well within your budget, such as an apartment, and one that will attract interest once you place it back on the market. Your strategy should be to build your wealth very slowly through incremental returns when flipping properties. With this in mind, avoid investing in older properties that may have hidden structural issues that put potential buyers off. Invest in new properties that can benefit from minor modifications instead.

Aim to improve the two areas that create the largest returns for renovators: the bathroom and the kitchen. Researching DIY renovation techniques and savings costs where you can during the entire process, renovating the bathroom and kitchen of an apartment or small home, as well as cosmetic modifications (landscaping, painting, repairs, new lighting fixtures and skylights), are a great way to grow on your investment in the short term.

Keep watching the market

Accruing wealth through renovating properties is harder than it looks. You can’t just expect that the money you invest will translate into increased gains once you sell. The biggest threat to your income will be the market, potentially reducing your sale price by the very 10 per cent you were banking on receiving after investing in not only the property but the costs of renovating.

Timing is everything when flipping properties, so be sure that you won’t be trying to sell your property in a buyers’ market or following the fever of a Spring market. For ‘mom and pop’ investors/flippers, it is more common to sit on the property for longer, playing a longer game when it comes to turning over properties. Intensively buying and flipping properties within short time frames should only be done by those with very strong project management skills, ideally existing DIY skills, and who are willing to dedicate the time (akin to a full-time job) to managing the process.

Invest in professionals where it counts

If intensively flipping properties is your strategy, you may not want to prolong the sale of your property as you learn how to properly install underfloor heating or solar panelling. A professional tradesperson will increase the cost, yes, but you may make this up by selling sooner before your ongoing costs pile up too high (administrative fees, utilities, council taxes).

The best areas in which to invest in a professional are:

  • Major structural repairs and modifications (additions, remodelling bathroom plumbing, ripping out walls, creating new windows, decking). This is especially so for older houses that may have dangerous materials within the walls
  • Utility connections (piping for gas, electricity connections, heating etc.)
  • Significant repairs or remodelling of roofwork
  • Chimney repairs and modifications

Consider the hidden costs

Remember there are hidden costs of flipping and selling properties quickly as well as the hidden costs of renovating. The most common way people approach the largest expense of flipping properties (buying the actual home!) is by refinancing on their existing home and borrowing using the equity they open up. This saves people the expense and risk of opening up a new mortgage every time. The implication of this, however, is that you need to have a large enough amount of equity in your home to make the move feasible. This limits those who can afford to flip properties to those who have already accrued significant wealth through capital gains growth. One way younger investors tackle this is through borrowing 100 per cent of the property value through a guarantor loan.

The short-term risks to your and your guarantor’s financial health through flipping properties is why it is a strategy employed by those with the skills and time to do things efficiently and strategically.

Scale up your renovating

Once you have built up both the experience and the necessary capital and if you want to continue generating significant wealth through flipping properties, then there will come a time to scale up your efforts.

Play the long game and keep your eyes on properties that you are interested in developing in the future. Auctions are not your only source of potential properties. Contact owners of properties you stumble across, they may be interested in selling or indicate that they would be willing to talk again in a couple of years. This gives you a time frame in which to work to build your wealth to make the most of these future investments.