Flipping Real Estate – Remember warranty insurance
Flip real estate is all through the telly channels these days, and you’re liable to run across some program or another glamorising the get-rich-quick world of house flipping. There’s Flip this House, Flip Men, Home to Flip, Property Ladder, and a personal favourite Flipping Out. And this is without even beginning to dive into the plethora of home improvement and renovation offerings on the tube for real estate.
It looks glamorous doesn’t it but the reality is quite different. In these shows they never talk about litigation and VCAT hearings and they certainly don’t mention the consumer protection and insurances you will need.
If you are renovating a home for sale there is no clear definition in the crossover of the terminology of maintenance and renovation, its like asking when does black become white, it’s a grey area, that’s why warranty insurance is based on a dollar amount of $12,001. Technically, at this figure you are an owner builder and you must purchase warranty insurance to sell your property to protect the purchaser for 6 years for defects relating to the construction you performed. So if you even think you are a renovator look into warranty insurance before you sell.
For example a mate is currently redoing the timber flooring in his home at a cost of around $13,000 so he needs to purchase warranty insurance when he sells to cover himself and subsequent purchasers against defects if he dies or becomes insolvent during the warranty period.
The Pros and Cons of Real Estate Flipping Reality Shows
For a newbie flipper, these shows provide a basic overview of the real estate flipping process, as well as giving viewers good ideas for renovations that add value to a house.
However, the inspired couch potato needs to bear in mind that the presented turnaround times for renovations and sales are generally unrealistic, and the shows rarely touch on the budgeting and financing issues that would affect the average homeowner. Face it, those who flip houses full time on television tend to have enough hard capital to pay cash for properties, which creates an entirely different profit structure than the one facing a weekend warrior who takes out a 2nd mortgage on the family home and does the “fixing up” in his spare time.
A Special Caveat for Australians Thinking of Taking the Real Estate Flipping Plunge
The peak of the real estate flipping craze, legislation came in 1996-97 stating the need to have a 6 year warranty period on construction. Too many investors remodeled houses haphazardly (be it on purpose or not) causing the government to step in and ensure owner builders guarantee any renovation work against defect for the period.
As renovators and do-it-yourselfers sit outside the law it is essential that property flippers be accountable when making improvements to a house which hit the market soon after the work was completed.
One Final Word of Advice
If a property that you have renovated goes to market, and you do not have Warranty Insurance and the purchaser finds this information out they can walk away from the contract. So do some investigation, ask some questions, and get the right insurance and you won’t have to wonder if something is going to bite you on the proverbial.