A simple guide to flipping property in Australia
House flipping usually involves purchasing undervalued or neglected properties, renovating them and then on selling them at a profit.
The aim is to complete this process as quickly as possible while spending as little money as possible on the renovation to ensure the maximum amount of profit is made off the property. For some flippers it’s an investment cycle, always moving onto the next ‘flip’. For others it’s an opportunity to make improvements to their long term home to elevate their current living conditions.
When considering the investments that can be involved in a major house flip, it may not be the job for everyone. However, there is a potential profit to be made for ambitious Australian investors and renovators willing to take on the challenge.
When deciding whether or not to tackle a renovation project for a profit there is a lot to consider, like finding a suitable property, financing it, the cost of renovations as well as the potential for many unforeseen expenses.
How do I start flipping houses?
To begin the process of house flipping, there are three significant investments that are required on the buyers behalf: finances, time, and emotion. It’s important to consider whether you have sufficient funds and a strict budgeting plan before taking on a house flip.
Consider the costs
Like all home improvements projects, the costs considerations that go along with flipping a house include materials, tradespeople, costs associated with planning permission, and removal costs for old materials. First and foremost, however, you need to purchase a property that you intend to flip. If you’re in the market for an investment property, chat to one of our friendly loan specialists at loans.com.au.
A more appealing return could be found by navigating the market for an undervalued home in an area with predicted growth.
Another key factor that should be considered is the finance for the renovation, some options could include a personal loan or a mortgage top up.
The rule of thumb is if the estimated cost of the renovation, combined with property purchase price exceeds what you expect from the sale of the property, it's not worth the flip.
Consider the stamp duty and capital gains tax
In Australia there are several fees that can be the door stopper for aspiring house flippers. If a property is purchased as an investment, owners will need to pay stamp duty which can eat into your deposit as well as any cash you have for the renovations. This could add up to tens of thousands of dollars depending on the value of the property and the state you live in.
If your property is sold for a profit, its likely you’ll be hit with capital gains tax. For a property owned longer than 12 months, the capital gains tax rate is half of your marginal income tax rate. For example, if your top income bracket is 45%, capital gains tax payable would be 22.5%. If however, you sell the property within 12 months, you'll be taxed at the full marginal rate, in this case 45%.
How much money can be made flipping houses?
The profit that can be made off flipping a house is dependent on several factors:
- How undervalued it is when you buy it.
- How much money (if any) you spend on renovating it.
- How much you sell the property for.
Pros
Build equity fast
There is a potential to yield solid capital gain from a house flip especially given the average time it takes to flip a house is approximately six months.
Sweat equity
House flipping could be the perfect hands-on way to invest your hard-earned cash if you're creative and love a challenge. If you’re willing to spend time learning the tricks of the trade and don't mind putting in the hard work to get the job done yourself, you could unlock extra value in the home while also cutting the costs of paying contractors.
Potentially appealing investment
For many, a house flip combines the love for property and a love for renovations into one rewarding experience. It has the potential to see one's hard work turn a neglected or undervalued property into an appealing one with higher value.
Cons
Loss risk
No one wants to lose money on a house flip turned flop. There are many factors to be weary of that can contribute to loss including unforeseeable expenses, taxes related to buying and selling property such as capital gains tax and stamp duty, and rate increases which can result in increased mortgage repayments. Budgets and completion deadlines can also go beyond what is expected.
Not enough time
Taking on a house flip is a time-consuming investment and it can take months to find and buy a suitable property. When the time comes and you own a house, you'll need to invest time to fix it up. This may be difficult if you have a 9-5, unless you're willing to sacrifice evenings and weekends.
Lack of knowledge and skills
If you know how to use a hammer, or at the very least are willing to give it a go and learn the basics, then you're on the right track to flipping a house. However, if you’re not keen on getting your hands dirty, it's likely you'll need to pay a tradesman or contractor to complete renovations and repairs.
If you're ready to join the house-flipping movement and want to inquire about finding a home loan that'3426s right for you, check out our competitive home loans or chat to one of our lending specialists to help you get into the property market.
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About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
