When property prices are rising, renovating for a quick return is a popular investment strategy. But when markets are sluggish, improving a property before ‘flipping’ it, can also generate profits for savvy investors.
Buying to flip
When you flip a property, you’re buying a dwelling that you believe is undervalued, which you then improve and sell within a short period of time for a capital gain.
The key to a ‘renovate and flip’ or a quick turnover strategy lies in knowing the right type of improvements to make to generate the best returns.
Repainting, for example, can be less expensive when compared to other renovation jobs and you can restore a tired looking property quite quickly with an exciting new colour palette. Best of all, you may be able to do it yourself over a couple of weekends.
That said, before you start a renovation, even before you splash on a coat of paint, be sure to do some research and check out the prices renovated properties in your area are selling for. It’s pointless spending the money and doing the work unless there’s a clear financial benefit down the track.
Also, if you choose to renovate an apartment, townhouse or villa, you need to check with the strata management first to make sure it’s allowed.
One noteworthy improvement that can increase the value of a strata property is enclosing a balcony to create a home office, study or sunroom (subject to your local council’s approval). Alternatively, making room in a kitchen or bathroom for a washing machine and dryer instantly creates an internal laundry. Other examples include adding a split system air conditioner, timber floating floors over concrete and using plaster to hide unsightly ceilings.
One issue with flipping a property is that you may find the improvements or renovation take longer to complete than originally planned and the costs are higher. Cost blowouts can occur where there are unexpected problems with the home’s condition that need to be fixed before you start the improvements.
Making adjustments and additions to the original contract of works with a builder can also hike up costs as the renovation proceeds. Gathering a number of building quotes, then keeping a lid on costs once the renovation gets underway, will help produce the best financial outcome for you.
The role of a real estate agent
An experienced licensed real estate agent can be a valuable ally in helping you secure the right investment property to flip. While the loyalty of a real estate agent is ultimately with the vendor, who pays their commission, finding a buyer is also central to their interests.
Real estate agents have information for buyers and investors – you just need to know what questions to ask. Start by seeking an agent’s view on the asking pricing of a property and get them to justify it. Also ask the agent to provide you with a recent sales report that shows what similar properties in the area are selling for. It’s essential to make sure the price tag attached to a property is in step with prevailing market conditions.
Likewise, you should also ask why the vendor is selling, as the answer could save you time and money. For instance, if the vendor has bought elsewhere, he or she may be very motivated to sell, especially if they’re paying bridging finance.
Source: BT
