Buy a house, renovate and sell quickly for a substantial profit – it’s not hard to see why flipping houses seems like an attractive venture. House flipping certainly isn’t a new concept, with shows such as the The Block making it appear like an easy, glamorous way to make money fast.
While the process itself can sound simple, the journey can be fraught with danger, warns Johnson Real Estate Group’s Managing Director, Andrew Trim.
“Many people watch these TV shows and assume it is a lucrative and easy way to make a quick buck. The reality is that it can be very easy to overcapitalise on your project and harm yourself financially,” he says.
“Most renovators assume success in house flipping is dependent on being smart with your renovations along with the initial purchase price of the property. Hopeful house flippers are often advised to buy under market value, renovate main areas such as bathrooms and kitchens along with minor cosmetic updates throughout the house, before selling as soon renovations are complete,” he explains.
“What this doesn’t take into account is how the market changes. Many of the successful stories you see in the media about flipping houses for huge profit stem from cities that have experienced a hot market, such as Melbourne or Sydney. In most of these examples you’ll find the flipper purchased prior to 2015 and sold at the peak of these markets this year”.
“While the improvements would have added to the appeal of the properties, the market’s rapid rise is the likely explanation why such flippers were able reap such a generous profit,” explains Mr Trim.
While flipping houses can prove to be a profitable venture in some cases, Mr Trim warns it should not be used as a ‘get-rich-quick scheme’.
“Huge home makeovers rarely generate enough value in line with the amount spent on the improvements. While renovations can improve value, in a static market it is unlikely to recuperate the costs within a short amount of time. The safest way to maximise profit from a renovation is to hold onto the property for a period of time. The longer a property is kept, the greater chance of profit,” says Mr Trim.