Is buying to flip still viable in today’s market?
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 a lucrative investment, but it's important to do your research and be aware of the risks involved. In this article, we will discuss the key factors to consider when buying a property to flip, as well as some of the potential pitfalls.
The right property
The first step is to find the right property. This means finding a property that is in a desirable location, has good bones, and is priced right. You should also consider the amount of work that needs to be done on the property and whether you have the skills or resources to do it yourself.
Location
The location of the property is one of the most important factors to consider. You want to find a property in an area that is in demand and has good potential for appreciation. Some factors to consider include the proximity to schools, shopping, and transportation, as well as the overall economic health of the area.
Condition
The condition of the property is another important factor to consider. You want to find a property that has good bones, meaning that the structure of the property is sound. However, you don't necessarily want to find a property that is in perfect condition, as you will be able to make more money by flipping a property that needs some work.
Pricing
The price of the property is also important to consider. You want to find a property that is priced right, meaning that it is priced below market value. This will give you some room to make a profit after you have made the necessary renovations.
The costs involved
In addition to the purchase price of the property, you will also need to factor in the costs of renovations, marketing, and legal fees. It's important to have a clear understanding of all of these costs before you make an offer on a property.
Renovations
The cost of renovations will vary depending on the extent of the work that needs to be done. However, you should expect to spend at least 10% of the purchase price on renovations. If you are not experienced in renovations, you may want to hire a contractor to help you.
Marketing
The cost of marketing the property will also vary depending on the size and location of the property. However, you should expect to spend at least 5% of the purchase price on marketing. You will need to hire a real estate agent to market the property and you may also need to advertise in the local media.
Legal fees
The cost of legal fees will vary depending on the complexity of the transaction. However, you should expect to spend at least 1% of the purchase price on legal fees. You will need to hire an attorney to review the purchase agreement and to close the transaction.
The risks involved
There are a number of risks associated with buying to flip, including:
The market could cool down and your property could be worth less than you paid for it.
The renovations could take longer or cost more than you expected.
You could have difficulty selling the property for a profit.
How to mitigate the risks
There are a number of things you can do to mitigate the risks involved in buying to flip, including:
Do your research and understand the local market.
Get quotes from contractors before you start any renovations.
Set a realistic budget and stick to it.
Market the property effectively.
Conclusion
Buying to flip can be a profitable investment, but it's important to be aware of the risks involved. By doing your research and taking the necessary precautions, you can increase your chances of success.
Additional considerations
In addition to the factors discussed above, there are a few other things to consider when buying to flip:
Your financial situation: Do you have the financial resources to cover the costs of the purchase, renovations, and marketing?
Your experience: Do you have experience in real estate investing or renovations?
Your time commitment: Are you willing to put in the time and effort to find the right property, renovate it, and sell it?
If you are considering buying to flip, it's important to carefully consider all of these factors. By doing your research and making informed decisions, you can increase your chances of success.
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DISCLAIMER: This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.
