It happens every year. 
The TV show “The Block” inspires a new wave of investors keen to get involved in renovating and “flipping’ properties.
Just to make things clear “flipping” is where you purchase a property and then sell it within a short period of time for a higher price, usually having added value through renovations.
Sounds good doesn’t it.
But it doesn’t work!
It’s is a speculative strategy that is not recommend, especially at this more mature stage of the property cycle.
The major issues with this strategy is:
1. Transaction and Holding Costs
When you consider high transaction and holding costs such as stamp duty, selling costs and interest repayments (remember your property will be vacant while you renovate it) you may find that on a $500,000 property, your transactional costs could be as high as $60,000 eating away all your Profits
2. Tax
Even if you do make a profit, you then need to pay tax on it and you don’t benefit from the capital gains tax discount available if you hold a property for a longer period of time.
3. ‘Flipping’ in a Fickle Market
I’ve seen investors make money flipping properties in a strongly rising market, but this is usually because the market has been rising strongly – not because of any special skills they’ve got.
On the other hand, to flip for a profit in a flat market is very hard to do .
4. Unrealistic Expectations
I’ve seen investors come home from “get rich quick” seminars hoping to buy a property for $450,000, spend $30,000 doing it up and immediately sell it for $550,000.
It just doesn’t work that way.
Forget what you see on “The Block” – TV reality shows aren’t real.
Firstly, you can’t do much of a reno for $30,000 and if you did and added $45,000 to the value of your property, you’re doing very well.
Others are hoping to do renos and flips as a job – again this is unrealistic
On the other hand…
Buy, renovate and hold is one of my favourite property investment strategies
I enjoy taking a dwelling that’s been a bit neglected and breathing new life into it, making it into a home my tenants will love and want to care for and more importantly, it’s a great way of manufacturing equity for my property investment portfolio.
This strategy requires a lot of planning when it comes to successful execution, but over the last decade numerous prime-time television shows have glorified the idea of buying a derelict hovel, throwing tens of thousands of dollars at it and selling for a tidy profit.
Making it all seem terribly easy and glamorous.
But the thing with property is this:
The way you make money out of property is not by buying, renovating and flipping.
As I said, after stamp duty, interest, holding costs, selling commission and tax there is rarely any profit in this strategy.
On the other hand buy, renovate, refinance and hold for the long term is a time tested investment strategy that works.
Why dispose of something you’ve (often literally) put so much blood, sweat and tears into – only to sacrifice profits to selling costs and possibly Capital Gains Tax – when you can hold onto it and use the power of time and leverage to realise its maximum wealth accumulation potential?
If you renovate and retain property you stand to gain so much more, with the potential to:
- Manufacture thousands of dollars in equity and fast-track your investment’s capital growth,
- Make your newly refurbished rental property attractive to a wider range of potential tenants
- Receive higher rental as your newly improved asset shines against its competitors.
- Get the tax benefit of extra depreciation allowances.
Why not learn how to get started in property renovations?
As signs point to our property markets turning more Australians are looking to get back into the market.
However it’s likely capital growth will be slow for some time, so it’s worth considering the concept of “manufacturing” capital growth through renovations and property development.
That’s something we specialise in at Metropole – over the years we’ve undertaken hundreds and hundreds of renovations and development for our clients – some for properties we purchased for them, others for properties they already had in their portfolio.
If you’re looking to:
- Invest like the pros and get started in property renovations or development
- Learn the renovations and development strategies that experienced property experts use to “manufacture” capital growth
- Generate strong rental returns, so that they can win in today’s challenging property markets
- Take your property investment to a whole new level!
Then join us at our annual Property Renovations and Development workshop coming up in October.
Click here, get all the details, including our money back guarantee, and reserve your place.
There are still some early bird spots available at the best prices we’ve offered in our 15 year history.
This is an educational event, not a sales event so click here now and reserve your spot.
You may also want to read: 6 Steps To A Profitable Renovation
from Property UpdateProperty Update https://propertyupdate.com.au/renovation-flips-flop/
No comments:
Post a Comment