Flipping a house can be a rewarding venture for those with a keen eye for potential and a solid strategy. Whether you're a seasoned investor or a first-time renovator, the process involves buying a property, making strategic improvements, and selling it for a profit. But with our dynamic property market, location, timing, and renovation choices playing a crucial role in maximising returns, any success hinges on careful planning, budgeting, and a deep understanding of local market trends.

Yo Roberts is well versed at the process and has been flipping property in Tauranga and Waikato full time for the last 15 years. He says there’s a lot to consider before you even begin to embark on a flip, especially in this market.

“Gone are the days of finding a do-up property on Trade Me and expecting to purchase it, renovate it and sell it for a profit. The margins just aren't there at the moment in this economy.”

He says a lot of strategy and planning needs to go into the purchase, because a renovation alone won’t be enough to secure you a profit.

“What I've learned to do is target certain areas, and within that area, I'll look at every single property that's on the market. I'll then look at what I class as a competitive retail stock which is property that's been renovated currently for sale.”

“I then make sure that I’m focussing on things like really good school zones, because that opens up a bigger buyer pool which extends beyond just first home buyers.”

Because the more potential buyers you have the more likely you are to sell. Roberts says it can be easy to get swept up in the process, but you need to be thinking about your buyer and what they would want in a home.

“Ask yourself who your buyer is at the other end, and what their motivation is. Then cater to that.”

“Are you competitive with every other property on the market once you've done your renovation? If you are, then you've got a very, very high chance of selling and making a respectable margin.”

WHAT FEATURES SHOULD I LOOK FOR IN A DO-UP?

Roberts says a great place to start is making sure that any buyer will easily be able to secure finance on the property and that comes down to understanding the construction products.

“For example, you want to be very careful about the types of cladding that you choose. So you don't want leaky homes or cladding products that the banks won’t lend to.”

“If you're inexperienced, you'll probably think, gee, I found this property over here, it's going to have a good margin so let's go for this. But then you'll get in there and renovate it, and when you go to market, it'll fall over on finance every single time.”

Roberts says you want to look for things like asbestos roofing or asbestos cladding.

“Because by the time you get some professionals in there and they realise it's got to be removed properly, you'll blow out your budget completely.”

The best way to find out these things is by getting a building report.

“That report will be quite handy to negotiate purchasing the property, but also if you go through that building report and through your renovation and rectify those issues you can take that property from an unfinanceable situation to a financeable situation.”

When it comes to identifying features with the most do-up potential, Roberts says it’s important not to overlook indoor-outdoor flow and that means targeting homes with a larger backyard.

“There might be a small three-bedroom house, but as a renovator you could go in there and put a ranch slider in, extend the deck out into the back lawn and put in a nice trellis with a barbecue area without a lot of cost and very little council compliance issues.”

“By doing that you’ve really added to the flow of that property. It’s that indoor outdoor flow, which is the ability to turn a small, pokey lounge into something quite special.”

Roberts says another golden rule to add value is by adding another bedroom.

“Obviously you need council compliance to do that if you're extending the square meterage of it, but that is always a great way to improve a property.”

“So, I often look at two bedrooms, and the first thing I'm doing is figuring out how to make it a three bedroom, and if it’s an existing three bedroom, how to turn it into a four. There's always a great return on more bedrooms.”

WHAT SHOULD I FOCUS ON DURING THE RENOVATION?

Roberts says when he plans his renovations he focuses on touch and feel.

“You want to put massive emphasis on your kitchen, tiling and storage. You want all the door handles and light switches to be new. Everything you touch needs to be beautiful.”

“Especially in this market it’s the price point that attracts buyers, but from that it’s about touch and feel. I’ve seen people re-wire, re-plumb, re-jib and re-plaster a house before. It ends up being the superior product, but then I’ve seen it lose out to a less superior product with a fancier looking kitchen.”

Roberts believes upgrades are always key, especially if they are budget friendly.

“For example, I might do mid-range carpet, but I'll do a high-grade underlay to give it that soft, squishy, beautiful feeling.”

“I'll also always stage my properties because it's about touch and feel, and it really gives it that extra wow factor.”

WHAT ABOUT COLOUR?

A fresh paint job can often be the most cost-effective way to make an improvement on a property, and Roberts says colour is something that should be carefully considered.

“You want to keep the interior and exterior of the house really neutral to allow the prospective buyer to bring their own colours and artwork in.”

The same goes for wood patterns and textures.

“I usually choose light wood, grain flooring. I pick light carpet, and I go with either black or white. paint. I've probably renovated more than 100 houses in Tauranga and they've basically all got the exact same interior colour and that’s because it works.”

WHAT CAN CATCH YOU OUT?

Roberts says reading the property’s LIM report will help you avoid any pitfalls.

“The LIM report will present issues around flooding and relic slips in the area. It'll have all the major issues which your lawyer will catch on to straight away.”

“It’s important you pay attention to them because say you bought a home for $500,000 and because of that you think you can overlook the fact that it's got a relic slip. But the guy that's buying it off you for $750,000 because you renovated it probably isn't going to look past that because it’s their dream home.”

When it comes to the actual renovation Roberts says issues tend to be consistent based on the type of house you’re doing up.

“For example, an old 1960s weatherboard house will have native timber so most of your walls probably won't be square. You potentially could have bora, but it's a very, very solid house.”

“Now you come into the 80s, and they started using Pinex flooring. That is chipboard flooring, and you get a little bit of water on that, like a leaking laundry or leaking shower, and that'll sponge up and just blow out and your floors completely stuffed.”

“Get into the 90s, and that's the leaky home era.”

Roberts always looks at the era of house to preempt what could catch him out but says you shouldn’t let that put you off entirely.

“You just need to analyse the building report and work out how you fix those issues properly because often it’s those issues that allow you to buy the house at a reasonable price and then make a margin.”

CAN I DIY?

DIY can certainly help save you some cash, but Roberts says it’s important when you’re trying to fix an issue that you enlist the help of qualified professionals.

“I never touch electrical, I never touch plumbing, and I very rarely touch roofing. The reason for that is there's certain aspects of a renovation that must be done by a qualified trades person, and you'll most likely need a certificate.”

“You really don't want to get yourself in a position where you've gone and played around with that sort of stuff to try and do it on the cheap and then the buyer’s lawyers ask for the certificates of works, and you don't have them.”

But there are things that you can do well yourself, like painting, plastering and general fix up jobs.

HOW MUCH CAN I MAKE ON A FLIP?

When it comes to money Roberts says there are three pillars of margin.

“The first one is the buying margin, which is important. The buying margin is if the property has issues or is in such a disrepair or run-down state that you buy it undervalued, so you've effectively brought a margin upfront.”

“The second one is the renovation margin, which is effectively, if I spend $1 will I get $3 back? So how much margin can I make on an affordable, nice renovation, and what will that do to my value?”

He says the third is your capital gain and is only something you can secure in a buoyant market.

“So, from the time you purchased it to the time you renovate and sell it, you've made a capital gain on top of the buying margin and renovation margin.”

“That’s how you make really good money, you need all three. But you can get away with just two which is what the current market is allowing.”

Roberts says if you bought a property and only relied on one of those pillars, you’d be unlikely to make much.

WHAT ARE MY TAX OBLIGATIONS?

Generally, if you buy property with the intention or purpose of reselling it, you’ll have to pay tax on any profit you make from its sale irrespective of the bright-line test which was reduced to two years.

This is called the intention rule. It applies to both commercial and residential property and your intention will determine your tax when you go to sell.

Because house flipping is treated like a business, Roberts says that means you have business obligations as well.

“You just have to set up a trading entity and register for GST. Basically, as far as your profits are concerned, you're up for GST and tax.”

“But the reality is, if you're doing enough volume and you're good at what you do, you're still going to do well out of that.”

Roberts says the key is talking to an accountant who will help you to set up a company and register you properly for GST.

For more information on tax visit the IRD website.