Home Loans & Property
By Stephanie Palombi/02 Oct 2020/Three-minute read

If you know a thing or two about renovating houses, you may have considered the ‘renovate and flip’ strategy as a way to make money from property. But, as our experts explain below, this is one of the riskiest strategies to execute and requires a good deal of know-how and professional advice.

The renovate and flip strategy requires you to purchase a property, renovate the home to add value, and sell the property at a profit. Now, let’s be frank: renovating a house is a time-consuming activity, and requires a huge amount of knowledge and experience in a pretty niche area. This strategy definitely isn’t for everyone, and we recommend you seek professional advice before trying your hand at making money flipping houses.

Still interested? Read on for our seven tips to success, and the most common mistakes to avoid.

Eight tips for ‘renovate and flip’ success

  1. Purchase for the best price. Just because you’re willing to pay more, doesn’t mean someone else will. If you pay too much you won’t recover, because the time frame is too short.
  2. Have a very clear plan of what you will renovate. Often people don’t plan and don’t have a detailed budget, which results in spending money on renovations that they didn’t really need to do.
  3. Eliminate emotion and personal preferences. Instead, focus on the figures and your return on investment. If you spend $5,000 on a granite bench top, will that add $10,000 in value? If not, don’t do it.
  4. Renovate to suit most tastes. Design and renovate to meet the tastes of the majority of people who might want to purchase the house. Consider who’ll purchase your house when it’s time to sell. Will it be a family, a professional couple, an investor or a bachelor? Each person will want different features and pay attention to different characteristics of the suburb or advantages of the direct location. The more people you can get emotionally attached to the property, the more competition you will create when you sell the house and the higher the price you’ll get.
  5. Be careful where you spend your money. Some of the best results are achieved from basic upgrades and improvements of living areas, such as kitchen, bathroom, master bedroom. A fresh coat of paint can make the world of difference. This can all be done on a tight budget if done correctly.
  6. Consider DIY. There are certain jobs that require a skilled professional but there are also loads of jobs that you (or your friends!) can do yourselves. Pick up a brush and paint, pull down walls or lay the floating floorboards yourself.
  7. Get the right agent to sell your house. You need to find the best agent in your area who will work for you to get the best price. A good agent will know how to build competition and negotiate the best price. They will also advise the best strategy to sell the house in the current market, be it an auction or private treaty. Don’t go for the cheapest agent as it may cost you $15,000 at a lower sale price.
  8. Purchase and renovate your place of residence. Concerned about the tax consequences of flipping a house? Here’s a tip: if you have held the house for 12 months and lived in it the whole time while you renovate, you won’t need to pay tax when you sell the house. This is by far the easiest way to avoid capital gains tax when flipping houses.

Common mistakes to avoid

  1. Having an insufficient cash flow. You can lose a lot of money if you need to sell the property unexpectedly or you experience something unexpected, like illness or redundancy.  Your buffer may be a separate loan account for holding costs or living expenses set up by your broker, or a savings account with money to get you through if something goes wrong.
  2. Over capitalising on the renovations. Know the area and what properties have sold well, especially the ‘renovate and flips’. See if you can identify the low-cost high impact improvements that were made. Remember, you don’t always need to choose expensive, high-quality fixtures and fittings to make a big impact.
  3. Renovating in a flat market. If the market is flat or declining, the value you added will be lost in the downturn of the market or the stagnant market.

Up for the challenge of renovating and flipping houses?

Our Adelaide property experts are here to help.

At Johnston Grocke, we’ve been providing Australians with personalised financial, business, property and accounting strategies for over 20 years.

We know that life (and especially money) can get complicated, so you can count on us to bring consistency, certainty and confidence to your finances, so you have more time to enjoy the good stuff in life.

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