Can you profit from flipping property?

Judging from all the property “reno” shows on TV, property flipping seems like easy money. But can you actually make a profit from flipping property?

The short answer is yes, you can make money from flipping property. However, it’s not as easy as it’s made out to be on reality TV, and there are a number of issues investors need to be aware of.

Firstly, the risk is much higher when flipping property.

If you’re considering flipping property, you need to be able to stick to a budget, and have a good understanding of costings.

For example, if you allocate $20,000 to renovate a property, do you know how much it will cost to repaint the interior or update the kitchen cabinetry? What about installing new blinds or replacing rusted gutters?

Unfortunately, if you don’t get the numbers right you could be facing a cost blowout, which will impact your bottom line.

You’ll likely have to choose which areas to spend the money as well – so would you receive a better rate of return by upgrading the façade, or should you focus on spending money in the alfresco area instead?

Once you start renovating you might discover more issues that need to be rectified or repaired, which could also lead to cost overruns.

There is also the risk that market conditions could change. If you acquire a property to flip in an upcycle, the market may have turned by the time you’ve finished the renovations and advertised the property for sale. This could create significant financial trouble as you may be forced to sell at a loss.

There are also the high imposts you have to consider when buying and selling property, such as stamp duty, capital gains tax and selling agents fees, which all eat into your margin.

While there are the risks with budget blowouts and market conditions changing, the fact of the matter is that flipping property is extremely time consuming, having to source quotes, choose fixtures and finishes and liaising with trades etc.

Unfortunately, most of us don’t have the time required to flip property because we have our careers to focus on.

That’s why, for the very large majority of investors, flipping property isn’t a good option.

It’s a better idea to buy high-quality properties that will grow in value over time and hold them for the long-term.

This way investors can still grow their wealth through property, but have the time to focus on their careers and enjoy their weekends off.

For more information on the buy-and-hold strategy, download Momentum Wealth’s new podcast series, The Property Investing Masterclass, which explores the fundamentals of residential and commercial property investing that every investor should know, regardless of age or experience.

Should I engage a builder or a designer for project plans?

Many builders offer in-house project design services, but is this the best option, or should investors engage an architect or designer for plans?

While it might seem more convenient to use one company to complete your design plans and build your development, the truth is it could cost you more in the long run.

Generally it’s best to engage an architect or building designer to draw your project plans, rather than going to a builder direct.

By utilising an architect or a designer, you will own the copyright to the plans, allowing you to tender the project to several builders to secure the most competitive bid (i.e. best price and contract conditions).

On the other hand, if you engage a builder to complete the plans, typically they will own the designs – therefore you can’t compare quotes from other builders.

If you decide to not build with that company, then you’ll be forced to pay thousands of dollars to buy the plans, or worse still, the builder may not sell them to you, meaning you’ll have to start from scratch.

When searching for a designer, make sure they have an understanding of your budget and experience with similar types of projects to yours (i.e. a duplex, multi-storey townhouses, apartment complex etc).

Just because the plans for a project have been drawn, doesn’t necessarily mean the project can be built.

There may be limitations to what’s possible, either technically or financially, so it’s important to engage a designer with experience with similar projects so they can produce designs that are practical and within your budget.

For more information on property development, download Momentum Wealth’s new podcast series, The Property Investing Masterclass, which explores the fundamentals of residential and commercial property investing that every investor should know, regardless of age or experience.

What’s the difference between survey strata and built strata?

Strata titles are common in Western Australia, particularly for specific types of dwelling stock, such as villas and apartments. But what’s the difference between survey strata and built strata?

Strata titles allow buyers to gain ownership of part of a property but share ownership of other areas of that complex.

Property types that are often strata titled include duplexes, villas, townhouses and apartments, and you’ll often hear that they’re either survey strata or built strata.

Quite simply, survey strata is surveyed by a licensed land surveyor and the land boundaries are shown as survey marks on the survey-strata plan – this does not define any buildings.

Built strata is the original form of the strata scheme and typically comes in 2 forms – those established prior to June 30, 1985, and those established after.

Prior to this date, built strata lots could only be within a building (i.e. ownership was only for everything inside the dwelling). However after this date, part of the lot could also be the land outside the building and may also include the building structure. (i.e. the exterior of the building including external walls)

As an investor considering buying a strata-titled property, it’s crucial to read and understand the strata plan.

The strata plan provides lot ownership information and relevant by-laws that set out what you can and can’t do with the property, as well as what you technically own.

For example, when buying a built-strata unit, do you own the associated car park and/or courtyard? The answer to this will have implications on insurance, maintenance (i.e. who’s responsible for these areas) and permission to alter exterior surfaces of buildings etc.

By-laws will vary from complex to complex but could include:

1. Lot owners can’t amend the exterior of the property (e.g. solar panels, Foxtel dishes, roller shutters, tinting windows etc)
2. Floor tiling is not allowed
3. Pools and spas in common areas only allowed for those 16 years or older
4. Lot owners may not reallocate their car bays
5. No clotheslines on balconies

These are just a few of some of the possible by-laws set out in a strata plan.

Before buying a property it’s best to always refer to the strata plan yourself.

For more information on property management, subscribe to Momentum Wealth’s new podcast series, The Property Investing Masterclass, which explores the fundamentals of residential and commercial property investing that every investor should know, regardless of age or experience.

Major mall upgrade to boost suburb’s amenity

This south-of-the-river suburb is packed with amenity, and its offering is only going to be enhanced with a slated $750 million redevelopment of a local shopping centre.

Booragoon is located in the City of Melville, approximately 9.5 kilometres south of the Perth CBD.

Its neighbouring suburbs include Ardross (north), Mount Pleasant and Brentwood (east), Winthrop (south) and Alfred Cove and Myaree (west).

The population of Booragoon is 5,461, with a median age of 43 years.

The median house price is $880,000 with the dwelling stock comprising 79% housing, 17% semi-detached and 5% units.

While Booragoon has predominantly been low-density residential houses, new rezoning for medium and high-density stock around Garden City Shopping Centre, Riseley Street, Marmion Avenue and Leach highway will encourage a more diverse range of grouped and multiple dwellings.

Booragoon features high-quality amenity including the Melville Aquatic Fitness Centre, Booragoon Lake Reserve, Len Shearer Reserve and Booragoon Primary School as well as the Garden City Shopping Centre.

Both Canning and Swan Rivers are within 2km of the suburb as well.

In what will become another major drawcard for the area, Garden City is scheduled to undergo a $750 million redevelopment commencing in late 2017.

The upgrade will take about 3 years to complete and increase retail space by 43,000sqm with the number of stores rising from 190 to around 400.

Part of the redevelopment will include a comprehensive main street casual dining and leisure precinct, new cinema complex, assortment of fresh food and large format international fast fashion retailers and flagship stores.

Looking into the long term, Perth’s transport plan for 3.5 million residents identified Booragoon as a key secondary centre where new rail infrastructure will connect Booragoon north under the Swan River to Queen Elizabeth II Medical Centre and the University of Western Australia, as well as south to Murdoch Station.

This slated transport project would vastly improve the accessibility of Booragoon in the coming decades.

The suburb is bordered by Davy Street, Almondbury Road and Coomoora Road in the north, Norma Road in the west, Leach Highway in the south and Rogerson Road in the east.

Its main arterial roads include Kwinana Freeway, Leach Highway, Riseley Street and Marmion Street.

The suburb also features the Booragoon Bus Station, which is located at Garden City Shopping Centre.

32% of workers identify as professionals (19.9% WA, 21.3% nationally), while 15% are managers and 14% clerical and administrative workers.

For more information on how to find an investment-grade suburb, download Momentum Wealth’s new podcast series, The Property Investing Masterclass, which explores the fundamentals of residential and commercial property investing that every investor should know, regardless of age or experience.

Deals and Don’ts – Redcliffe, St James, Greenwood

Deals

Redcliffe Purchase price: $545,000 Purchase date: October 2016 Block size: 809sqm block Specification: 3 bedroom, 1 bathroom house built in 1979, zoned R20.

Deal: This property represents a deal as it is located nearby the soon-to-be built Redcliffe Train Station, which is part of the Forrestfield-Airport Link that is under construction. The new train station will provide great amenity to the area and the property is also subject to draft rezoning, which is likely to allow medium density development on the site. In addition to this the property is also in close proximity to the Perth CBD and Perth Airport. The property has also been recently renovated.

St James Purchase price: $490,000 Purchase date: October 2016 Block size: 582sqm Specification: 2 bedroom, 1 bathroom built in 1954, zoned R20.

Deal: This property represents a deal given its low price point and future development potential – the property is subject to rezoning as a draft R40. It is also in close proximity to Curtin University and the Perth CBD, which are two major employment and education hubs.

Greenwood Purchase price: $560,000 Purchase date: October 2016 Block size: 690sqm Specification: 4 bedroom, 2 bathroom house built in 1987, zoned R20/40.

Deal: This property represents a deal primarily because of its strong development potential being R20/40 and on a corner block, which allows for enhanced project design. The property also has good accessibility to Mitchell Freeway and Greenwood Train Station and is in good rentable condition making it suitable for a family.

Don’t

Queens Park For sale price: $340,000 Block size: 222sqm Specification: 3 bedroom, 2 bathroom villa built in 2001

Don’t: This property doesn’t represent a good investment because it is located on a fairly major road in a large homogenous complex of 12 villas. The property is surrounded by medium-density zoning, which will add to supply levels, most likely of similar villa stock, restraining capital growth and rental yields. The property is also under the flight path adding to noise pollution.

Finding the best location and commercial property for your budget

When buying a commercial property to establish a new business, the location and specifications of the premises are key.

However, as is the case with most start-ups, finances are tight given expenses are high and income is low, or perhaps non-existent.

In most cases, this means compromise, which was the case for one entrepreneur who was establishing a stand-up paddle board distribution centre in Perth.

This client engaged us with a $400,000 budget requiring a 140 – 150 square metre premise comprising mainly warehouse space, but he also wanted a small office and a showroom area as well.

The sticking point in the client’s brief, though, was that he wanted to buy the property in Balcatta, which is regarded as one of Perth’s premium industrial locations.

Knowing the local market, we advised the client that finding a suitable property within his budget in Balcatta would be near impossible.

With no room to expand his financial capacity, we advised the client that we’d search for properties in other locations that suited his budget and criteria, but we’d also examine Balcatta nonetheless.

While Balcatta was all but out of the question, our consultants were confident that, with assistance from our in-house research department, we could find a suitable property in a location that met the client’s needs.

With this in mind, we identified Wangara and Malaga as two appropriate areas to establish his stand-up paddle board distribution centre.

After an extensive search, our campaign confirmed what we had already known – Balcatta was too expensive for the client’s budget.

We advised the client that if he was determined to establish the company in Balcatta, there were a number of leasing options available that we had identified.

However, set on buying his own premises, the client valued our advice and decided he would be happy to consider the other locations that we’d also investigated – Malaga and Wangara. We recommended Malaga as his best option.

Providing the client with a shortlist of properties that we could walk him through and explain the benefits and drawbacks of each, the client eventually decided on a 143sqm site which we were able to negotiate the purchase price and contract terms.

While Malaga isn’t regarded as much as a premium industrial suburb as Balcatta, the former is still relatively central being just 11 kilometres from the Perth CBD, and it comprises property that, although generally older, offers great value for money.

More importantly, as a distribution centre, it fits the client’s needs given that Malaga borders Reid Highway, which is connected to Perth’s major arterial roads providing good connectivity to key retailers.

As an added bonus, we were able to acquire the property for just $310,000 – well below the client’s budget – which provided him with more financial capacity for other aspects of establishing his business.