House flippers say claims their industry is dead are greatly exaggerated, with the sector alive and well

Professional house flippers say the slowing market and the Federal Government’s Budget tax changes will not kill their business, with widespread expectations the sector will instead thrive. House flippers Kate and Steven Deering say most professionals operate outside the recently changed capital gains and negative gearing tax systems anyway. Expert Kate said most professional house flippers, who renovate rundown properties to sell for profit, operate through companies which incur a 25 per cent business tax when the home is sold. Flippers are also unaffected by the recent changes to negative gearing — which only applies to rented properties — because they tend to sell homes immediately after a renovation. But Ms Deering said the tax changes would no doubt drive a different segment of the market — the property investor — away from established homes and into the newly built housing market, which retains the former tax treatment. And this shift would likely work in favour of house flippers, she said, helping them to thrive. “The tax changes won’t kill our business,” Kate said. “If anything, it may make it easier because it will drive investors into new builds, so we won’t have to compete with them for properties.” Clarifying a misperception that negative gearing has been completely abolished, Treasury has confirmed that the negative gearing changes for investors simply means that these deductions can not be made against their income each year. Instead, rental losses from interest, rates, insurance, repairs, depreciation and other deductible expenses can be carried forward to offset future residential rental income when the property is positively geared, or to offset future capital gains tax when the home is eventually sold. However, it is broadly anticipated the changes will drive some investors away from the rental market for established housing because it hampers cash flow and reduces the overall size of the tax benefit. Kate said it was unlikely that investors would switch to buying homes through companies — like their house-flipping peers — in order to reduce capital gains tax because it would mean they would incur higher interest rates on their loans. She and Steve pay 9 per cent interest on their loan, but they enjoy flexible terms, which allows them to pay when the property is sold, rather than in weekly or monthly instalments. Kate said many flippers use peer-to-peer lending, or borrow money from friends to get these flexible terms. But the non-traditional financiers tend to require a fairly quick return, which does not suit the typical property investment model. She rejected claims that the slowdown in Perth’s property market would reduce house-flipping profits. In fact, many house flippers claim it had been difficult to source suitable homes to flip at the height of the boom, when homes were selling before the first home open. A greater range of properties on the listings market — which has spiked 20 per cent in the early part of the year — as well as an exodus of some investors, would likely result in some better deals. Kate said that as house flipping was about adding value by improving a home, gains were likely even if capital gains were slow. While one of the more profitable periods during their 14-year career was in recent years — when house prices in some areas jumped 30 per cent a year — their most profitable project was at the beginning of the last property slowdown, in 2013. However, the depths of the slowdown, in 2017, was their worst year, causing them to lose money on a project. Even by doing much of the work themselves — Steve does electrical work and Kate is an interior designer — they could not stem the tide of the market. She said in recent years they had started outsourcing an increasing amount of work. Proof that having a trade is not crucial to being a successful house flipper, one of the most well known in the field, Graham Whitfield, calls himself the “unhandiest man in Australia”. He completely outsources his renovation work on his housing projects to other trades. He said his skill is understanding the market, the areas in high demand and how to make the changes that buyers will reward. Mr Whitfield agreed that house flippers were likely to benefit from the anticipated exodus of investors, who typically competed for the same types of properties. “House flipping is not dead, that is for sure,” he said.