We discover if ‘hook and flick’ is a viable strategy in this market. Pete Wargent gives us the lowdown.
Kevin: Pete Wargent joins me now. Of course, his blog is very, very popular: PeteWargent.blogspot.com.
Good day, Pete. How are you doing?
Pete: Good thanks, Kevin.
Kevin: Mate, you’re doing a presentation in Sydney, coming up in October too – 7th of October. What’s that about?
Pete: That’s for people interested in some no-nonsense financial education. It’s a one-day workshop. No up-selling to more expensive courses; it’s just straight talking from five financial experts.
Kevin: Okay. If you want to get a bit more information about that, go to Pete’s blog, which we’ll tell you about, again, at that the end of this chat.
Pete, of course, is well known for having written a number of books about finance and the market. Get a Financial Grip was one. There’s a new one coming out in October, too – watch out for it – called The Wealth Way.
Pete, I want to talk to you specifically about hook and flick. I know that’s a terminology that really talks about flipping property. Is this a good time to be doing it, or is any time a good time to do it?
Pete: I was going to say, I think that’s what in England, we would call flipping.
Yes, in Australia, you do find if you’re flipping properties, then you have transaction costs when you buy and sell, and that can be quite a high hurdle to clear. I think in the current market in Australia, there’s less appetite for apartment development at the current time. But that means there’s more competition for splitter blocks and renovators.
You can still pull it off, but you’ll probably want to find a market that is rising and delivering some capital growth for you, because that can help to improve the margins.
Kevin: Apart from where you buy, is there a particular type of property? As an example, I know that a number of people have made really returns out of buying some of those older style units where they can add an extra bathroom by cutting down on the laundry. Are they the sorts of twists you look for in this type of investment?
Pete: Yes, definitely. In Brisbane and Queensland, the older style Queenslanders are another type of property that people look to renovate, particularly by raising them up. So, there are different types of properties you could approach, but there is some margin there for willing renovators.
Kevin: What do you think are the signs that make a good hook-and-flick property? What would you look for?
Pete: It’s all about doing the numbers. It’s very much a numbers game. If you have stamp duty and transaction costs to pay, when you buy and sell, then you need to make sure that there’s enough margin in the development. So, it’s really about thinking about what is your end product and sticking to the budget.
Kevin: It’s one of the golden rules of investing in real estate, isn’t it, that you’ll make money when you buy, not necessarily when you sell?
Pete: Yes, that’s right. There’s something I was alluding to there before. To go back two or three years ago, there was a lot of lot of competition for sites that you could develop with apartments and now that’s much less so the case, and therefore, there’s a lot more competition for a lot of these sub-dividable blocks and particularly for renovator-style properties. So, you need to do your research and buy well.
Kevin: You mentioned earlier, in Queensland, the number of splitter blocks. These are houses on two blocks of land. They may be two now, or they could have the potential to do that. Was that something that mainly happened in Queensland, or did it happen in other parts of Australia as well?
Pete: Yes, you can find blocks all over the country that can be sub-divided. The thing is, if you’re looking in Brisbane in particular, you would look at some of the 810 square meter blocks, many of which have now been split into 405 small blocks, as being standard size. There are certain rules as well, depending on the zoning from the city plan. So, if you’re close to commercial property, you can sometimes divide smaller blocks too.
Kevin: Okay. Just summing it up for you, the golden rules if you want to get into turning property over quickly, what would you say are the top three recommendations, Pete?
Pete: Firstly, you have to do a lot of research into the type of property you’re going to buy and the end product you’re going to deliver. Secondly, spend a lot of time on the budget, and also, I would say the third thing is allow for contingencies because there are often unforeseen costs when you’re doing a development.
Kevin: Pete Wargent. I mentioned that blog, right at the start. I’ll mention it again: PeteWargent.blogspot.com. Look on for some great content and also some details about that no-nonsense financial education program that Pete is running on the 7th of October in Sydney. Pete, thank you very much for your time. Look forward to that new book coming out, too, The Wealth Way. When’s that due out?
Pete: That’s also out in October, Kevin, so keep an eye out for that.
Kevin: Wonderful. Look forward to it. Send me a copy, mate, and we’ll have a chat to you when it comes out.
Pete: Sounds great.
Kevin: Good on you. Pete Wargent there, and it’s PeteWargent.blogspot.com. Thanks, Pete. Talk to you again soon.
Pete: Pleasure, Kevin.