Your Property Success Mentor February 22-02-2018

No, we're up and running. Jane.

Hey, how you going, John?

Yes, we're on. We're on. People can see us. There we go. You can't see us, but other people can. Good. Can you hear me okay, Jane?

I can. I've got you loud and clear.

Great. Well, I think everyone else can hear us, too, so we can take it away.

Technology, it's a wonder. Well, thank you so very much, everyone, for joining us for the February your property success mentor call. And we wanted to. We're trying things a little bit differently. John's over in the studio. I'm. I'm down in town at a conference where I've just delivered an hour and a half talk. And I kept going. No more questions. I got to go. Gotta go. So. But anyhow, so welcome to February. It's been pretty busy, hey, John?

It sure has. Yeah. Yeah. And we just thought we'd chuck this into the mix just to spice things up a bit.

Why not? Why not?

So far, so good. We're only a few minutes late now.

I can see that we've got a couple of people watching. Please just type in and let us know if you can hear us and you can see us. And if you've got any questions, make sure that you type them into the chat because John will be looking at those and letting us know what the questions are. And if you would like to join us as a guest, if you just click on that link, that's up the top of where you can see the video and join us as a guest. Have your headphones and your webinar ready and your webcam.

I've also got a few questions been sent in this week, Jane. Three that we can go through when we're ready. But why don't we just start as we normally do? What have you been up to? Where are you now? To start with, give us. Paint the picture for us.

Oh, my gosh. It has been such a busy week. I have had two days in Sydney and now actually went to a body corporate meeting on Monday night, which had some interesting things that I learned that I would share with you a bit later. But I've also been talking to buyer's agents around the country. So, you know, as part of this service and helping people in getting properties, I want to make sure that we're connected with the right buyer's agents. I've been interviewing buyer's agents and talking to them, which has been a lot of fun, learning about their business. And I have also been. So now I'm actually at A mortgage broking mastermind group. So we've been talking about connection and contribution to communities and how you do that, which obviously this is kind of one of the examples, but we've been talking about that, which has been a lot of fun with our good friend James.

Great. Fantastic. And is that today and tomorrow or just today?

Today and tomorrow. Yeah.

Good stuff.

And what about you, John?

Well, I've been talking to a lot of people actually in the community. We had the survey go out to the entire subscriber base over the last, well, maybe two weeks now. And yeah, the last two days I've been on the phone and chatting with people who. There was a group, the last, very last question was, you know, if you'd, if you'd be up for us following up with you and diving deeper into some of these questions. Leave your contact details and which a lot of people did. Over 80% of people did that, which is a good sign, I think. And so, yeah, I've been chatting to lots of people and lots of different areas, lots of questions around. The main question for the survey was what's the single biggest challenge in your property investing right now? And so we've got a whole range of questions. Finance was obviously right up there. A lot of people struggling to find finance. Some of you might have seen the email that went out during the week. Some of the results of the survey were quite surprising. Like, for instance, there was 55% of the list that already owned two investment properties. So which kind of makes sense when you think of the number one challenges is finance, because that's obviously the APRA who the APRA changes are affecting the worst. But yeah, so that came up a lot of people just questions around, you know, best ways to locate the suburb, find the property. So we've been in the calls, we've been diving a little bit deeper into that, just exploring some of those nuances of that and some of the stuff that we can perhaps create to help them, you know, address those new webinars. For instance, we're doing a lot of stuff coming up in March that we're going to use this survey data to put into the content that we release in March. So, yeah, it's been good. That's. That's really been taking up most of my time, to be honest, is the survey and talking to people and, and of course the done for you service, which is now in full swing, which is great. It really feel like I've got a backseat kind of pass there of watching these results come up each time it's I mean it was good doing it in the workshops, but having them happen every week and seeing where these suburbs have come up based on the data is, you know, nothing else. Not Taxi Driver or anything like that is really cool. Yeah.

Well, I was thinking, John, what I might do because one of the people that we've got who's doing that whole property selection service, we've just gone through that research process with the done for you and I thought I might actually kind of video blog the process over the next month or so of how we've gone through and selecting the suburb and going through the kind of analysis. It's interesting one of out of the eight suburbs that came up in our initial pass, one of the suburbs was new. So you know, we often see a couple of the and so we're just looking in Melbourne often see a couple of the standard suburbs come up consistently maybe over two or three months. But there's a new ripple effect that's actually brought a whole new suburb up as well, which has been exciting about getting on and doing some analysis in that too.

It's interesting because we're starting completely blind each time we start the search from square one and run it based on the criteria and all the good things we all know about those drivers of growth. And then so it's in no way preordained what the suburbs are going to spit out at the other end. So yeah, it's very cool to see how that changes over time.

Yeah, it is. And I've attended a couple of conferences. Last week I was at a CBA conference for Diamond Mortgage Brokers and they had some people there talking about, you know, the changes that the banks are making at the moment. And then I was at a Mortgage Finance Association MFAA conference where they had the head of ASIC there talking about the new consumer report that had come out into finance and APRA regulations, et cetera and the joint committee who were talking about what's been going on there. It's been a really interesting couple of weeks actually engaging with a lot of people within the property market and seeing the issues that are coming up. As you said, that finance issue is coming up time and time again. People who are saying I just can't get the finance. But 60 Minutes contacted me about four weeks ago for a story that's coming up soon and I decided to declined to comment. But they have a. Well, you never know when it's going to go, do you in 60 minutes. But they were talking about this whole interest only loans going to principal and interest. And the RBA and the governor of the RBA and the Assistant Governor have come out in recent weeks with commentary around this and the concerns they have about it. So it's kind of interesting to, to see what these issues are going to be in the future and how they could affect the property market. Does that mean that people can't afford to keep their property portfolio and hence they're selling properties and there could be maybe a double bump where we kind of had the market go down and then it goes up again. So I think there's some really interesting opportunities that can come out of these so called issues and problems as well.

Yeah, yeah, that's right. And it's interesting that there's a spectrum of people obviously on that list that have been affected by the APRA changes, but some of them that I'm speaking to in some cases have got a lot of equity, they've got cash, they've got income. So a lot of people have been caught up in that net.

Yeah, absolutely. And I think it's really disappointing because a lot of the people I know that we're talking to as well, if you were going to back them, you would, you'd put your money behind them because they know where they're buying, they're targeted and they've got, you know, the selection criteria worked out and it's just that extra bit of money that they need to achieve what they want to do. So, yes, we're out there looking for alternative funding sources too. Has been some of the fun conversations I've been having with interesting people this week.

Yeah. Yep. Now I should just mention I can see Gabriel's in the waiting room. He's about to become our first live cross. He's got a question that we've, we've got in our list to come up to, but I can see he's got his camera, Jane, so I think he might, he might be our first question when we're, when we're ready to go to questions. You ready?

Yeah.

All right, let's give you standing by there, Gabriel. Just give me a thumbs up if you're good to go. Great. All right, so I'm going to bring you up and I'm going to bring me down. Let's go here and let's see how this technology works. There we go. We got the three of us.

Hi, Jane. Hi, John.

G', day, Gabriel. How are you? So, Gabriel, you're got a question around.

I've lost John on the screen.

What I'm going to do is I'M going to remove myself and. And that way there's only two.

Remove me for a moment too. Let's go altogether.

All right, I'll remove you for a moment. Hang on. There you go. Consider yourself removed, Jane. So Jane, if you can still hear us, Gabriel's got a question around cash flow. So fire away, Gabriel, and we'll bring Jane up when it comes time to answer.

Great. Thanks, John. I was just wondering in terms of cash flow, how people usually do it. So to give you a bit of my background, I've got my principal place of residence and I've got one investment property and we're thinking of just the second one. But I wasn't too sure how people kind of structure their finances just to keep buying property. So a bit of background for that. So I'm just looking more purely at the numbers. So if you buy say a property at 400,000 or 400k and just say you're able to rent out at 6% kind of rental yield, so that's 24,000 a year or $460 a week. So you kind of COVID and just say interest only was 6% as well, just to make it easy kind of. How did people do it to sort of pay off the principal? Because I guess ideally you want to pay off the principal within your loans too.

Yeah.

So for a forty four hundred thousand dollar loan, you're paying, say trying to pay it off in 20 years, you know, pay $20,000 a year principal on top. So unless you kind of. I was just trying to work out how do people usually do it because otherwise you've got to have extra out of pocket expenses and that would be cumulative for the second investment property, the third one, the fourth, et cetera. So I wasn't too sure, I guess what people did when they sold a property later on to sort of COVID those expenses or whether or not they try to get a second kind of a jewel dwelling kind of situation or like and kind of what had the usual kind of trick.

It's a really interesting question, Gabrielle, because it's something that a lot of people face and I think that we need to be really flexible with our strategies as well. So when I started investing, you know, like 2001, so 17 years ago, people weren't thinking about exit strategies and they weren't thinking about long term game. It was like, oh, I want to buy an investment property. And then there was all those conversations that used to go on about are you into positive cash flow or are you into negative gearing? And they thought that negative gearing was a property investing strategy. That conversation went on for a long time and I'd go as far to say that that conversation was still going ahead. Up about 2010 and 11, I was still having conversations with people where they were saying to me, are you into positive cash flow or capital growth? We saw some of the property experts change as well. So some went from I'm only into positive cash flow to oh, you need a bit of both. And I think what's happened with portfolios is people are actually looking at a neutrally geared portfolio. They're looking at some growth and they're looking at some yield. They don't have to have one strategy. And I think a robust, experienced investor or someone planning their investment portfolio would look into having that combination of having, you know, we want to be in a growth area and we understand that there's going to cost us a little bit, but we also want to have yield to help us to pay for that. And it'd be nice to be able to add some equity to that property by maybe renovating because we don't necessarily have the growth associated with it. So it's kind of looking big picture. But the traditionally a lot, as I said, I think a lot of people didn't think, think through like you are doing in a considered way, the end game and how do you afford it all? And I think that often the kind of expectation was, look, I just get an interest only loan for five years and then I'll roll it for another five years and then I'll roll It for another five years and then, you know, I've got a 15 year plan and I'll sell it, you know. And I think it's been a huge wake up these APRA and ASIC changes because a lot of people that I was writing mortgages for last year can't afford the mortgage that we wrote last year if we put them through the same bank, you know, so that means that in, you know, and you were thinking about these ASIC changes kind of, and APRA changes happen around 2016. A five year loan means we're going to get to 2021, 2022, and there's going to be people who I don't, I think we're going to have the banks pull back. You know, it's going to get a little bit tougher this year still with living expenses. The banks are going to make that a little bit harder. But I think we'll get to a stage in maybe 12, 18 months where everything kind of goes back to normal and LBRs go back to normal, we forget all of this. But interest rates will start going up because the economy starts to improve, which means that you still can't service. So I think we will get to a stage where if you have the opportunity now to set yourself up for the long term. The conversations I'm having with people is let's look at where there is a 10 year interest only loan or let's look where there's a 10 or 15 year old line of credit that might cost you a little bit more, but kind of puts in that risk minimisation of having that interest only strategy that gets you to your long term goals. Be a 10 or 15 year goal, the loan to match what your strategy is without having the need and reliance to go back to the banks to ask for another interest only period. So I think your question is actually really pertinent and very relevant and hence why 60 minutes wants to talk about it. But how do you manage your second property after you have your home? Well, any principal repayments should be on your home first. Non deductible debt, pay down your home loan first. I have always almost argued the fact that most people move every nine or so years. So the reality is that I would have my home as an interest only loan and an offset account associated with it. So that your $400,000 loan and you're filling up your $400,000 cash, if you decided to make that into an investment, you could pull the cash out and you could have that loan still as tax deductible. But if you needed to sell or pay down at any time, you could put the $400,000 on the loan and pay it down. But having this cash here and maybe a borrowing capacity that you can't re get in the future gives you freedom and flexibility. Now the issue with this, and I asked the asset commissioner didn't tell them the name of my business. I didn't want them to come audit me. But they've actually said mortgage brokers who write a lot of interest only loans, they will be targeting strategically to find out why. And I explained this to them. I said if people are paying down their home loans or their first home buyers and they've just used all of their funds to buy this property and they've got no buffer. And having an interest only loan strategically is clever if they plan to make that home an investment in the future. From a tax point of view and a deductibility point of view, interest only is better. There's all These reasons why an interest only loan against a home would be better. We have these conversations and minimising risk. And if people are actually in some financial difficulty because mum may be off work with maternity leave or dad might have got injured or on a sabbatical or whatever, there's times in your life that you kind of don't have the double income. And we're actually building up buffers. And I said, I believe it's actually a low risk strategy. Whereas if you read the media and what ASIC's saying, it's a high risk strategy having interest only loans. And this guy turned around and said, basically you're the perfect broker if you can have that explanation around why you would have an interest only loan for your clients. And they understood that on all your notes, there's no way that that would be an issue. But the problem they have is everyone has all these interest loans and they don't even know they have to pay down the debt. So I think this whole conversation is coming up and I think it's prudent that it does because if interest rates do go up in the next five years and we do have all of these people with loans that are going to principal and interest and the rates are up and they're going, what can we do? Then they're going to be forced to sell. And we don't want them to be forced to sell their properties. We want people to be able to sell the property on their terms. So I think it's your question around cash flow and cash flow management, it's almost like from your specific circumstances, it's like, well, look at the next property and how it will be added to your portfolio to balance the portfolio. So not add that extra cost and choose whether you want to pay your home loan off or potentially put your principal repayments into an offset account to minimise the risk there and give yourself some more flexibility.

Yeah, yeah, sure thing. Yes, I understand those two kind of sections of it, like putting it all into your home loan, which is what we're doing. But still, I guess you could keep pushing it back, the, I guess investment property principle. But how do people actually pay that off? Like just say the income stays the same, do they just bank on the rental being higher as time goes by?

Increase?

Is that kind of what people think?

So it's around improving the rent. So as the property value increases, in theory, obviously the rent increases or as the demand increases. So this is why we talk around understanding your demographic and where you're buying and what they want so as the demand increases, so being near, for instance, the school, the selective school, that you have to be in the catchment zone, they're not making more houses in that area. So people really want to be in that area. And there's a supply and demand inequality. But I think you can manufacture the improvement into the income as well, so you can renovate and manufacture that rental increase. So there's. There's opportunities to manufacture the yield. So it might be through, you know, shared letting, like furnishing the individual rooms near a university, for instance, and renting them out room by room. It might be Airbnb, it might be by adding the granny flat on. It might be by, you know, renovating and improving the value. It might be buying by renovating cosmetically, or it might be renovating structurally and adding an extra room and going into a different price range for the rental return.

That makes sense. Great, thank you.

You know what, Gabriel, can I add something to that? Because I know we had a investment property and where you are now, I'm going to grab you in the next few weeks and we'll jump on and have a chat about it, because I think it's inspiring what you've done and how far you've come.

Great, thanks, Jane. No problems.

Gabriel, before you go, just before you go. Gabriel, can you hear me? Jane?

Yeah, yeah.

Oh, good. Fantastic. Just the basis for that question in the background. We had a bit of a chat the other day, or yesterday, I think it might have been. Been a lot of calls lately. But you were talking about that your family has always been very big on paying off, paying off the debt, not running up the debt and that kind of thing. Can you just talk to that a little bit?

Yeah, well, I guess not being very cut. I guess whenever you borrow from the bank, you're always subject to its terms. So my family have always taught to sort of pay off the principal. Pay off the principal, and they've done fairly well for themselves with their number of property. But for them, they able to service a loan through a business that they have, so they're able to get additional income and they keep on putting it in. So kind of how it kind of relates to myself is if I don't have a business and not that additional income, so I just have a normal wage, how do you go about increasing that so you can pay off the principal? So that's kind of a bit of the background behind the question, because I guess I don't want to get to the stage where you have like five investment properties, for instance, but you, you haven't paid off any of the principal at all as you go along.

And then just as an observation, Jane, you see one group of investors that, that may work very hard to pay down the loans on their investment or their principal place of residence first and then down on their properties. And then there's sometimes another camp of investors that just allow the capital growth to do all the work. Would that be a fair observation?

Yeah, absolutely. And I think also a lot of new migrants or second generation or first generation people to Australia. You know, debt is bad is a very common philosophy. So, you know, and I remember my dad saying to me, you know, you better be careful, one day, one day you'll owe a million dollars. And I thought, oh my God, I'm going to. If he only knew how much I owed, he'd be horrified. But I think there's also, these are people who care for you as well and they want to make sure that you're not in financial hardship or troubles or whatever. So they're coming from a position of love and consideration. But the other thing is that they also don't fully understand what you're trying to achieve. And I know that, for instance, I've got a little unit that I paid like 325 for and I had like a $290,000 loan and I still have a $290,000 loan. And the rent is now up at $550 a week and more than adequately pays for it. It's now gone to principal and interest. And that's okay because it looks after it, you know, and so time, kind of time, to answer your question, that gap growth of the property, and the property is now worth $750,000. The growth of the rental yield has allowed for it to actually cover the cost, not just of the interest, but now the principal and I can now start paying it down. So I think being very targeted about where you buy and the strategy and the exit strategy when you start, also knowing that up front really helps.

Yep, that makes sense. Great.

But what your parents have done. I'm playing with my phone now again, what your parents have done and had that business, maybe. I think a lot of people are looking for the second kind of income and how they can actually have the income to allow them to have that short term, maybe a second job or whatever it is, for 10 years to get the portfolio to where they want it to be so they can just get on with life and sell it down and do what they want.

Yeah, that makes sense. Great.

Well, Gabriel, thanks for being our first live on camera guest.

Any more questions? I'm going to get in contact with you soon.

Yes, sounds great. While I'm at it, Residex in terms of the data there. So I know that RP data have sort of taken over, but in terms of like predicted capital growth and data like that and street ratings, is there another source of data for those two aspects?

Yeah, good question. So I spoke to Kylie Davis from CoreLogic RP Data last week about this because I guess with the predictive information from Residex, their information that's available has been that one source, but CoreLogic has taken them over and they have a whole different take on data as well. Tim Lawless has been working for the last 18 months on a predictive algorithm for suburbs and apparently it's going to be launched pretty soon, so we're going to see that pretty soon. I would say hold off on buying anyone else's predictive data for now, but these guys have put a lot of time and effort and consideration into coming up with the right algorithm. The only problem is that it's going to be post code based, not suburb based.

Okay, so that makes it hard when there's quite a few.

Yeah, absolutely. So, but it does give you. It does allow you to narrow down the area and start looking at maybe, you know, two or three of the suburbs in that area that you can start doing the extra work on.

Yeah, that makes sense. Great.

Okay, lovely speaking to you again.

You too.

So, Jane, I'm going to try something new again here. I've got a question here.

Good question, John.

That someone's put in. Yeah, that was a great question. So this one is from Born and I'm going to see if I can put it into the screen here. We'll just see. May or may not work out.

Show.

No, it just says question from Born. Okay. Okay. That didn't work out so well. All right, so I'll read it out. It is, thank you guys for everything you do helping people attain their life goals. And also the donations recently started. God bless, guys. Really good. My question is simple. How do I need to start a Renault House flipping business? And should I start a business name or company name as in PTY Ltd?

Yeah, look, really good question. Born.

Thanks for the compliment too.

Yeah, thank you. We're really, really proud of what we're doing supporting the Pippilepsy Foundation. And obviously you guys are in the club, so you're part of seeing what we're doing. But if you know of people who you think you'd like to introduce to the club. Please let them know about it. Chris we're really proud that we can help them get to their target funding for supporting the resources that are needed for kids with epilepsy. But the thing is, a lot of people do want to have a renovation business and a flipping business. And the reality is exactly where you are at the moment born is ask the questions first before you set it up. A lot of people that I speak to often who do want to flip properties give up their job because they kind of got really enthused about it and then they go, okay, now I want to flip a property and they turn around and they can't get money from the bank or they can't get any funds for it. So you have to be prepared first on what you want to do. So should you set up as a company, you need to go and talk to your financial advisers and accountants and solicitors and legal profession around that, because there is implications. Anecdotally, I can tell you that the company tax is often lower than what people's personal taxes are. But if you're not working, that may not be the case. And obviously, if you're flipping properties and you're paying capital gains tax at your tax rate, you would like to minimise the tax rate that you have. So. So there are pros and cons, but please speak to your accountant about those before you do go into a business. But typically people who do flip properties do have a company set up and a company structure. As I said, I've been trying to talk to people about some innovative funding techniques recently and looking at maybe 12 months or 24 months of funding for flipping projects or projects. And the only way they can actually fund someone is as a company. They can't fund someone in their personal name, so that's of interest as well. So if you were able to get funding from a separate source, then that's something to take into consideration. But the thing is about setting up this type of business, often people give up their job and then go into the business and then find out they can't get the money or the loan. They think they're just going to go to one of the commercial lenders and they'll give it to them. That's not necessarily the case. So you might want to release equity from your properties whilst you have a job. But then again, in theory, you should be telling the lenders if your circumstances change, you might want to start the business whilst you have your job. So do it in your spare time or long Service leave. I think Russell, one of our students, did it during a two week long service leave or something. Didn't he join?

Yeah, he did, yep. Lined it up with his son coming home from Europe and roped him into it.

So I think, you know, there's opportunity for you to start building that. And if you start building and flipping a couple of properties in a company name and then you went full time, you've actually got some profit and loss and statements for your company. So you know, you could actually get funding from the company, from a traditional lender. But there is short term lending. Short term lending is often between first mortgage 9 to 12% per annum and second mortgages around 15 to 20% per annum. And if you're talking about making 4 or $500,000 or $100,000, it might just well be worth it.

Yeah, the other thing about that's the one thing that those kind of seminars or TV shows kind of leave out, isn't it? That if you go renovating houses full time, are you going to get the money to buy the next one kind of thing?

Yeah.

The other thing that I think that's really hard as a business is the deal flow and having the capital to be able to before you finished one and sell it, be able to put the deposit down on the next one and know that you've got the cash to settle if something doesn't go right with this one. So there's financing between the deals is hard. Otherwise you find that there's six months, eight months, a year, whatever going between. And when you really average that out, your income isn't much at all. You know, if you're only doing a couple every three years. So that's also with the finance. The other thing with deal flow is just how to. Even if you've got the finance to do it, you really need good systems of getting those deals across your desk. So it means really good relationships or perhaps a way of letter dropping or a method of advertising to, to get those deals. I mean, there's a lady in the eastern suburbs of Melbourne, she does splitters, you know, so we call them a battle axe block where you might split a block in half and you put the driveway down the side and you build something else at the back. And her business is called We Buy Backyards. And everywhere you go around a shopping center in, you know, the outer eastern suburbs of Morralbach and Croydon, you see on the notice board is this. We buy Backyard. You know, call up if you want to, if you're interested in selling Your backyard. And that's the lead generation that this lady does for her business. And you kind of need to do something like that in order just to get that deal flow. Otherwise it, yeah. You find that it's not as profitable as perhaps you might think.

And the other thing is for those people who maybe get the loan, then give up their job and they're using portability to move the debt from one property to the next. You've been through it, John, in flipping, you're in that last six weeks of selling the property and the marketing campaign and getting everything right, but you're also having to buy the next property and do a same day settlement offer. And if same day settlement, buy and sell at the same time. It's really difficult.

Yeah, yeah. So, so ideally, and obviously this is your, your area, but ideally it's line of credit that you want to be. If you've got line of credit so you're not having to go hat in hand to the bank every time, then.

Yeah, I'm just trying to get away from this light behind me. So.

Oh yeah, it's not, it's not too bad. It's not.

Oh, isn't. Okay, sorry. Sorry about that. And that's right, you know, the line of credit is you need to, you know, the ideal situation is you've got a million dollar home and you've got your home loan paid off and you have a $600,000 line of credit and you go and buy a property for $400,000, you pay stamp duty, you do your renovation, you make 100 grand, you put 700 grand back into the line of credit, you know, or you think and you go and buy the next one and you don't have to keep going back to the bank for more money, but you need to have that equity to start with. And that would be an ideal situation. You're right.

That'd be an ideal situation. And I often think that the best and the safest way to build up to that too is just that home hopping strategy. Like you don't need to put so much on the line so quickly. You know, if you, if you're able to do a strategic renovation and live in the place. We're not allowed to say avoid capital gains tax, but there's some ideas around that that perhaps you could, you know.

Benefit from other people might talk about.

Yeah, that's right. But yeah, and that way, one, you, you, you polish the, you, you hone your skills, you know, you, you learn your trade craft, you learn to renovate strategically and Take emotion out of the equation and start from the end value. Work backwards of how much it's going to cost and what profit all your costs. And that's, that's the current value starting out. So you learn the discipline of that. And then you, you hop up to the next home and you, and you, you know, you're hopping up each time, you're keeping all the money and you're not losing a bunch, you know, a heap of money in the, in the capital gains tax and transaction costs and. Yeah, it's a good way to build into it.

Absolutely. And as you said, that home hopping strategy too, you know, people move because their families and dynamics change. It's just, you know, usually it's once every seven to nine years. It's just doing it a little bit more often.

Yeah, that's right. Yeah, that's right. And you might find with a couple of those that you really don't need to put as much on the line as you thought because ultimately flipping you are putting a lot on the line. And same with development. And developers factor this in that they know that one's gonna go south sooner or later and they kind of factor that in. And that might be because completely external might not be because your feasibility's wrong.

It might be that change your market.

Yeah. Something happens with Trump or there's a change of government or, you know, the market crashes, unemployment. Yeah. So there's a hot. Yeah, there's a whole host of reasons that can get you caught on that tipping point. But, and so you're always taking risk and it's. And you know, you become. Some people are very comfortable with that, others not so much. But most flippers are trying to get to the point where they've built enough equity so they can buy and hold. Because what we've seen over the years time and time again, Jane, it's when people do the renovations, they might, you know, your property success club and, and in the renovator network before that, you know, they might make 40 grand or 60 grand or 120 grand. But if they've followed the steps and bought in the right suburb, they might make 100 grand the same year from the capital growth and potentially, like Russell story, make 100 grand the next year, 100 grand the year after that. So it ends up being smaller, the smaller game, isn't it?

Absolutely. And I think that's the, that targeted location. That's why we put so much emphasis of understanding that as well as the renovation opportunity.

Yeah. Yep. Great. All right, now our next question. Jane might be a little bit hard for us to handle on the phone because I think. So what we might have to do, and apologies to Emma, but we might have to come back and do this again in between times or maybe on another Facebook live. But she's got a case study here that she shared with us and I think we really need to jump into RP data to do some comparable sales to do it justice, which we won't be able to do today. But let's go through it and give our initial findings anyway, will we?

Absolutely. I think I've got flipping business up here on my screen.

Yeah, I'll hide that now. Yeah, sorry. When I do these tricks, I've got to reverse them. Okay, so what we've got here is. So this is a question from Emma. She's got a house here in Wynnum west which is a Brisbane suburb. She paid 468,000 for it 18 months ago. She's had a tentative valuation of 500. The median price for three bedrooms in the suburb is 500,000 and the median rent is $420 a week. So she's looking at the options of either number one, converting the garage and carport into a fourth bedroom. Excuse me. With ensuite. So the house becomes a four bedroom two bath plus a carport, a double carport. And the median price for a four bedroom two bath is $590,000 with a rent of 580. So three bedroom place was 500,000 with a median rent of 420 and a four bedroom two bath is 590 with a medium rent of 580.

That's a big jump in rent, isn't it?

Yeah, the rent's quite a bit, isn't it? 16090 grand on the, on the value going from nine a three bed to four bed. But a big jump, a big jump on the 160. 160 a week on the rent. Yep. So the next part of that is she expects council approval will be needed even though it's under existing roof line. So option two would be the same as above but plus render and landscape to improve the overall appearance. And option three would be a box on the back. What's a box on the side? This is on the left hand side adjacent behind the garage. And this would allow you to make a self contained. Make the left hand side. This would a self contained one bedroom, one bathroom unit, bed and bath converter from garage as above and use the driveway for this unit. So it's kind of. So that would be Three bed, one bath plus a one bed, one bath. So there are the kind of options that she's looking at.

Okay, so as you said, I think what we'll do is I'll have it a look at this in RP data and do a bit of a case study on this for Emma. But I've just put a link into the comments section there. I don't know if you want to just bring that up on screen that people can go to or Emma could go to and it's around just getting the initial information straight up which is, you know, what do people want in Wyndham West? And if you have a look at that link, what comes up is very clearly, you know, 53% of the population do want the three bedroom property. So she does have the classic property that people want and only 29% actually want a four bedroom or more property. So straight away there is a bit of demand for that four bedroom property that she's trying to create. And the numbers actually kind of validate that to me because what I'm looking at there is a property that the rent people who do want to rent a four bedroom property to, there's not a lot of them there, so they're prepared to pay the extra 160 bucks a week, but not necessarily is the value there because not that many people want to buy it. So will that create risk for her when she comes to sell that property? The rental yield will go up really nicely and once again we'll jump onto RP data and I promise you Monday I'll do a a bit more of an analysis on this about three bedrooms versus four bedrooms. But it just is this first question I would ask is do people want it and do the numbers stack up for it?

Yeah, and the questions that she's included there is there sufficient demand to make a four bedroom property grow in value and yield? Is rendering and landscaping worth it for the bump in value or is there not enough disparity between the renovated and unrenovated? Just gotta note the inside is tidy but not super modern. Would converting it into a dual income property devalue the current three bedroom house and or make it less appealing to tenants?

Oh my gosh, so many questions. Okay, so firstly the $90,000 differential was with the four bedroom property, wasn't it? So you need to do a comparison when you're looking at that rendering and landscaping on the three bedroom because you're not doing the box on the side, you're doing just cosmetics. So look at the three bedrooms that are renovated and unrenovated and see, maybe it just makes them more attractive so they rent quicker. And I'd be checking out obviously the SQM vacancy rates as well, just seeing what the demand is there. But it's a really good question because a lot of the time we have a property already in our portfolio and we're trying to make magic out of it and maybe it doesn't deserve to have the magic magic made out of it especially. I mean what would rendering cost, John?

Front only, depending on how big it is. Anywhere from 5 to $10,000, I would say. Yeah.

And landscaping you could spend, you know, two to five on.

Yeah.

So you could probably drop 20 grand. And you know, if you're only getting an extra 90 grand worth of four bedroom property, I will run it, I'll have a look at it. But I think renovated, run renovated, you may not actually see that you'd get your money back. You know, you obviously want to get it up an extra 40 grand. In my mind, $2 for every dollar you spend. So I have my doubts to start with around where you get the value back. And you know, we did a Brisbane hotspotting workshop last year. Wyndham west came up on it, didn't it?

Was it Wynnum or Wyndham West? I've got a feeling it was Wynnum.

Well, we'll have a look. Yeah, well I'll pick that up as well because we were looking at hotspots and we were looking at ripple effects and from my memory it had the pricing pressure from the seaboard and from the city and a large rental demand as well, which we can just confirm here. Let's have a look what the rental demand is and the rent at 32%. But one of the other things on that census link, if you have a look at it, they actually been picking up on the conversation that a question. Emma has 75% of the properties there are houses and 21% are semi detached or terraces. So there is actually a bit of a market there for that secondary property as well, which is a little unusual. You don't always see that. And we're usually traditionally talking about townhouses. So the question is, does the having a single bedroom unit next door actually devalue the house? Well, you'd be looking at other properties that have sold that are in that configuration. And I know that in some areas where you're just the first to market in that and you're trying to develop some concepts potentially there isn't any comparables. And I know when we started seeing granny flats going up in Blacktown in Sydney, they were like is it worthwhile or not? And it was really difficult. But now getting comparable sales with houses, selling with granny flats is not that difficult. So being first to market and creating that space does create some risk. And I did have a client who did do your other question. The garage conversion in New Yatala out past between the Gold coast and Brisbane, what's that suburb? Anyhow, they, they actually went through and they converted their garage into a unit extra bedroom and when the valuer came out they actually said this is being done without council approval and the bank wouldn't fund their loan. So they, they were trying to get from a three to four bedroom property. So please Emma, speak to your council and find out what the requirement is because yes, converting a garage into a bedroom even under the roof line can require, you know, fire safety standards and all those extra things that are required and the council needs you to look at. Yep.

Great. Now Emma's got another question there, a couple more actually. This one is do most people find that a property manager is worth the cost for the improved trade connections and reduced downtime? So this is in relation to the renovation. So is it worth getting a property manager just for the renovation? Jane?

Property manager or project manager?

It says property manager.

I think she might be project manager. Property manager is traditionally.

For the rent but I wondered if it might be in relation to. Often you've said you've got your property manager to manage the renovations.

Yes, there's no cost associated with that. And all I do with getting the property manager to the renovation is I say here's the three carpet guys that are going to come and quote and the three painted guys, can you let them in to quote and then can you make sure they have access and you know, access when they need the access. I mean often we use like a lockbox to assist those people getting in those trades. So I'm not too, I don't really think, if you're thinking project manager they can charge like 10% of the works and for a 30,000 job having someone put up with the pain and coordinating all of the team for $3,000 I think often is really, really well worth it. But the other thing is that if they're bringing their own team in, they might be taking a little bit off the top. So you're paying 90 bucks an hour for a plumber, not 75 as well. So just be aware of what those prices are if they're doing a full quote.

Yeah, yeah. That makes sense. The other question there was. And you've just on. You've used property managers multiple times now, right? Interstate.

Yep, yep.

And it's. I was speaking to someone the other day and I reckon a really good question there is just. And same with the suburb search as well, is just being realistic about what time you can dedicate to it. Yeah, there's nothing worse than getting, you know, having everything torn down and then realize, oh gee, I've got about three hours a week to spare. How am I going to put this back together kind of thing or doing.

Things in the wrong order. You know, you just don't know that you need to have, you know, services run in before you put the new kitchen in place.

Yeah, yeah, absolutely. Yep. But just picking up, is it worth. Go ahead.

Sorry, I was going to give you share my story but I know we've only got a few minutes so keep going with questions.

Is it worth doing any renovation at all considering the market has moved a little? Will the valuer just see how much we've spent and add that on. That plays into a webinar we've just finished about with Joe from Property Women last week, which was around roi. So yeah, that's very timely return on investment.

You know, the question is actually independent of market, I think John, because the question is really around the fact that, you know, how do you get the value of the renovation that you've added? And it's all about perceived value. And we know very clear clearly if you, the valuer has the purchase price of 400,000 and he says to you, how much do you spend? And you go 40, they're going to go for 40. So it's not around telling them 40, it's around going, well, you know how it is. I did some work myself and had a lot of people come in and you know, these are, you know, feature tiles that are Italian mosaics that usually are like a hundred dollars a square meter. They don't know you got them for 20 from Graze Online. So you know it's around the perceived value. So it doesn't really matter where the market is. The question is in a market going backwards, should you renovate? And the reality is if you are still getting $2 for every dollar, you're still going up in value. But the capital growth is bringing the market down. So, you know, I was looking at the flipping report and please have a look at the call I did with Kylie Davis from RP Data because we showed the flipping report but have a look at in Perth the number of it was like 40% of properties that sold within a year of being bought. And two years of being bought in Perth in the last two years have lost money. And you'd hate to be putting a renovation into that as well. But if you're doing a strategic renovation and still making $2 for every dollar, you might have been able to sell the property for less of a loss. Less of a loss. If that makes sense.

Yeah. Yep, that makes sense. And the other thing I just add to that is the. I'm going to show the property in a minute. I've got the actual property here, Jane, so we can have a look at some pretty pictures before we finish up. But a lot of people mistakenly, when they do the fiso, start from where they bought it, what price they paid for it. So if they bought it two years ago, okay, they'd say, oh, well, it only owes me 500 grand. And then they do their fees over from there. But you've always got to do the fees over from the current market. Market value, not where you paid for it, because you already have that money that's yours in the bank.

Cool.

All right.

Equity that's banked away.

What's that, Jay?

Equity that's already banked away.

Yeah, that's right. Oh, that's not going to work, is it? Okay, I didn't quite work. Let me just see if I can do this again. Share your desktop. That one? Yep. No, it just doesn't want to share that one.

Here we go. I can see something's popped up.

Oh, there we go. Yep. All right, we'll do that one, and I'll get rid of.

Oh, I think I said Gabrielle. How did I lose you? John, we can't hear you. Not sure if you're talking. Seems. My, my. Oh, there's John.

Yep. You can't hear me. No, I'm talking. I'm talking there, but you can't hear me. Okay. All right. I'll come back and I'll get rid of that, and we shall bring you back up.

Okay.

Can you hear me?

Yes, we can.

Oh, good. Okay. So whatever happened, we got to see the property, but you couldn't hear me anymore. But it looked. It looked pretty good anyway. Yeah, some pretty good. You could see that the. The garage was very much under that roof line. So it was. You could see why. You would. You would consider closing that in and making extra rooms.

Yep, absolutely.

If the numbers stacked up.

So what I might do for Emma, John, is come Monday, I will jump on and have a look at that property and I'll look, bring up RP data and just show how we can do the comparables of the other three bedrooms. Renovated, unrenovated and then the four bedroom. And let's answer the question whether there could be some extra work or some consideration in it.

Yeah, sounds great. Sounds great. Well, there's no more comments, Jane, in the chat. I'll just jump straight over to Facebook and have a quick look. No, it seems we are no comments there. So if you're all good, I think we might wrap it up. What do you think?

Absolutely. And just remind people that questionsourpropertysuccess.com if you have some questions that you'd like us to answer. And look, if they're really exciting, we might not even wait a month, will we, John, to answer them?

Well, particularly around capital growth, we're doing a lot on capital growth this month. So any questions you've got around capital growth, please ask them. They'll sure to be answered in the following weeks as we do some more Facebook lives and webinars.

Actually, you know what if someone has a couple of suburbs that they're looking at and they're just stuck on where they want to look, how about I do a quick little deep dive case study for them? So put it, send it, send it through, put something up. We might just put something on the Facebook group club, but we'll jump in and do some quick conversations around growth and potential.

Great, great. Till next month.

Okay. Well, as always guys, here is to your property success. If you have any questions, please send them through to us@questionsourpropertysuccess.com or put them in the Facebook page and we will get right onto them. We are doing capital growth month all of March, so, so I'm going to get some special guests coming through around 12, 12:30 on Wednesdays and on Fridays, 12, 12:30. I'm going to grab some case studies of people who are doing some amazing things and we'll probably hit up Gabriel pretty, pretty soon as well and hear about what he's done.

Yep, great. Thanks guys. See ya.

Bye.