Can you profit from flipping property?
Judging from all the property “reno” shows on TV, property flipping seems like easy money. But can you actually make a profit from flipping property?
The short answer is yes, you can make money from flipping property. However, it’s not as easy as it’s made out to be on reality TV, and there are a number of issues investors need to be aware of.
Firstly, the risk is much higher when flipping property.
If you’re considering flipping property, you need to be able to stick to a budget, and have a good understanding of costings.
For example, if you allocate $20,000 to renovate a property, do you know how much it will cost to repaint the interior or update the kitchen cabinetry? What about installing new blinds or replacing rusted gutters?
Unfortunately, if you don’t get the numbers right you could be facing a cost blowout, which will impact your bottom line.
You’ll likely have to choose which areas to spend the money as well – so would you receive a better rate of return by upgrading the façade, or should you focus on spending money in the alfresco area instead?
Once you start renovating you might discover more issues that need to be rectified or repaired, which could also lead to cost overruns.
There is also the risk that market conditions could change. If you acquire a property to flip in an upcycle, the market may have turned by the time you’ve finished the renovations and advertised the property for sale. This could create significant financial trouble as you may be forced to sell at a loss.
There are also the high imposts you have to consider when buying and selling property, such as stamp duty, capital gains tax and selling agents fees, which all eat into your margin.
While there are the risks with budget blowouts and market conditions changing, the fact of the matter is that flipping property is extremely time consuming, having to source quotes, choose fixtures and finishes and liaising with trades etc.
Unfortunately, most of us don’t have the time required to flip property because we have our careers to focus on.
That’s why, for the very large majority of investors, flipping property isn’t a good option.
It’s a better idea to buy high-quality properties that will grow in value over time and hold them for the long-term.
This way investors can still grow their wealth through property, but have the time to focus on their careers and enjoy their weekends off.
For more information on the buy-and-hold strategy, download Momentum Wealth’s new podcast series, The Property Investing Masterclass, which explores the fundamentals of residential and commercial property investing that every investor should know, regardless of age or experience.