Flipping houses isn’t as quick and easy as its name suggests, but there’s money to be made buying and selling investment properties in a red-hot property market when interest rates are low. Find out how to go about flipping homes, as well as some of the pros and cons of doing so, with Savvy.
The concept of property flipping involves buying investment property which is run-down or in need of repair, carrying out improvements and selling again for a profit, all within a relatively short period. This process is repeated perhaps several times a year to earn the renovator a substantial income from the profit of sales.
As much as this sounds easy in theory, there are many risks and pitfalls to beware of in this process. There’s no one simple answer to the question of the best way to flip houses. For this reason, it is important to plan your first investment house upgrade very carefully and to build up your house flipping skills over time, rather than being too ambitious in your first renovation project. It takes time to learn how to flip a house. It’s worth educating yourself about the best way to flip houses before you start your renovation project.
Some of the main risks of house flipping are:
However, some of the benefits of flipping houses are:
There is not a simple answer to how best to flip a house. People who successfully make a living flipping houses in Australia tend to be good all-around tradespeople with a variety of skills they can use and a ‘can-do’ attitude. Trade skills such as plumbing, carpentry and electrical skills will be the most useful for saving money on hiring other professionals. A qualified plumber can also install gas fittings, skills which are in demand when upgrading bathrooms and kitchens. Electricians also tend to be experienced in installing pipework to hold conduit, so can use those skills in plumbing and outdoor irrigation projects. Plastering, gyprocking and tiling experience is also very useful, as is landscaping and a knowledge of how to design outdoor living spaces and gardens.
Before deciding to buy an investment property which you intend to renovate and sell, it’s always worth working out how much you’ll be able to borrow so you have a realistic budget for your renovation project. Use this borrowing power calculator to work out how much a lender may be prepared to loan you based on your current income and liabilities.
However, in addition to servicing your investment property loan repayments, you will also need spare cash at hand to pay for the materials you’ll use in your renovations, for items such as new whitegoods or tapware if you’re undertaking kitchen or bathroom upgrades. Leaving yourself short of ‘working capital’ when upgrading a house could lead to a costly delay in being able to finish the renovation project and get it sold quickly.
It could be worth talking to your lender about using the equity in your home to help finance your property flipping project – with a top-up loan or a cash-out refinance both possibilities which may help you complete your project on time.
This will depend on whether flipping houses is your main source of income, or whether you do it as a side project. If you’re a full-time professional renovator, the income you make from flipping houses could be regarded by the tax office as your regular income, and be taxed at normal income tax rates. However, if you have another occupation, and renovate houses as a side-hustle, the profit you make will be regarded as a capital gain and you will have to pay capital gains tax on it. It’s important to consult an accountant or financial advisor to guide you as to how to structure your house flipping for taxation purposes.