![](\"https:\/\/fmsto.blob.core.windows.net\/cms\/images\/055\/0004_637884421426291159.jpg\")
<\/p>\n
Investors who are considering property flipping might need to rethink their plans as doing so might only put them at a risk for a potential loss.<\/p>\n
The reno and flip strategy amid softer market conditions could potentially be challenging and there are three major reasons why the current state of the market might not be ideal for property flippers, according to buyer’s agency BuyersBuyers.<\/p>\n
1. Potential rate hikes<\/h2>\n
BuyersBuyers co-founder Pete Wargent said the upswing in monetary policy might mean that there is less certainty about the market outlook.<\/p>\n
\u201cA renovator could find themselves selling into softer market conditions \u2014 the generic market capital gains may not be there to carry a project through to profitability,\u201d he said.<\/p>\n
Mr Wargent said rising fixed mortgages have already dampened sentiment in some of the markets, particularly the more expensive ones like Sydney and Melbourne.<\/p>\n
\u201cRenovator and flippers need to factor in the outlook for the local market they are operating in, to effectively manage project risks,\u201d he said.<\/p>\n
\u201cIf you aren\u2019t confident about your ability to flip property, think longer term \u2014 there\u2019s a looming undersupply of family-appropriate dwellings in the middle-ring suburbs of many of the capital cities, and there are plenty of prospects for growth in rents and property prices in these landlocked areas over the coming decade\u201d.<\/p>\n
2. High construction costs<\/h2>\n
The uptrend in construction costs is also a major factor, as there could be a tangible risk for over-capitalisation if players do not budget carefully.<\/p>\n
Figures from the Australian Bureau of Statistics (ABS) showed that the prices of timber and steel have increased by around 50%.<\/p>\n
Furthermore, a range of other materials and services have hiked the average cost of construction of a new home up by 20% from last year.<\/p>\n
\u201cObviously, projects need to be assessed on a case-by-case basis, but overlapping supply shocks have made access to construction materials at a reasonable cost less dependable, while in many areas of the country, there is a shortage of available tradies, which needs to be factored in as a contingency to any proposed renovation budget,\u201d Mr Wargent said.<\/p>\n
Mr Wargent said construction and material costs are considered \u201csticky\u201d and renovators and developers should assume that the high costs could persists for some time even if global supply chain issues are resolved.<\/p>\n
\u201cGeopolitical events are unpredictable, and supply chains may right themselves in time, but demand for materials and construction services remains relatively high for the time being, so there\u2019s every reason to expect costs to remain high for some time,\u201d he said.<\/p>\n
3. Cooling market<\/h2>\n
BuyersBuyers CEO Doron Peleg said the cooling market could have a significant impact on the profits that could be made from a reno and flip strategy.<\/p>\n
\u201cIn 2021, purchasing a property price for $600,000, adding $120,000 of value with a $60,000 renovation, and factoring in a property market increase by 20%, could lead to a profitable sales price of $840,000,\u201d he said.<\/p>\n
Mr Peleg said even after accounting conservatively for 7% to 8% transaction costs, there\u2019s a still generous profit to made in such a deal in a brief period of time.<\/p>\n
\u201cYou can also easily see how a reduction in market values of, say, 10% could leave an investor undertaking a flipping project in a precarious or loss-making position, particularly if there were unforeseen cost overruns due to materials or trades shortages.\u201d<\/p>\n
\u2014<\/p>\n
Photo by @jimmynilssonmasth on Unsplash<\/span><\/span><\/span><\/i><\/p>\n<\/p><\/div>\n
Do you need help finding the right loan for your investment?<\/strong><\/p>\n When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs.<\/p>\n Just fill in a few details below and we’ll then arrange for a local mortgage broker\u00a0to contact you and work out what features or types of loans are right for your needs. We’ll even help with the paperwork. Plus an\u00a0appointment is free.<\/p>\n \u00a0<\/p>\n<\/p><\/div>\n <\/p>\n
\n Top Suburbs :
\n
\n
\n glendenning<\/a>
\n
\n ,
\n
\n kariong<\/a>
\n
\n ,
\n
\n lalor park<\/a>
\n
\n ,
\n
\n greenwood<\/a>
\n
\n ,
\n
\n cardiff south<\/a>
\n
\n<\/p>\n<\/p><\/div>\n
\n Get help with your investment property<\/h3>\n
\n our privacy policy here<\/a><\/div>\n<\/div>\n