Nine out of 10 properties flipped by investors last year sold for a gross profit, according to analysis by CoreLogic.
Flipping refers to buying and selling a property within one or two years in the hope of making a quick capital gain by either buying undervalued property, benefiting from rapidly rising prices or from adding value in some way such as through renovation, subdivision or securing a development permit.
While 89.1 per cent of homes resold within one year made a profit and 89.9 per cent resold within two years made a profit in 2017, the proportion of loss-making flipped sales is expected to rise in 2018 as house prices, especially in Sydney and Melbourne, start to ease and obtaining investor loans becomes harder.
The CoreLogic figures also don’t reveal the level of profit and exclude the expensive costs associated with buying and selling property including interest payments, stamp duty, conveyancing costs and real estate agent commissions, which can easily turn a gross profit into a net loss.
“Although the proportion of flips at a loss has declined from recent highs in 2009 and again in 2012, there has been a clear increase in loss-making flips recently,” said CoreLogic in its inaugural Property Flipping Report.
“The rising number of loss-making flips highlights there is some financial risk in flipping, keeping in mind that the proportion of loss making flips on a net basis is likely to be substantially higher once expenses are taken into account,” the firm said.
The CoreLogic report also shows sharp differences in flipping success depending on where property has been bought and sold.
Not surprisingly, Sydney and Melbourne, which have enjoyed the strongest capital growth in recent years, delivering profits for well in excess of 90 per cent of those who flipped in 2017.
However, in Perth, where property prices have been sliding downwards, 30 per cent of properties flipped within a year lost money and nearly 50 per cent of those flipped after 12 to 24 months lost money.
The proportion of homes flipped has fallen sharply since 2000. supplied
The worst place to flip property last year was Darwin, where more than a third of properties flipped within a year lost money and 70 per cent of those flipped between 12 and 24 months sold at a loss.
With Sydney house prices falling 0.2 per cent in the first two weeks of the year and are growing at just 2.5 per cent annually, in line with inflation, flipping profitably will become a lot harder, especially for highly-leveraged investors.
Some investors are already running into trouble, with The Australian Financial Review recently revealing that 20,000 investors at Queensland’s Property Club can no longer afford their mortgage repayments after the banks reset their interest-only loans to principal and interest.