28 October 2015

Flipping houses: does it pay off?

My Money Matters |

Flipping houses – in other words, buying a house with the intention to renovate and sell it within a short period of time – is becoming a popular way of growing your nest egg, especially if you plan on doing the renovations yourself to save money. We spoke to a few seasoned “house-flippers” to find out more about the art of renovating to sell.

What to look for in a fixer-upper

28-year-old Joburg resident Kirsty Sharman and her partner are onto their third house now. “Location is key, but knowing the value in your area is more important. We never renovate to sell at the top of that area’s property bracket. Rather we buy low and sell mid-tier,” explains Kirsty on their strategy when choosing the right house.

Layout is just as important as location, says Kirsty. “If your plan is to renovate and sell quick it’s hard to make a good return if you do structural work. Buy a house that has a great layout already, fix the finishes and then use the profits to escalate you into a better suburb for the next fixer-upper.”

How much can you make?

Craig Falck invests in property with his brother, and has flipped four houses so far. He says that he aims to make about 50% profit on the original buying price. “The right property doesn’t just come along – you have to be wide awake! The one house took about a year to sell, but it was looking fanastic within two months of starting renovations. Another house took three months to fix and we’d already accepted an offer in month two.”

“I think 30% to 40% is a realistic return. Remember, you have to fork out for transfer costs and might have to fix a few extra things in the house you didn’t budget for,” says Kirsty.

What types of renovations add the most to resale value?

Capetonian Jo Duxbury says she renovates houses partly for pleasure, but also to add value when she sells. “I’m currently renovating a 1920s cottage and am spending most on the bathrooms and kitchen.” She suggests that money is also well spent when it comes to first impressions and is doing some work on her front door and entrance hall. “Tidy up, especially the outside to improve kerb appeal.” 

Do it yourself or bring in contractors?

“We haven’t always had budget to renovate and stay elsewhere so often we fix up and live all in one place – which means a project can take two years,” says Kirsty, who does a lot of the DIY herself with her partner on weekends.

“I work full-time myself, and I don’t have super DIY skills, so it makes sense to source really good people,” says Jo. “I’m using a mid-range priced builder to do the wet works – knocking down walls, building an extension – because I want that done properly. Plumbing too is not worth scrimping on. Using individuals rather than contracting out the entire project saves a lot of money.”

Beware the hidden challenges

Craig warns that flipping houses does come with it’s own challenges. “You need to constantly supervise the work being done, and dealing with municipalities can be difficult – we were even asked to pay a bribe once to put in an electricity meter. If you are not living on site, there is always the chance of vandalism. One of the houses we flipped was opposite a popular restaurant in Rosettenville, and it was broken into four times in two weeks.”

“Property is a great way to spend your money as a youngster, because you’re still young enough to laugh about living in a building site!” says Kirsty. If you’re considering getting into the renovate-to-sell game, speak to Absa about our Home Loans solutions. From calculating how much you can afford, to helping you research the right location, we’re here to help.

Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.

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