Time to add value and flip - December 2019

By Rich Harvey, CEO & Founder, propertybuyer.com.au

It’s no secret that the market in Sydney has been enjoying a resurgence over the past several months, with the median price rising strongly after a long period of correction.

The outlook is pretty rosy. Even the most conservative pundits are predicting much more to come.

So, those savvy investors who are in a position to act now and buy well could stand to enjoy a sustained period of growth... of course, that’s perhaps not an entirely ground-breaking observation.

But what if I told you there’s a way to potentially realise two different streams of value gain from a single investment? It’s the rare opportunity to have your cake and eat it too.

Buy smart, spend a bit

Markets are moving again after a period of downward pressure on prices and there are reputable economic forecasts that this trend will continue over the next 12 to 24 months.

At the same time, there are still some under-priced properties that need some love or aren’t being used to their full potential. They’re investment opportunities that could deliver a strong return on the dollars put into improving them.

And, by my assessment, the time to buy with a view of adding value is now.

This could be a relatively simple project. It might be an old and tired unit or small house that needs a lick of paint, new floor coverings, maybe a spruced-up kitchen and some attention to the backyard or outdoor living.

With a cosmetic makeover in a moving market, you can expect to double – at least – every dollar spent on the works.

But make sure what you’re doing matches the market you’ll be flipping in.

For example, if the property is likely to be bought by an investor, focus on an overhaul that has durability in mind. Don’t go for soft finishes that can be easily damaged, given a parade of renters really ups the wear and tear. Pick shades and hues less likely to stain.

Also, go for colour schemes that won’t date too quickly.

If, however, the property is for the owner-occupier market, think about matching the finishes to the most likely demographic. An empty nester or downsizer isn’t going to like the same kind of look and feel as a young couple in their early 30s without kids. Nor will a young family with a baby.

Do plenty of research on your likely end user and cater to their needs as much as possible.

Big projects, big bucks

If you’re after something a little more involved than a cosmetic overhaul, there are investments that have an opportunity to really add value with a major reno or extension.

It could be a house that’s got good bones but is a total rabbit warren inside, with an inefficient and dowdy floorplan. Ripping out walls and reconfiguring the layout can streamline a home, potentially add bedrooms, get modern features like ensuites and built-in robes, and add some serious value.

There are more ambitious projects too, like extending a smaller home to create a much bigger one, with a backyard addition, a new kitchen or living area, or even going up to add bedrooms.

And for the serious wannabe small developer, there are opportunities to buy with a focus on the land. I’m seeing a lot of clients who want to buy the worst house in a good suburb to knock it down and replace it with a duplex, for example.

But don’t bite off more than you can chew – start with smaller renos and gain experience and use professional trades for the really tricky bits. 

The timing is good

Depending on the scale of the improvement, you could be in and out within a fairly short period of time.

For a cosmetic overhaul, it could take you three months to have the property back on the market. For an extension or major renovation, you might be looking at 6 to 12 months for completion.

In any case, finding the right property, undertaking the works, finishing it off and getting the place listed for sale could see you re-enter a market after a great period of growth.

So, you get the benefit of adding some serious value with your project as well as the extra three to 12 months of solid market movement.

Of course, the key to all of this is finding the right property. Picking any old house or unit and undertaking a reno or major extension won’t necessarily equal a strong return on your outlay. You should target those areas with the best growth fundamentals and the properties within them that will benefit from a value add. One trick a successful flip is to selecting suburbs where there is a good margin between unrenovated and renovated properties. 

The solution is to engage the services of an independent, properly qualified and experienced buyer’s agent, who has strong local connections and an expert knowledge at a suburb by suburb level, to sniff out the best opportunities.

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