The Renovate & Flip Property Investment Strategy in Adelaide
By Adam Grocke (7Min read|Intermediate)
If you are an expert in quickly adding value to a property, then renovate and flip is the best strategy for you. It is risky but can be very rewarding!
Renovating is mainly for the more active property investors and to be honest, most renovators aren’t making anywhere near enough money from this strategy to make it worthwhile, not to mention a full time living.
Have you ever heard someone say they’ve been renovating properties full time for 20 years and loving it? … me neither, because it’s hard work for minimal returns. When you add up all the costs, including your time, you have either lost money or managed to break even without realising it. Often, it’s better to invest in a more passive property. I would even recommend using a different property investment strategy because this one is very tricky... and by all means - stay in your job!
The renovate and flip strategy requires you to purchase a property, complete renovations and sell the property at a profit. Easier said than done! … remember, we have high stamp duty fees when you purchase in South Australia, which puts you $20,000 - $30,000 behind right from the start. This is never a good beginning and hard to make up for.
If you do choose to renovate, focus on the following:
1. You MUST purchase for the best price. Just because you were willing to pay more, doesn’t mean someone else will. If you pay too much you won’t recover, because the timeframe is too short.
2. Have a very clear Plan of what you will renovate. Often people don’t plan and don’t have a detailed budget. This results in them going too far and spending money on renovations that they didn’t really need to do. Try to eliminate emotion and personal preferences from your decision making and focus on the figures and your Return on Investment. If you spend $5,000 on a granite bench top, will that add $10,000 of value? If not, don’t do it.
3. Renovate to suit most tastes. Design and renovate to meet the tastes of the majority of people who might want to purchase the house. Preparation is the key, as you need to consider who will purchase your house when it’s time to sell. Will it be a family, a professional couple, an investor or a bachelor? Each person will want different features and pay attention to different characteristics of the suburb or advantages of the direct location.
The more people you can get emotionally attached to the property, the more competition you will create when you sell the house and the higher the price you’ll get.
Susan Folwell, Interior Designer at Heart & Soul Interiors, brings it down to: enlightened, clean and presentable.
- Make the home welcoming from the very first glimpse of the garden. Get some help if you need but make the garden tidy, appealing and calming
- Let your home light up with open curtains and shutters to let the welcoming brightness in through beautifully clean windows
- Presentation is so important. De-clutter your home and present it as a place to live and relax. Get professional cleaners if time does not permit. Each room is selling a story for you. A beautifully made bed, a well proportional comfortable sofa for the size of the room, and a dining table as your key elements to support your buyer’s visualisation. Your home will be judged by its appropriateness for living
Susan adds, “Make sure that your key elements are well-dressed or decorated for your possible buyers to achieve an emotional attachment. You can use your own furniture, style the sofa with some plump cushions. Make that bedroom look luxurious with some crisp new bed linen. If you want, you can hire furniture and accessories for presentation.”
If after reading this, you would like some help with styling and do not really know how to decorate to impress, Susan would love to help you out. Heart & Soul represents what she gives in her approach.
4. Bang for your buck. This is one of the most important things to get right. A valued friend of mine is always astounded at how much money people believe a pool or other features will add to the value of their home. The fact is, that most people rather buy cheaper houses without these value-adding features or keep it as an option for their own changes of the place. It’s rarely a must have on their priority list.
In most cases, if you spend $1, you won’t get $1 worth of value. This means you really need to be careful where you spend your money. Some of the best results are achieved from basic upgrades and improvements of living areas, such as kitchen, bathroom, master bedroom. A fresh coat of paint can make the world of difference. This can all be done on a tight budget if done correctly.
5. DYI, please. With high labour wages in Australia, it just isn’t profitable to get tradies to do all the work. Yes, there are certain jobs that need carpenters or electricians, but use them sparingly. Pick up a brush and paint, pull down walls or lay the floating floorboards yourself. It will save you a tonne of money!
6. Get the right agent to sell your house. I’m not the biggest fan of dealing with agents to purchase a property, in fact, I hate it. I hate the games and innuendo, but at the end of the day, they are doing what’s best for their client, the vendor.
You need to find the best agent in your area who will work for you to get the best price. A good agent will know how to build competition and negotiate the best price. They will also advise the best strategy to sell the house in the current market, be it an auction or private treaty. Don’t go for the cheapest agent as it may cost you $15,000 at a lower sale price.
So now I’ve given you an idea of the Do’s, let me point out the DONT’S. These are the most common mistakes we see by renovators.
1. Insufficient cash flow
To complete the renovation or to provide you with a life while you renovate, have a buffer account. This can be a separate loan account for holding costs/living expenses set up by your broker, or a savings account with money to get you through if something goes wrong.
2. Over capitalising on the renovations.
Know the area and what properties have sold well, especially the renovate and flips. See if you can identify the low-cost high impact improvements that were made. Remember, you don’t always need to go expensive, high-quality fixtures and fittings to make a big impact.
3. DON’T renovate in a flat market.
If the market is flat or declining, the value you added will be lost in the downturn of the market or the stagnant market.
THE BEST POSSIBLE WAY TO MAKE IT WORK
The best way to make this strategy work, which isn’t practical for everyone, is to purchase and renovate your place of residence. The place that you live in, is capital gains tax (CGT) free when you sell it. This means you don’t need to pay tax when you sell the house if you have held the house for 12mths and lived in it the whole time. The money you make is Tax-free!
For more information on the reno and flip property investment strategy, please give me a call on 08 83030300 or email me on firstname.lastname@example.org
Published November 22nd 2017