Flipping Houses

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Lots of interest from home buyers recently about buying, improving and “flipping” houses. This has always been popular and is a proven path to wealth generation, but made all the easier from the confidence of a Brisbane house price growth cycle. Done correctly it will end in riches (financial and life), but in the same way as many investors never get past one (their first) investment property…if it is done wrong then it is a whole waste of time and effort, and results in your future wealth plans stalling.

Contrary to TV shows “flipping” is generally something taken on as a long term project, and like all good long term strategies correctly executed, results in a beautiful “journey” as well as a worthwhile “destination”.

What elements need to come together to win at “flipping”?

Property selection, buy/sell strategy, improvements (creating more value in the asset), tax planning, and the right finance structure are some of the key elements necessary to win. I though I would share with you the “journey” so far with property of myself and my wonderful wife, Nat.

#2 purchase price $88,000 Rockhampton, Qld. This was our second home, we were in our 20’s and had no kids and I was working as an accountant for a bank. Detached 2 bed 1 bath timber and tin workers cottage house with two street access, ex rental home. We “prettied” the street appeal by removing veranda lattice, building white picket fence and path to new front door and landscaping. Inside the bath and kitchen were fine, so we removed one wall in living areas to “open up”, installed air conditioner, painted inside and out, removed carpet and polished the floor boards under.  Much of the work was done by ourselves on weekends, with specific trades for certain jobs. Target market was first home buyer (and at the time there was a grant for $8,000 to the buyers…which the Auctioneer “extracted” from the buyers. Purchased by private treaty, sold at auction, sold $118,000. Owner occupied home we lived in during process, finance by straight mortgage, no tax payable…we were away!

#4 purchased land $165,000 in new estate, Epsom Park Mordialloc Vic. I bought land from a builder who had been holding on “builder terms” with developer for nearly 12 months ($500 deposit back in the day), and bought using another option agreement as I had recently moved interstate and didn’t have a new job. By the time I had a job and had organised the finance and gone to formal contract the latest estate stage had been released in an oversubscribed ballot…at $185,000…meaning “instant” profit $20,000 (luck comes to those who seek it). Another builder then built a four bed two bath brick and tin federation style home appealing to young family market with for $175,000. Moved in as owner occupiers for 18 months and in that time established the gardens and landscaping, a deck, a 42inch plasma (which was a really big deal at the time!) and decorated as a “home”. Sold by private treaty $445,000, no tax as owner occupied…and another “learning” experience.

#6 purchased an original 2 bedroom 1 bathroom Californian Bungalow (Victorian State Bank Model “C” from 1940’s) for $385,000. By now we had twins and our own business, were a lot busier, and undertook a large extension and full renovation $200,000. End product was a family home in Cheltenham (Melbourne). Stunning inside and out with original fireplaces and original detail with sympathetic extension to 4 bed, 2 bath family home. We bought at auction from the 5 children in their 50-60’s who had grown up in the home, deceased estate. They sold at “good” price as it was going to the new family…emotions run high at auctions (and I think vote was 3 to 2 to take our last bid…good for us)! We created the right “product” as a second/third home buyer family home, close to Melbourne CBD train line, etc. Sold at a spirited auction for $865,000 and the bidders were all the exact target demographic. We lived in the home, had a great time, had financed some of the extensions ourselves (and did a lot ourselves)…and the end result was a tax-free gain (principal place of residence), and a nice cash flow gain as the mortgage had been well contained.

#7 purchased an original but updated 2 bed 1 bath Edwardian for $515,000. Getting a little bolder now as I bought this at auction after first inspection half an hour earlier….but I was getting a more refined “nose” for profit. The back lean-to had termites but it didn’t matter as this was demolished to make way for a flat roof extension. Created 4 bed, 2 bath, new kitchen and baths, family home with beautiful facade and street appeal which was within 250m of #6 and same strategy and target market. We had our third baby in this home, then sold at auction again to spirited bidders. We were better on the extension and renovation this time (from practice), $85,000 budget, and it sold for $765,000. Another tax free leg-up, we were loving the journey (not our occupation at all), and a nice wealth increase.

#11 purchased with a mate a double block decrepit Queenslander in Wynnum Queensland close to Moreton Bay that had been on the market for over a year. Learnt a lot about demolition in a demolition control area! We split the block into two and flipped a coin to decide who got which side. At this point the co-investment was over and we did our own thing. He build an investment house, I build a home for my now family of 6. With 4 kids, busy businesses/career, there is less physical work being done by myself and Nat, but more “smarter work” on selections, build, strategy. After splitting the land we were in at $375,000 and the a build and pool added $400,000. Target market again established family wanting “ready built” new home in good location. 5 Bed 3 bath two storey home with pool, sold $940,000. Still enjoying the buy/sell tactics, design, and “creating” a product for a target market…all as a hobby and sideline to main occupations.

Current projects: We have finally built sufficient equity (both financial and intelligence/experience in property) from nearly 20 years, to be living in a beautiful Queenslander overlooking Moreton Bay and Islands, and with three residential investments (2 bed cottage, 2 bed cottage, 4 bed family home), and a start in commercial investments (small tilt panel unit). Loving the journey…and my beautiful wife Nat is still painting the houses!

To be successful at “Flip”…it is more about a long term “journey”, and committing to life long learning of the “foundations”: property selection, buy/sell strategy, target market, improvements (creating more value in the asset than it costs to create), tax planning, and the right finance structure….luck is more about creating your own opportunities. There are many many people happy to share their knowledge, use them. The best people I have learned from have shared their knowledge with me for free, happy simply to be talking about their passion. I am but a humble mortgage advisor, but with more than a little experience and qualifications…and only half way along my own personal property journey….If you are interested in Flip, or want good mortgage advice…call me.

 

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