Can flipping houses make you rich?

Welcome welcome to another post. So glad you could join me as we take an in-depth look at the world of house hacking. As you know this blog aims to empower the average Joe and Joet to make informed investment decisions in this ever-changing world. We've gone through a house flip and I briefly discuss this in this blog post. I thought it would be a good idea to dive into the world of house flipping from someone who has done it first hand.

What is house flipping?

House flipping has become more and more popular over the last few years. The main reason I would say is the fact that investing and ways of investing have become more and more accessible to people all around the world. People are looking for ways to build long-lasting wealth and ensure they have assets that can look after them. Houses or homes has always been a tried and true way of building wealth. For many people, it is buying a home, waiting for the property to appreciate in value and with the money that has appreciated, buying a second and then a third or fourth home.  Where does house flipping fit into all of this?

House flipping in essence is the act of buying a piece of property that is usually in a nice or decent neighbourhood and through sweat equity adding value to it. The usual period is within a couple of years of the purchase of the home. This means renovating the property, usually, house flippers usually by using0 their own talents and abilities. So being a builder would be very useful!

Should you do it?

The ultimate reason for flipping a home is to add value to it so you can sell it for a profit. So if it isn't obvious by now, you would do it to make extra money! That is the overarching reason for doing this. The question would be, should you get into the house flipping game? Like most things investing, there is no clear yes or no answer. In theory, it makes sense to do this right? Especially if you are handy around the house or you are able to hold a hammer. You can of course learn all these practical skills, but it definitely helps if you have them upfront. More on why this is useful down below.  

I've heard and seen people achieve great success in doing this. We've had some success as well, again more details are down below. With the recent rule changes in New Zealand, it means that if you were to buy a home and sell it within five years (flipping it) you might be subject to a bright-line review and you may have to pay income tax on any profits you may have made. There are some exclusions that may apply, so it would be prudent to check these.

Who should do it?

So down to brass tax, should you do it? I would say yes under these circumstances.

  • if you are able to find a good deal (a home that you can add value to)
  • You are good at renovating, or you are seriously motivated to learn
  • Someone looking to build long term home portfolio equity.

With the recent changes, you aren't able to flip, make some money and then move on to the next home. Then do the same in a couple of years. With the bright-line changes, this strategy would make sense if you are playing the long term game. Things might take a bit longer but you are still able to buy a home, renovate it and add to the value of the home immensely. You might just have to wait or hold it a bit longer.

Who should not do it.

  • Not us... ever again.
  • Someone looking for a quick home flip (1 - 2 year solution)
  • Someone who is terrible at renovations, or doesn't have a lot of free time.
  • Not us... ever again.

It was such an interesting experience, buying, renovating and then selling a home. I can't say that we are interested in doing this anytime soon again. I do think that home renovation and house flipping has been romanticised and it falls into a similar category to modern-day entrepreneur culture. I whole heartily believe that it is not for everyone. Often the cons of doing this aren't mentioned, it was offering up countless hours in about a two-year process. There were days where it felt like the work would never end and we bit off more than we can chew. In the end, it worked out for us and we were able to walk away with some money to add to our investment portfolio. Consider this, if you are considering getting into the home investing market.

What we did

We were sitting around the dinner table one night when my brother in law said we should consider buying a home. In my mind, I thought well that is definitely something we are looking to do in the next 5 - 10 years. He then suggested we do it right now and all four of us buy a home together. It opened my eyes to the possibility, and we are super grateful that he brought us that proposition.

Skip ahead, we were on the hunt for property and so we started looking everywhere. We saw quite a few possible properties. some are a bit more run-down than others. One literally had a human-sized hole in the floor. Yes, it was bad. We landed on a home that was well priced and it was going to tender as the previous owner had passed away. So the children were looking to sell the property as soon as possible. We managed to land it and then the fun began.

Over the course of two years we managed to do some of the following to the house :

  • repaint the outsides and insides of the homes,
  • expand the living room into the kitchen
  • Install a new bathroom
  • Install a new kitchen
  • Build a new fence outside
  • Brother in law single-handedly built a deck outside!

Those are some of the key highlights of the renovation. We were unbelievably grateful to my wife's family who generously donated their time and effort, which immensely helped us over this time. Without their knowledge and labour, we would have never been able to do this. This again points to the fact that I can hardly hold a hammer, so renovations are generally not suited for someone like me!

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