Flipping property may be an unfamiliar term if you are new to the property industry. Before we dive right into tips and tricks on how to flip property, let’s shed some light on what it is.
Flipping property often follows these four simple steps:
- Buying a house at an auction
- Cleaning and fixing it up by doing minor and major repairs
- Upgrading the interior and exterior
- Putting it back on the property market for sale
An independent valuer in Victoria can help you decide on which property to invest in. They also have the expertise to identify parts of the property that needs fixing to increase its value
Now that we have an idea of what flipping property is, let's explore how to get started and how to succeed.
How does house flipping work?
If you’re interested in flipping houses but don’t know where to start, don't stress. These tips can be your guide.
Above all, you’ll need to get a hold of an expert property valuer. Here’s why:
- They know the local property market like the back of their hands.
- You’ll get an accurate report on the value of the property you are interested in.
- Your report will outline the property’s potential for development and future income.
Think of flipping property as a business venture. You’ll first get an advisor (the valuer) who will advise you on how and where to invest your capital in. Next, you can follow these steps:
- Do your research
- Use the 70% rule
- Get sufficient funding
- Set out enough time
- Gain relevant knowledge and skills
- Make functional renovations
Do your research
Location is one of the most influential factors for your profit. Nearby facilities like schools, public transport, recreational parks and shopping malls can instantly increase the value of a home once it is refurbished. Buying a house valued low in a good area allows you to yield the most profit and capitalise greatly on your venture.
Finding out where to get the most affordable, but quality materials by comparing prices at different hardware stores will also help you save a fortune. The same goes for when you need a contractor to do the work you’re not skilled enough to do. Comparing quotes beforehand forms part of your research.
Use the 70% rule to maximise profits
When you have relevant information on the property you’re interested in fixing, you can use the seventy percent rule
It states that the price you pay for the house should not exceed seventy percent of the overall cost of the property and the after-repair value (ARV). The overall cost should include the cost of the house and the cost of the repairs. Mortgage and transfer fees, along with other expenses to refurbish the house.
The seventy per cent rule creates a 30% profit margin.
Consider your funding options
Apart from the initial buying cost, you’ll also need to fund the remodelling and renovations you have in mind for the property. If you already took out a mortgage to buy the house, these are the other options you can consider:
- Crowdfunding and donations
- Private moneylenders
- Interest-only loans
Another option would be to involve family and friends and to form partnerships. It also creates an amazing opportunity to form bonds and spend quality time with your loved ones who would be interested in flipping a house with you.
Considering the risks and putting some money aside in case of emergencies will also be beneficial.
Create a realistic timeline
When flipping a house, time is of the essence. Waiting for the perfect property with a low value in a high-value location can help you maximise your earnings at the end of the process.
The quicker you repair the house, the quicker it can go back on the market for you to get your return on investment. This doesn’t mean that the job should be rushed. Quality work takes time.
You’ll also need to make time to do the repairs. Home flippers usually take on DIY projects to revamp run-down and abandoned homes. Hiring skilled workers is an option that will incur extra costs. Doing most of the tasks yourself can maximise your profit.
Gaining relevant knowledge and skills
Having basic knowledge and the skills to do certain jobs like carpentry, painting, flooring etc, can work in your favour. However, if you’re completely new to it all, watching DIY videos and learning through trial and error can work too. Always remember that patience and determination are key.
Make meaningful renovations
The best thing you can do is to focus on upgrades that will actually increase the value of the house you’re flipping. Making it look beautiful can improve the kerb appeal and attract buyers, but the true value lies in the small and meaningful repairs you’ll make to make the house functional and safe to occupy.
Which renovations add the most value when flipping a property?
While you may think that making big improvements and adding the latest appliances or expensive furniture will increase the value of a home, it won't. Doing the following will add value to your house:
- Remodel the kitchen
- Modernise the bathroom
- Upgrade the windows and frames
- Use good quality waterproof paint
- Install new hardwood floors and skirting
- Replace ceilings and cornices
- Fix or replace built-in cupboards
- Invest in a good air conditioning system
Can kerb appeal improve the value of a property I’m flipping?
Although the saying goes “Don’t judge a book by its cover,” the kerb appeal is what attracts potential buyers. The outside of your house is what potential buyers see first and should not be neglected.
Here are some things you can do to enhance kerb appeal and the value of your house:
- Paint the exterior in a warm and inviting colour
- Install a good-quality front door
- Remove junk and debris from the yard
- Maintain the garden and mow the lawn
- Clean and restore the roof, gutters and downpipes
You can do all kinds of improvements to enhance kerb appeal and the value of a house you’re flipping, but ultimately, the small, but purposeful improvements count.
Can I flip houses for a living?
Flipping houses can be a lucrative career. With guidance, a clear plan of action, commitment and enthusiasm, you can make a fortune.
While it is a profitable craft, you must still be mindful of the risks. If you’re tackling a whole house on your own, you’ll end up spending more time, as well as money for the house, materials, tools and appliances needed to give the house a makeover.
Bad decisions, no matter how small, can lead to financial loss. Although you’re trying to save while revamping a house to make a profit, it is best to choose materials and contractors based on quality and not price.
Overspending to make a house look fancy, but not functional is another obstacle that first-time house flippers must overcome. Simply fixing up functional rooms to make a house suitable for residential use adds more value than building a fish pond in the garden or turning a room into a home movie theatre.
Summary
Flipping houses can be profitable, but requires a lot of time, work and funding. Run-down, abandoned and houses in foreclosure that are put on auction are great options to consider when flipping for profit.
While you don't need any qualifications to flip houses, having some skills and being willing to get your hands dirty is a prerequisite. Taking on DIY projects is the best way to yield the most profit after reselling a revamped house.
At the end of the day, the location, your budget and your choice of improvements to make will determine your potential gain.
A valuation before you buy and after you sell your house can help a great deal. Before buying, it can help you choose the right one. After selling, you can get a retrospective valuation to calculate how much capital gains tax you’re obligated to pay.
You can get a pre-purchase and retrospective property valuation from our experts at Valuations VIC. Don’t hesitate to call or visit us for more information or to book a full-service valuation.
