Property Flipping’s Resurgence: A Risky Game in a Shifting Market
Property flipping, the practice of buying a property with the intention of quickly reselling it for a profit, is making a comeback. Recent data suggests activity levels haven’t been this high since before the 2008 global financial crisis. But this revival isn’t without its perils, as a recent Auckland High Court case vividly demonstrates.
The Auckland Case: A $1 Million Lesson
Robert and Margaret Smallridge learned the hard way about the risks involved. They sold their Avondale home in November 2021 to Paljeet Singh for $1.925 million, anticipating a quick resale. However, the market cooled, and Singh was forced to resell at a loss. Justice Tracey Walker ruled in favour of the Smallridges, ordering Singh to pay over $750,000 in damages, plus substantial contractual interest – totaling nearly $100,000 – and a daily interest charge on the net loss until the property was finally sold. This case serves as a stark warning: flipping isn’t a guaranteed path to riches.
Did you know? Contractual interest rates, as seen in the Smallridge case (14%), can significantly amplify losses when a flip goes wrong.
Why the Return of the Flipper?
According to Nick Goodall, head of research at property data firm Cotality, the number of “contemporaneous sales” – properties sold and resold in quick succession – increased significantly last year. “We saw almost double the activity compared to 2023, and even surpassed levels seen during the Covid boom,” Goodall explains. This surge isn’t necessarily a sign of a booming market, but rather a reflection of changing vendor behaviour.
“Vendors are increasingly inclined to sell, even if it means accepting a lower price, given the current economic climate,” Goodall notes. “They may be prioritizing a quick sale over holding out for a better offer.” However, he emphasizes that current activity remains below the peak seen in 2007.
The Lower End of the Market: Where Flipping Thrives
Cotality’s data indicates that much of the current flipping activity is concentrated in the lower price brackets. This is likely due to the relative resilience of this segment of the market. While overall property prices have fluctuated, first-home buyer activity has helped to stabilize prices at the lower to middle end.
Goodall suggests successful flippers are being selective, targeting properties that have been on the market for a while. “Experienced investors can identify motivated sellers and capitalize on opportunities for a quicker sale, potentially unlocking value for buyers.”
‘Lazy Investors’ and the Role of Buyers’ Advocates
Property investment coach Steve Goodey identifies another driver of the flipping resurgence: “buyers’ advocates.” These professionals scout out undervalued properties and quickly resell them to investors, often with a small markup. “There’s a segment of the investor market that isn’t fully aware of current buying opportunities,” Goodey says. “A skilled negotiator can find equity, discounts, or high-yielding properties and pass them on for a moderate fee.”
He describes these investors as “lazy,” willing to pay a premium for convenience and a seemingly good deal. Goodey himself completed several contemporaneous settlements in recent months, highlighting the ongoing demand.
Future Trends: What to Expect
The future of property flipping hinges on several factors. Interest rates, economic growth, and housing supply will all play a crucial role. Here’s what experts predict:
- Increased Scrutiny: The Auckland case will likely lead to increased scrutiny of flipping transactions and a greater emphasis on transparency.
- Niche Opportunities: Flipping will likely become more focused on specific niches, such as renovation projects or properties with development potential.
- Data-Driven Decisions: Successful flippers will rely heavily on data analytics to identify undervalued properties and assess market risks. CoreLogic provides valuable property data and insights.
- Slower Market, Fewer Flips: As the market cools further, the number of flips is expected to decrease. The risk of being caught with a property during a downturn will deter many investors.
Pro Tip: Thorough due diligence is paramount. Always conduct a comprehensive building inspection, obtain legal advice, and carefully assess market conditions before committing to a flip.
FAQ: Property Flipping
- What is property flipping? Buying a property with the intention of quickly reselling it for a profit.
- Is property flipping legal? Yes, but it carries significant risks and requires careful planning.
- What are the risks of property flipping? Market downturns, unexpected repair costs, and difficulty finding buyers can all lead to losses.
- How can I minimize the risks? Conduct thorough due diligence, secure financing, and work with experienced professionals.
The resurgence of property flipping is a complex phenomenon driven by a combination of market forces and investor behaviour. While opportunities exist, the Auckland High Court case serves as a potent reminder that this is a high-risk game. Success requires skill, knowledge, and a healthy dose of caution.
Want to learn more about property investment strategies? Explore our other articles on navigating the New Zealand property market.
