You’ve seen people do it on TV – they buy a run-down place, zhuzh it up and sell it, quickly, at a profit. Sounds amazing, right?
Done right, it’s a smart short-term investment. Done wrong, it’s a costly lesson. Here’s how to play the game and actually win.
Step 1: The research
You need to have an understanding of the property market, not just general trends.
- How many, and how quickly homes are selling in a particular area? And at what price, in what condition, and why?
- What amenities are close by and which could impact desirability (e.g. parks, schools, shops, hospitals)?
- Find out from the appropriate authorities what future developments could impact the area. For example, are there plans for infrastructure projects, such as additional roads or highways? Will there be any large developments and will these be residential, business or even industrial?
- What are the local and/or national regulations that could have an impact, e.g. local zoning and building restrictions, etc?
Step 2: The numbers
At the heart of house-flipping is the goal of making a profit, which means you need to consider all the costs:
- Buying and selling costs are more than just the purchase price of the property: you’ll need to factor in the costs of the conveyancing attorney and transfer duty. When you sell, you will also incur costs that must be considered, too, such as the agent commission. Don’t forget the cost of acquiring the certificates of compliance. Last but not least, you need to factor in capital gains tax (CGT) which will come into play because this is not your primary residence.
- If you are raising finance through a bank (whether through a home loan or some other form of credit), there will be those costs – and interest – to consider.
- Repair or renovation costs need a clear budget – with a contingency. With building costs constantly increasing, coupled with the inevitable things that crop up – literally under surfaces – it’s good to ensure that you have a buffer.
- A good rule of thumb is to stick to the 70% rule to make a profit. Don’t pay more for a property than 70% of its after-repair value (ARV), in other words, the likely value – and price – of the property once you have renovated it.
Step 3: The team
While the project may be yours to manage, and you might be very handy, you won’t be doing it alone. For some aspects, you will need licensed and/or registered professionals to do the work. Select reputable providers whose track records you can verify. Over time, you’ll build a team you can rely on, which could include a:
- Building contractor and architect to handle any structural changes
- Electrician
- Plumber
If you’re planning to flip houses regularly, you’ll need to add other professionals to the posse of people behind you, for example:
- Financial adviser and/or accountant
- Attorney
Step 4: The repair or renovation
The renovation is what takes the time, and if you want a relatively quick turnaround and this is your first house flip, look for a property where the ‘less is more’ principle could apply. This means focusing on the cosmetic work. For example, paintwork and basic kitchen and bathroom fixtures. Try to avoid major structural work like knocking out walls, doors and windows or building extensions, etc. When you choose your finishes, it’s best to keep things neutral keeping your target market in mind.
Step 5: The flip
Selling is the final step in the process but ahead of that, you’ll need a competitive market assessment to help you set your price.
If you’re considering selling a property you’ve flipped or embarking on this as a new venture, contact your nearest RE/MAX office for market insights and an obligation-free market assessment of your home.
