Flipping heck!
How to make big bucks in short-term property turn-arounds
Upper Hutt property trader Steve Goodey says there’s still big gains to be made in the market.
In March, he made $70,000 in a matter of weeks when he bought and then immediately resold a Naenae house. He said it was in such poor condition that the vendor was embarrassed to do open homes.
Knowing Goodey was a cash buyer, the agent got in touch with him and the deal was done.
‘‘I’d lined up a buyer before I’d settled. It was a $70,000 margin for being in the right place at the right time.’’
He rattles off more deals – a renovation that netted $60,000 in a matter of months. An Oriental St, Petone, house bought for $572,000, on which $125,000 was spent in renovations, was recently revalued at $950,000.
He said he would seek out properties that were ‘‘cosmetically distressed’’ and do them up.
Often they were units bought for about $500,000 then fixed up and resold. With new carpet and a light touch-up they could return $40,000 or $50,000, he said.
He said he would buy properties that first-home buyers could not afford to repair, then do them up, add a margin and resell them.
New data shows that Goodey is in good company. Homes.co.nz ran the numbers on properties that had been bought and then sold within a year, since 2018.
The biggest gain was from a Mt Maunganui house that was bought in March 2018 for $3 million and sold again 275 days later in December for $4.5m.
It had a rateable value $3.03m.
It was followed by a Merivale, Christchurch house which was bought and then sold 329 days later for a $945,000 gain and a Grey Lynn, Auckland house that of was bought and then sold 220 days later for $660,000 profit.
The fastest profit was $580,000 made on a Matua, Tauranga house in 90 days.
Homes.co.nz chief data scientist Tom Lintern said 854 properties had been bought and then sold again since 2018 and they had made an average $132,000.
If the houses were owneroccupied, they would not have been subject to capital gains tax.
If they were investment properties the gains would be taxed as income.
‘‘Even in a flat market, there is still an opportunity for a quick gain for those willing to put in some work. A lick of paint, a garden tidy up or home staging can be good ways to quickly increase the value of a property,’’ Lintern said.
Infometrics chief forecaster Gareth Kiernan said it was unlikely that it was a function of the markets in those areas driving prices. ‘‘Capital gains might not be all they appear to be.’’
In most cases, the advertising for the second sale described extensive renovations.
Auckland prices have been stable or falling over that period and the heat has also gone out of
Tauranga’s market.
In the year to September, Auckland prices were up 0.2 per cent and Bay of Plenty’s up 10 per cent.
Bindi Norwell, chief executive at the Real Estate Institute, said people who were buying with the intention of a capital gain could take a number of different strategies.
‘‘Fundamentally, it’s about trying to buy at a low price point and sell at a much higher price point while minimising costs and expenses along the way.
‘‘The point at which an investor sells however, tends to differ.
For some it’s a strategy of ‘buy and hold’ and they might not sell the property until many year later and for others it’s about ‘buy and flip’ and with the number of renovation reality programmes we’ve seen over the past few years this method has increased in popularity in the last 10 years.’’
She said another factors that could help capital gains would be the zoning of the property.
‘‘Is it in a good school zone that will likely hold its value over a long period of time or can the property be subdivided and two or more properties be built on the section. Proximity to public transport links, entertainment, employment opportunities and education are always going to be popular with renters and mean that an area is likely to hold its value in the long term,’’ she said.
‘‘Many investors will also try to think about areas that are ‘up and coming’ as good areas to purchase an investment property.’’
Property finder Nick Gentle, of iFindProperty, said he often saw people wanting advice on how to get a good capital gain from an investment property.
Usually he would advise them to buy in a good suburb in a city where there was long-term growth potential, including strong employment prospects.
That should be in the biggest centre where they could be cashflow neutral, he said.
He said low interest rates that now looked set to remain that way for some time to come, combined with population pressure, was pushing up prices in many parts of the country again, making gains easier to achieve.
Banks had also dropped their servicing rates, which allowed more investors and first-home buyers into the market, he said.
In a cooler property market, people could make gains by buying at a 20 per cent discount, he said, but when things were busier they needed to buy with the potential to add 20 per cent in value, such a by buying earlier in a new build process when houses would be cheaper than they eventually would be sold for.
Investors who could partner with a builder to allow them to buy properties that needed significant work would also do well, he said.
‘‘I’d lined up a buyer before I’d settled. It was a $70,000 margin for being in the right place at the right time.’’ Steve Goodey on this Naenae house, left