If house flipping is on your investment to-do list, read on for some important considerations before you begin…
Do Your Research. Take Your Time.
The contestants on The Block make it look so easy, so you’ve decided to give the ol’ reno a go for yourself. Don’t just jump at the first fixer-upper property you find.
With house flipping, also known as ‘wholesale real estate investing’, you may want to take heed of the 70% rule.
The 70% rule refers to not paying more than 70% of a property’s After Repair Value. If you’re hoping the home’s value after repairs will be $350,000, and you know it will take approximately $50,000 in repairs you don’t want to be paying more than $195,000 initially for the property.
The initial property cost isn’t the only consideration. Make sure you’ve had the property properly inspected. Make sure structural, electrical, plumbing, and potential pest issues like termites are checked for.
Also look into the area itself. If a general trend indicates housing prices have not risen, or have in fact fallen, in that particular region ensure you take this into consideration.
Plan, plan & plan
You wouldn’t start up a cafe or open a franchise without a strategic business plan, so don’t begin your house flipping project without one.
Understand your timeline, factor in costs, and research key contacts.
Like in business, make sure you understand what your KPIs look like: passed building compliance check, kitchen remodel completed to X budget etc.
Know where you will need to bring in professionals like carpenters or real estate agents, and where you have the time to dedicate yourself to the project.
A plan may help you stick to your budget and your timeframe.
Consider how much the project itself will actually cost
It is not just the cost of the property itself that is a factor. If you’re funding the property through a property investment loan, keep in mind you will also be paying interest on this. Typically, interest on investment property loans is higher.
Lowest interest rates for 1-year fixed home loans
The comparison table below display some of the 1 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).
*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.
Lowest interest rates for 3-year fixed home loans
The comparison table below displays some of the 3 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).
*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.
Lowest interest rates for 5-year fixed home loans
The comparison tables below display some of the 5 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).
*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.
There are also renovation costs to factor in. If the cost of the renovation combined with the initial property cost is too great, it may be worth reconsidering this investment.
Professional costs also add up quickly. Contractors, real estate agents, building surveyors etc. If you don’t have the skills to do this yourself, this can quickly eat into potential returns.
Tools of the trade
This leads in nicely to our next point.
It is not uncommon for building professionals to house-flip on the side to generate additional income. Generally they have the skills, knowledge and resources to work on these projects themselves.
When an employee or owner makes a non-monetary investment into a project, this is referred to as ‘sweat equity’. A property owner performing a renovation on their own property is not investing money into a contractor, but they are investing their time and skill.
A lot of the value in flipping houses comes from ‘sweat equity’, so factor in the time it will take to do this if you want to complete it yourself, and more importantly make sure you have the skills to do it. You don’t want to only find out you’re going to need to get a contractor in after you’ve taken down a section of drywall hanging a shelf wrong.
Compare Investment Property Loans with Canstar
A few more considerations
A couple more things you might want to cross off your checklist before you begin…
Are you familiar with the applicable taxes in relation to property investing? Have you also factored in costs relating to checking for (and correcting) compliance issues?
Be aware as well of who you’re undertaking the project with. If you’re working with a partner in any sort of capacity, make sure you are both aware of your obligations and expectations of one another. It may be best to work with trusted sources and those who are familiar with the process of renovating or house-flipping.
House-flipping may not be a project suited to everyone. Remember, it is an investment and business project like any other, so there are risks involved and due diligence should always be taken.
If you’re considering house-flipping, you may want to read the article below.
Related Article: Flipping Houses in Australia: Easy Profit or Overhyped Fantasy?
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