Buy and flip or hold my property?
Experts Cherie Barber and Andrew Fawell give their view on maximising profits.
HOLD: Cherie Barber, Renovate for Profit
For me, buying, renovating and holding is the best option. You get three big benefits: the instant uplift in property value - and therefore equity - through clever renovation; rental income after renovation, usually at a premium to the suburb average; and long-term capital growth. If the income doesn't cover costs, then you have a negative gearing tax benefit.
I recommend holding for about 10 years-plus to get solid long-term capital growth. But you need to buy astutely. If you pay too much, you blow a lot of your potential profit.
I maintain for every dollar you spend on your renovation budget, you'll get $2 back; for a cosmetic renovation, spend 10% or less of the property's value. And obviously the quicker you get in and out with your renovation, the lower your holding costs.
DEPENDS: Andrew Fawell, Beller
Long-term holding will obviously give more consistent returns. Flipping has a lot more inherent risk but greater short-term potential upside. Most investors don't take into account the full benefits of holding newly developed property, which includes retained profits, depreciation, not paying the GST after holding for five years, the capital growth aspect and consistent cash flow and rental upside.
When flipping a property, by the time you strip out all associated expenses, including stamp duty, holding, selling and advertising costs and capital gains tax, what is the real return? If you don't have another development and can't repeat the process immediately, the actual return will be diluted - amortised over a greater period of time - which often is not taken into account.