WHEN Vikky Morris quit her high-powered marketing job at an international pharmaceuticals company to flip property, it seemed like a precarious move. But now in the process of renovating her third property, she maintains it is the best decision she’s ever made.
“I had a senior international role in the corporate world which I gave up completely. I had to make this work,” Ms Morris told news.com.au.
“But I had had enough, I was exhausted of working for other people and making money for shareholders. I just thought I want to do this for my husband and I. If you work for yourself and you work 14 hour days, you know those 14 hour days are benefiting you.”
Having renovated homes she had lived in before, and enjoying it, she took the plunge.
“I had renovated some properties back home in the UK — homes I had lived in. But now this is my sole source of income. I watch all the renovating shows too. It is a really core drive for me. I love it.
“Then I was reading one of the property journals and I saw a free two-hour introduction course, run by Renovating for Profit, so I went.”
In May, Ms Morris bought her first project, a three-bedroom home in Wyoming on the New South Wales Central Coast, for $380,000. Six weeks and about $60,000 later, it was back on the market. It was sold in June for $530,000, putting $65,000 straight back into her pocket in net profit, after tax and other expenses.
In July, she bought her second project, a four-bedroom property in Wyoming, for $460,000. Again, spending about $60,000 on the renovations, she then received an offer for $630,000 but decided not to sell in the last minute. The offer, if accepted, would have netted her about $70,000.
“Initially I wasn’t sure if I was going to get the value that I needed,” Ms Morris told news.com.au.
“I spoke to my tax accountant and he said you don’t really need to sell it; you can borrow against it. He was able to explain to me how I could hold onto it, borrow against it and get another house. I am now in the second period of my third house and have been able to hold onto that second one.
“Wyoming has seen an incredible amount of growth so I am going to hold onto it until I feel I can get the best price. Capital growth is really the way forward, particularly up on the Central Coast because it is booming.”
So that’s a whopping $135,000 income Ms Morris could have potentially made in only a few months — and that’s only on “cosmetic” flipping.
“My end goal is to take on structural renovations … If you’re making 10 per cent on everything you invest then you will be making more if you invest more. I do believe I will be able to make more money out of it.
“Cosmetic renovations are shorter and ultimately I want to be able to do something that is more meaty, a bit longer and will give me more return.”
As the name suggests, a cosmetic renovation is about lifting the aesthetic and style of a house and can include gutting and redoing a kitchen, transforming a room into a second bathroom, installing new floors or undergoing a paint job. A structural renovation isn’t exempt work, it involves getting DA approval, such as major extension works on a house.
FLIPPING ON THE RISE, BUT IS IT RISKY?
Figures compiled by CoreLogic for The Australian earlier this month showed that the percentage of properties owned for less than two years — an indication of flipping — has risen in the past few years on the back of surging house prices in the capital cities.
But Nathan Birch, co-founder of property investment group Binvested, said the rise in flipping is concerning.
“There are a lot of punters out there banking on the fact the market has gone up and they are trying to make a quick buck,” he told news.com.au.
He said flipping is an extremely risky investment strategy as it is doesn’t have a long-term focus. And the property market can be hugely speculative, so a short-term approach could backfire.
“People should have a business plan for their property portfolio. People that flip property really don’t have a plan of attack — what is their long-term strategy?
“You can make money passively by building a property portfolio and having that support for life, or you can make money actively by flipping a property. But I think that is too risky.
“I think there is a lot of danger around it because with a marketplace like we’ve got today, the prices are rising very quickly so firstly, you will be paying a premium for the property and secondly, the market may take a turn and soften for a little bit.”
The other costs and barriers associated with buying and selling property are also huge, Mr Birch said, which could eat into any financial gain.
“The outcosts are expensive — stamp duty, real estate agent fees, legal fees, etc.
“What I think that people are missing out on as well is when they sell a property, they are actively taking themselves out of the market place and it is hard to get back in. I think people need to be very diligent and think about their long-term strategy and their long-term plan.”
A NEW AGE OF FLIPPING
Cherie Barber, renovation expert and founder of Renovating for Profit, said the traditional method of property flipping — buy, renovate, sell — is actually on its way out and a new type of “flipping” is replacing it.
“It is hard to get the numbers to stack up in most suburbs in Australia [when flipping],” Ms Barber told news.com.au.
“The buy, renovate and sell strategy — the traditional flipping strategy — is actually getting less and less common in Australia. What I now say to my students is: don’t sell. They should buy, renovate and rent.
“There are a lot of costs involved in the property transaction when you are selling. There is agent’s commission, there is a property styling costs, there is agent’s marketing costs, and you’ve also got capital gains tax. If you sell within the first 12 months, you are taxed at typically around 45 cents in the dollar so you lose a lot of profit when you make the decision to sell.”
If you sell or dispose of your capital gains tax assets, such as your investment property, in less than 12 months you will not be subject to the capital gains discount.
“If you buy, renovate and rent, that is what will make you wealthy,” Ms Barber said.
“The rent you receive from your tenant will cover the mortgage costs and you will make a lump sum profit in the renovation. What ultimately makes you wealthy is the long-term capital growth.”
So how do you pick a good property to “flip”? There are certain types of property which are more conducive to renovating, explained Ms Barber.
“You must buy the right sort of property to begin with. There is specific criteria which constitutes a good and bad renovation project,” she told news.com.au.
“It has got to do with the construction type — is the property fibro, timber, double-brick — and some construction types are a lot more expensive to renovate.
“It is about buying the property with the right floorplan, so it doesn’t require a major overhaul, and it is about buying a property which is the right age.”
You also need to be cautious of not “overcapitalising”. A general rule is to not spend more than 10 per cent of the property’s current value on renovations.
“For a cosmetic renovation, it’s 10 per cent of your current property value, not what you bought it for,” Ms Barber said.
“If you bought it five years ago for $300,000 that is irrelevant. If today it is worth $500,000, it is 10 per cent, which is $50,000.”
Even though Ms Morris has started with the more traditional method of flipping, she told news.com.au she has “no regrets” leaving the comfort and consistency of the corporate world.
“It is the best thing I ever did. It has changed my life.”
As long as you are savvy and know what you’re getting into — and accept that in a renovation, things will probably go wrong at some point.
“If something can go wrong, it will go wrong and I went in with that philosophy, so I didn’t panic when things did go wrong. You talk about it and you work it out.”
TOP 10 TIPS FOR RENOVATING ON A BUDGET*
- Start with the cheapest ways to deliver maximum impact
Internally, a fresh coat of paint in a neutral, but modern colour scheme always works wonders. Paint the woodwork in a white, high-gloss to make the place sparkle. - Replace the flooring
Old, worn carpets and outdated flooring needs to go. If you have floor boards, polish them in a high gloss. Otherwise, consider low-cost laminate flooring. - Replace tatty window furnishings
You can pick up smart micro-venetians for around $50 each at a hardware store. - Lighting makes a huge difference
Lights can be purchases and replaced very cheaply. And including feature lighting can add a bit of ‘wow factor’. - Kitchen and bathroom renovations always add value
On a tight budget, you might want to restrict to a cosmetic refresh but there are all sorts of inventive products on the market now for this. For example, you can get a specific paint to paint over old tiles and laminate cupboards. - Add bulk and scale where appropriate
Thin, little skirtings and architraves look cheap, so replace them with a wider profile. The plainer, the better and the less decorative, the easier to paint. - Don’t forget about the garden
A good first impression starts with the street appeal. Mow the lawns and cut back unruly trees and rampant foliage. - How does the exterior look?
Rockote is a textured render in a bucket which can be tinted to thousands of colours and eliminates the need for painting. A great solution if you want to modernise a dated looking exterior. - Get rid of ugly clothes lines
Having a Hills Hoist centre stage in your backyard is an eyesore. Think about moving it to a more discreet spot. - Outdoor entertaining
A deck can be cheaply constructed and often doesn’t need council approval, depending on the size. Convert a window to a door that opens onto the deck, and you’ve got yourself an outdoor entertaining area.
Originally Published: http://www.goldcoastbulletin.com.au/