Is buying to flip still viable in today’s market?

(Your Loan Hub)

With the property boom of recent years and the popularity of TV renovation shows like The Block and House Rules, increasing numbers of Australians have been ‘buying to flip’ – buying a property, renovating it and selling it at a profit.

Buying to flip can be lucrative when property prices are rising rapidly, but is it still a viable option in today’s softer market? The answer is it can be. You will, however, need to:

• do your own research and due diligence
• be in a strong financial position
• consult a mortgage broker for the best finance arrangements.

What should potential ‘flipper’ be aware of?

Buying ‘the right’ property
What’s the right property for you to flip? The answer to that may come from research into the local area to work out exactly where good value may lie. Ask yourself questions like:

• What are the historical values for this property and others on this street?
• How much can you spend before overcapitalising?
• Is the property attractive to the demographic of the area?
• Is the property structurally sound?
• How long are properties sitting on the market for?
• What is the area the property is in zoned for – one-level residential only or multi-level dwellings?

You’ll also want to find out whether there is anything planned that could stimulate future demand. Are there any new developments – such as investments in infrastructure, or schools or shopping centres under construction – that could attract new people to the area and drive up property prices?

The costs involved in buying and selling
Property is typically not a short-term investment – it’s time-consuming and expensive to buy and sell. When buying a property to flip, the following costs need to be covered:

When buying
• Loan establishment fees
• Building and pest inspection reports
• Legal fees
• Stamp duty

While renovating
• Labour and materials
• Mortgage repayments
• Rates for holding period
• Accommodation costs (if you have to move out for a period)
• Storage costs (for any furniture)

When selling
• Marketing costs
• Real estate agent fees
• Legal fees
• Loan exit fees
• Mortgage repayments and rates

Therefore, it makes sense to be in a strong financial position and be confident you can add value quickly and easily.

What are the potential risks in buying to flip?

Timing the market
Property is typically a long-term investment. So, if you’re looking to make money on it in the short term, you’ll usually need to add value to the asset and benefit from a rapidly rising property market.
In reality, the market can cool quickly if changes to lending policies or higher interest rates come into play. These factors can be hard to predict. If you need to make a sale and your property sits on the market longer than expected, its perceived value can erode with each passing day.

Costs blowing out
Clearly you want your renovation completed as