{"id":11552,"date":"2017-05-05T03:00:08","date_gmt":"2017-05-04T17:00:08","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=11552"},"modified":"2017-05-05T03:00:08","modified_gmt":"2017-05-04T17:00:08","slug":"if-not-hot-spots-then-what-a-formulae-for-small-development-success-why-buyers-hate-auction","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/if-not-hot-spots-then-what-a-formulae-for-small-development-success-why-buyers-hate-auction\/","title":{"rendered":"If not \u2018hot spots\u2019 then what? + A formulae for small development success + Why buyers hate auction"},"content":{"rendered":"<p><b><i><span style=\"text-decoration: underline\">Highlights from this week:<\/span><\/i><\/b><\/p>\n<ul>\n<li>Why buyers are terrified about auction<\/li>\n<li>What can be done to make property more affordable?<\/li>\n<li>It looks easy to make money from property developing &#8211; but is it really?<\/li>\n<li>How to find the best deal<\/li>\n<li>Making a good living from property in both the long and short term<\/li>\n<li>Why \u2018hot spots\u2019 are not worth chasing<\/li>\n<\/ul>\n<h4><strong>Transcripts:<\/strong><\/h4>\n<h2>Why buyers are terrified about auction\u00a0\u2013\u00a0Cate Bakos<\/h2>\n<p><b>Kevin:\u00a0 <\/b>An interesting survey released this week actually from REBAA, which stands for Real Estate Buyers Agents Association of Australia. Buyer\u2019s agents all around Australia are members of that organization and they monitor and help buyer\u2019s agents work better with their clients.<br \/>\nAn interesting part about the survey was it said that 60% of respondents cited overpaying as their number one hurdle facing them when they bid at an auction. I\u2019m not surprised by that. In fact, I would have thought it might have been a little bit higher, but that would come largely from people who are actively bidding at an auction.<br \/>\nCate Bakos is a buyer\u2019s agent. She works in the Melbourne market and has her own company called Cate Bakos Buyer\u2019s Agency. She joins me to talk about this.<br \/>\nGood morning, Cate. Thank you for your time.<br \/>\n<b>Cate:\u00a0 <\/b>Thanks for having me, Kevin. Nice to be back.<br \/>\n<b>Kevin:\u00a0 <\/b>I\u2019m talking to you because Melbourne is the home of auction in Australia. That\u2019s the place almost where it was born and where it continues to flourish, and that\u2019s the most popular way for people to buy and sell property.<br \/>\nThat 60% figure: what should people be doing, if that\u2019s their biggest concern, to make sure they don\u2019t overpay, Cate?<br \/>\n<b>Cate:\u00a0 <\/b>It\u2019s a great question. People often wait until they\u2019re in the heat of the moment and they have a guy yelling at them with a gavel in his hand and a hundred onlookers standing at them, and that\u2019s when they make their critical decisions.<br \/>\nFacing an auction can be quite a nerve-wracking thing for a lot of people, but when you\u2019re there and you have a critical couple of seconds to make a decision, that\u2019s when things can go pear-shaped.<br \/>\nObviously, people who have been in the market and looking for property have probably attended quite a few auctions and they\u2019ve seen those results where two emotional buyers fight it out. And it\u2019s the auctioneer who\u2019s in control of that situation, not those buyers. They\u2019re the occasions where you see a really strong, crazy result that gets talked about by the neighbors for a long time.<br \/>\nPeople are terrified of doing that. You do want to buy, and under competitive competitions, you need to be strong, but nobody wants to set the land speed record for a house sale under pressure like that, so it\u2019s a very, very significant fear for plenty of people.<br \/>\nAnd it\u2019s not just relating to paying too much and doing so in front of a sea of people, it also is all about how they pay for their property if they\u2019ve gone over their designated budget, and also being concerned about what the bank might say, because it is unusual, but there are occurrences where lenders will decide that the buyers have paid too much and the valuation can come in short. So, it\u2019s a serious issue and there are ways to try and mitigate that happening to you.<br \/>\n<b>Kevin:\u00a0 <\/b>Overpaying at auction is, as you say, a very real situation \u2013 so much so that agents who when they\u2019re selling the auction concept to a seller will say, \u201cLook, if there\u2019s any chance of us getting a premium price, we should take the price offer then take it to auction,\u201d because that competitive bidding brings out that premium price.<br \/>\nHave you got a rough feeling as to how many properties you think would actually achieve a premium because they went to auction, Cate?<br \/>\n<b>Cate:\u00a0 <\/b>Absolutely. In the seller\u2019s market where we have auction clearance rates around 80% in Melbourne at the moment, most properties that are mainstream and don\u2019t have issues that are putting off mainstream buyers are going above and beyond where expectations are set. We\u2019re seeing records being set every weekend in this moving market, and even agents are quite surprised by some of those results.<br \/>\nBut the houses that typically achieve really strong results are the ones that are crowd-pleasers and particularly if they\u2019re on the market without other similar houses threatening the success of their sale.<br \/>\nIn other words, if it\u2019s a bit of a scarce diamond for its genre, you\u2019ll find the number of buyers on that property will be higher than normal, and you might have ten competing bidders fighting it out. That\u2019s a lot of bidders for a successful campaign.<br \/>\n<b>Kevin:\u00a0 <\/b>When you\u2019re in the heat of the moment and you have people watching you, it almost becomes a bit of an ego thing as well, and you have maybe your wife or your husband sort of digging in the ribs and saying, \u201cCome on, just another $1000 is not going to make all that much difference; let\u2019s make sure we get this house now.\u201d<br \/>\nEspecially the fear of missing out, that\u2019s heightened in the market right now, Cate, isn\u2019t it?<br \/>\n<b>Cate:\u00a0 <\/b>Yes, it\u2019s huge. I know as a buyer\u2019s agent when I go into an auction scenario, I\u2019ll quiz the agent about who I might be up against, and when the agent says, \u201cOh, we have this couple; they\u2019ve missed out on quite a few,\u201d that\u2019s a warning bell for me because they might have that fear of missing out motivating them to go above and beyond.<br \/>\nOften, those crazy prices and that squeal of elation is from someone who has missed out a few times and they have paid a crazy price but they\u2019re just pleased the job is done. We are seeing a lot of that out there.<br \/>\nBut as I said earlier, there are things that a sensible buyer can do to avoid being in that situation where they are overstretching themselves or getting competitive or just bidding to get the job done as opposed to bidding sensibly to buy the right house.<br \/>\n<b>Kevin:\u00a0 <\/b>Yes, you have to do your research. But I\u2019d like to take you just in another direction, if I may, in terms of bidding strategy. When you\u2019re bidding on behalf of someone, could you tell me about the strategy?<br \/>\nHow many prices do you have in your head? Is there a price that you know that if you secure that, you\u2019re doing really well? Is there a market price, and is there a price that you\u2019re probably prepared to pay a premium for? Do you structure it that way?<br \/>\n<b>Cate:\u00a0 <\/b>I actually do. I call it our X-Y-Z pricing, and I came up with that concept a while ago when I had two buyers tell me that they had given me the uncomfortable stretch. That was the stretch price at which they are happy to see it sell to someone else for a dollar more. And in fact, that wasn\u2019t their stretch price, because I was bidding and my phone was going off with texts saying, \u201cGo another five, go another five.\u201d That\u2019s not how I like to roll, because they\u2019re not in control then and they\u2019re potentially emotional.<br \/>\nMy X-Y-Z relates to obviously three sets of prices, and X is the price that we\u2019d like to get it for that\u2019s within the realms of possibility if competition is low and the vendor is motivated. That would be a thrill for me to come in at X, particularly in this market.<br \/>\nThe Y price is where we think it is probably going to land based on the scarcity of the property in the market that we\u2019re in, the number of buyers who are showing interest, the comparable sales, and where we think it really sits. If we come in at Y, then there shouldn\u2019t be any surprises. I\u2019ll feel that I\u2019ve read the market well and the job is well done.<br \/>\nThe Z price is where it could get to with strong competition, and it\u2019s that price tag that the client really is prepared to stretch to \u2013 with a bit of discomfort, but not a price tag that will throw them into an awkward situation or an upsetting situation. So, it\u2019s the price at which for a dollar more, they really are okay to see someone else secure the asset.<br \/>\n<b>Kevin:\u00a0 <\/b>Yes, it\u2019s a really difficult situation. I had a young chap call me just the other day who was preparing to buy a property for himself, and he said, \u201cLook, I\u2019m not prepared to pay any more than $650,000 for it,\u201d and I said, \u201cOkay, so that means if it sold for $660,000, you wouldn\u2019t be upset.\u201d<br \/>\nHe said, \u201cYes, I probably would be,\u201d and I said, \u201cWell, therefore you are prepared to pay more than $650,000.\u201d<br \/>\nI think that that question, \u201cHow would you feel if you found out the next day that it sold for $1000 more,\u201d and if your answer to that is \u201cWell, I couldn\u2019t care less,\u201d then you\u2019re at that limit.<br \/>\n<b>Cate:\u00a0 <\/b>That\u2019s the right price, that\u2019s exactly right. I often say to people if you come second \u2013 you have the silver medal; obviously, there\u2019s only one prize \u2013 someone else will buy that property probably for $500 or $1000 more than you, because that\u2019s how auctions work. It doesn\u2019t mean that you missed it by $1000; they might have had another $50,000 up their sleeve.<br \/>\nBut you have to draw a line in the sand and have a figure at which you\u2019re okay to say, \u201cAt a higher price, I could get a better asset, or at that figure, I\u2019m in financial discomfort and it\u2019s not appropriate, or I don\u2019t think that house is worth a cent more to me.\u201d<br \/>\n<b>Kevin:\u00a0 <\/b>Yes, it\u2019s a great question to ask yourself.<br \/>\nCate, it\u2019s been fantastic talking to you. Cate Bakos, a buyer\u2019s agent out of Melbourne, and that report coming out of the Real Estate Agents Buyers Association of Australia. We thank them for providing that to us as well.<br \/>\nCate, thanks for your time.<br \/>\n<b>Cate:\u00a0 <\/b>Thank you, Kevin.<br \/>\n&nbsp;<\/p>\n<h2>Why I don&#8217;t chase hot spots \u2013\u00a0Chris Gray<\/h2>\n<p><b>Kevin:\u00a0 <\/b>A question I\u2019m asked all the time is, \u201cIs there really a hotspot?\u201d I guess this comes about because people love to think they\u2019re going to get there before the rest of the crowd. I\u2019m interested to know about this, and it\u2019s a conversation I\u2019ve had a number on a number of occasions with Chris Gray, who is a buyer\u2019s agent from Your Property Empire and also a host of the Sky TV show of the same name, <i>Your Property Empire<\/i>.<br \/>\nI wonder, Chris, does this come up in your dialogue with people, as well?<br \/>\n<b>Chris:<\/b>\u00a0 You\u2019ve hit the nail on the head there. Everyone wants a bargain, everyone reckons they got it for the cheapest price, and everyone thinks they got into the right area \u2013 the next up-and-coming one \u2013 at the right time.<br \/>\nDefinitely, there are hotspots around Australia and around the world, but it\u2019s like picking stocks; if you really are a genius and you can pick the lows and highs, you can make a fortune probably even if the market is going down if you pick the right kind of properties. But even the experts at Residex, RP Data, and SQM Research, most of those guys say they can understand trends but they can\u2019t pick the peaks and the troughs.<br \/>\nI\u2019ve been buying property for 20 years \u2013 we buy maybe 50 or 100 per year \u2013 but we don\u2019t try and do that. Most of our clients are generally higher income. They\u2019re not trying to get rich overnight. They know that slow and steady wins the race, so more they\u2019re going for the classic Bondi Beach in Sydney or St. Kilda down in Melbourne, and they\u2019re trying to say, \u201cI want nice consistent growth. If a GFC comes up, I don\u2019t want it to halve in value. I don\u2019t expect it to double, but a nice 5% or 10% forever suits me.\u201d<br \/>\n<b>Kevin:\u00a0 <\/b>I remember back, and I\u2019m sure you would too, several years ago when one of the major hotspots was anything around a mining town, and I guess you only have to look at some of those now to realize that while they may have been hotspots in their time, they can also crash as fast as they can go up.<br \/>\n<b>Chris:\u00a0 <\/b>That\u2019s the problem. We\u2019ve had lots of clients who have gone to the seminars and gone to the various property expos \u2013 you can always tell what the flavor of the month is by the property expos, whether it\u2019s U.S. property or mining or whatever else \u2013 and they\u2019re saying, \u201cI\u2019ve got 25% yield and X percent growth,\u201d and all the rest of it, but now they\u2019re potentially getting zero yield and suddenly their $800,000 property is only worth $400,000.<br \/>\nThat\u2019s the thing. A lot of the seminar people have all the knowledge and they know what they\u2019re doing and they\u2019re getting in and out at the right time, but unfortunately the average punter on the street quite often is getting in a few years too late and they\u2019re going to miss the boat.<br \/>\n<b>Kevin:\u00a0 <\/b>Generally, I find people who are looking for hotspots are really looking to get in and out quickly, as opposed to the strategy you\u2019re talking about there, which is blue-chip, which I guess is buy and hold. Chris, is it?<br \/>\n<b>Chris:\u00a0 <\/b>It is. You do a regular radio program, and I do a regular TV program. The hardest thing for me is to try to talk about something new, because in my mind, in my book, nothing has changed for 10 or 20 years, because those suburbs haven\u2019t really changed. We just buy when we have the cash to buy and we hold on.<br \/>\nIt\u2019s not sensationalism; there\u2019s nothing newsy about it. It\u2019s kind of boring. They\u2019re not the most beautiful properties. They\u2019re the ones a block back that are kind of dirty and old, but they\u2019re in the best locations and we can improve them.<br \/>\nIt\u2019s not newsworthy type stuff; it\u2019s the old hare and the tortoise. The tortoise just keeps going, but at the end of the day, it reaches the end. Whereas if you\u2019re the hare, maybe it works out one decade, maybe it doesn\u2019t work the next.<br \/>\n<b>Kevin:\u00a0 <\/b>Chris, with blue-chip types of properties that you\u2019re talking about there, are they all necessarily inner-city properties, or do they vary in their location?<br \/>\n<b>Chris:\u00a0 <\/b>My philosophy from going to lots of seminars and reading lots of books is that I typically avoid the CBD because there\u2019s no limit of supply \u2013 generally, you can keep building these massive towers \u2013 and there\u2019s limited demand, because not everyone wants to work in the heart of the city, especially when they have families and they want fresh air and everything like that.<br \/>\nI\u2019m an advocate of going the 5 K to 15K \u2013 or 2K to 15 K in certain suburbs \u2013 to get the area where there are three-story-high limits, so there\u2019s no more supply of property. All the properties are built up next to each other, so you can\u2019t physically build another property. There\u2019s lots of demand from the young professionals, the 25- to 35-year-old suits who will always have jobs<b>\u201d<\/b> because they\u2019re young and adaptable. They probably have wealthy parents, as well.<br \/>\nThey might be earning $75,000 to $100,000 each, so you get two people in a unit and they\u2019re earning $200,000 or $300,000. That\u2019s why these young people can afford million-dollar properties and million-dollar rents \u2013 because they\u2019re earning a lot of cash.<br \/>\nFrom what I\u2019ve heard from Residex, who has come my show for donkey\u2019s years, he says affordability is a problem around Australia and around the world, but it\u2019s not in these suburbs because these young kids have cash and they have cash to spend.<br \/>\n<b>Kevin:\u00a0 <\/b>It\u2019s always good talking to you, Chris Gray. You can catch Chris, of course, on Sky TV.<br \/>\n<b>Chris:\u00a0 <\/b>Fridays at 6:30.<br \/>\n<b>Kevin:\u00a0 <\/b>It\u2019s called <i>Your Property Empire,<\/i> Fridays at 6:30. Chris, great<b> <\/b>talking to you. Talk to you soon.<br \/>\n<b>Chris:\u00a0 <\/b>My pleasure.<b><\/b><br \/>\n&nbsp;<\/p>\n<h2>Stop playing at making property affordable \u2013 <a href=\"http:\/\/realestatetalk.com.au\/featured-channel\/michael-yardney\/\" target=\"_blank\" rel=\"noopener noreferrer\">Michael Yardney<\/a><\/h2>\n<p><b>Kevin:\u00a0 <\/b>There\u2019s a lot of talk about how we can make housing more affordable in Australia, and with it, comes a lot of tinkering around the edges. And we wonder \u2013 well, I wonder anyway \u2013 just how helpful that really is going to be in achieving what everyone wants to try to achieve, and that is making housing more affordable.<br \/>\nBut is it going to be possible? And what will be the likely impacts of that? Michael Yardney joins me to talk about that from Metropole Property Strategists.<br \/>\nHi, Michael.<br \/>\n<b>Michael:\u00a0 <\/b>Hello, Kevin.<br \/>\n<b>Kevin:\u00a0 <\/b>This is a conversation you and I have had on many occasions, and no doubt, you\u2019ve had it with other people as well. What\u2019s your view on this, Michael, this tinkering around the edges? Are we going to be able to make housing more affordable?<br \/>\n<b>Michael:\u00a0 <\/b>Well, first of all, let me explain my position. I have in my blended family, six kids and nine grandkids and one on the way. So, I\u2019m definitely aware of the challenges that young people have, and I have a number of generations below me that I want to be able to live in good housing, in a fantastic country, in big capital cities.<br \/>\nBut having said that, I think we have to change our expectations, Kevin, because if you lived in London, if you lived in Paris, if you lived in New York, you wouldn\u2019t really expect your children to be able to buy a house as their first house, and even you wouldn\u2019t necessarily be able to expect them to buy an apartment first off either, Kevin.<br \/>\n<b>Kevin:\u00a0 <\/b>So, what are you saying? That it has become unaffordable for first-home buyers?<br \/>\n<b>Michael:\u00a0 <\/b>If you talk about our big capital cities of Melbourne and Sydney \u2013 which are international cities, coming up to five million people in them, situated on a harbor, commerce hubs, employment hubs \u2013 it is getting more and more unaffordable, and it\u2019s likely that there will be generations of people who will never be able to own a home and who will be renters.<br \/>\nMany of the things that the government are doing are exactly what you said a moment ago, Kevin \u2013 tinkering around the edges \u2013 but in general, every time the government or Treasury gets involved, it actually has the wrong effect; it pushes houses up.<br \/>\n<b>Kevin:\u00a0 <\/b>What about the first-home owner\u2019s grant? What does that actually achieve?<br \/>\n<b>Michael:\u00a0 <\/b>Kevin,<b> <\/b>in the beginning of July this year, Victoria has new first-home owner\u2019s grants and getting rid of stamp duty. And what it\u2019s doing is that currently, first-home owners are not buying. They\u2019re holding off because all of a sudden, they\u2019re going to be given an extra $10,000. And similarly, I know a number of sellers who have decided, \u201cI\u2019m not going to sell, because I know property values are going to shoot up in July.\u201d<br \/>\nThe problem is we have to look at the past, and politicians have forgotten to do that. In 2010\u20132011 when the first-home owner grants were given in New South Wales and there were stamp duties abolished, what it did was it gave first-home owners an extra $10,000, $15,000, $20,000.<br \/>\nWhat they were able to do was use that for leverage when they went to the banks, because they had more deposit because they didn\u2019t have to put it aside for stamp duty, and they had another $70,000 or $80,000, which they paid for houses. And in general, first-home owners want to live where the action is, so they buy established properties. Somebody has to sell those, and those owners upgraded.<br \/>\nSo, the first-home owner grant became a second homeowner or established homeowner boost, and what it did was give a fantastic boost to the established property market in the inner and middle ring suburbs, and I predict the same is going to happen in Victoria this year.<br \/>\nIt\u2019s not going to make properties more affordable; it\u2019s going to keep this good, strong property market in Victoria even stronger.<br \/>\n<b>Kevin:\u00a0 <\/b>Just a comment on negative gearing for a moment. I would say it\u2019s probably one of the most unpopular taxes, but we really do rely heavily on private investors, and without it, you\u2019d have to say that private investors probably wouldn\u2019t be as attracted to the market and therefore rent would likely go up. And that\u2019s certainly not going to achieve the outcome anyone wants, Michael.<br \/>\n<b>Michael:\u00a0 <\/b>The outcome people are wanting is more affordable housing, but when 70% of Australians own their own home or are paying it off, the only way to make your and my house affordable to other people is to decrease the value of your and my house, Kevin \u2013 and nobody likes that or wants that.<br \/>\nSo how do you make housing more affordable without decreasing the value of that $6.9 trillion worth of residential real estate in Australia? One way people say is get rid of the ugly, greedy investors who are pushing up the prices because of negative gearing. That\u2019s fiddling at the edges, and as you say, we still have to provide rental accommodation for a third of our population.<br \/>\nThe other thing is they say, \u201cLet\u2019s get more supply. Let\u2019s go to regional Australia. Let\u2019s have fast trains. Let\u2019s have more employment out in the regional areas.\u201d But that\u2019s not where first-home owners want to live. In general, they want to live close to all the amenities, close to all the action, and close to where their friends are. And we\u2019re not building enough of the right sort of properties for them, Kevin.<br \/>\n<b>Kevin:\u00a0 <\/b>So bottom line, Michael, what do you think is the answer? What do you think is likely going to be the outcome?<br \/>\n<b>Michael:\u00a0 <\/b>It\u2019s a clich\u00e9, but it\u2019s a First-World problem. It\u2019s one of the prices you pay for living in the best cities in the world. Melbourne for six years in a row has been voted the most livable city in the world. Sydney and Perth and Brisbane have been high up on those lists as well.<br \/>\nIt\u2019s one of the costs that comes with the pleasure and enjoyment and comfort and safety of living in Australia, Kevin.<br \/>\n<b>Kevin:\u00a0 <\/b>So, your advice to young people?<br \/>\n<b>Michael:\u00a0 <\/b>Save, consider rent-vesting, consider borrowing from the bank of mom and dad. Don\u2019t give up. Maybe you should just lower your expectations of what your first home could look like.<br \/>\n<b>Kevin:\u00a0 <\/b>Yes, I think that\u2019s probably the message, isn\u2019t it \u2013 lower those expectations and do whatever you have to do to get into the market.<br \/>\n<b>Michael:\u00a0 <\/b>You have to get in the market because if you don\u2019t, it\u2019s going to run away from you. You\u2019re right, Kevin. Thanks.<br \/>\n<b>Kevin:\u00a0 <\/b>Absolutely. Great talking to you, Michael Yardney. Thank you so much for your time.<br \/>\n<b>Michael:\u00a0 <\/b>My pleasure.<br \/>\n&nbsp;<\/p>\n<h2>Small property development 101 \u2013\u00a0Nhan Nguyen<\/h2>\n<p><b>Kevin:<\/b>\u00a0 My featured guest this week is Nhan Nguyen. While studying a bachelor of science at university, Nhan read <i>Rich Dad, Poor Dad <\/i>by Robert Kiyosaki \u2013 I guess a lot of people can trace their early starts back to that book as well \u2013 and from that moment, his grades started to decline as his passion for property really started to emerge. His biggest learning from the book was don\u2019t work for money; have money work for you.<br \/>\nAfter university, Nhan took a role with a property education company, where he received a real education, learning how to do deals, qualify leads, and look for opportunities. Nhan also learned how to tie up opportunities with little money \u2013 and you\u2019re going to be fascinated when we talk about some of the ways that he does that \u2013 and then on-sell the properties at significant profit.<br \/>\nThen at the age of 23, Nhan quit working for someone else, and in December 2003, he moved into full-time investing, which is when he established Advanced Property Strategies. He\u2019s now done more than 100 deals worth $30 million in total in the past 24 months alone. He\u2019s done 29 property transactions just over the last two years using none of his own money. He tells us how he does that. Nhan is also the founder of Green Mint Property Group, focusing on property investment and development. He is my guest and joins us.<br \/>\nNhan, lovely to have you in the studio.<br \/>\n<b>Nhan:<\/b>\u00a0 Thanks, Kevin. Appreciate you giving me the opportunity to be here and join you.<br \/>\n<b>Kevin:<\/b>\u00a0 There\u2019s so much we can learn from you and your experiences over the years, and I have interviewed you on a few occasions. The first question I want to ask you, Nhan, we all know that property is cyclical, but is this the time to hold property, or can you actually make good money out of buying it, doing something with it, and then flicking it over?<br \/>\n<b>Nhan:<\/b>\u00a0 Absolutely. That\u2019s a question I get all the time. I suppose it really depends on what city you\u2019re in, because every city has a different time in the market. We talk about the property clock. I\u2019ve been reading recent valuer\u2019s reports and some cities are about to peak, some cities are about to come out of the doldrums there.<br \/>\nI was reading about Perth. They were talking about how the market is close to the bottom and potentially coming up. Townsville is another place that\u2019s really, really flat and with the potential to come up as well.<br \/>\nI believe that buying and holding versus developing has two parts to it. Holding is if you think there\u2019s a bright future in the marketplace, definitely. In the Brisbane marketplace \u2013 which I\u2019m very, very heavily invested in \u2013 I know that we\u2019ve had a good run for three to four years now. I\u2019m looking at selling a few of my properties just to take my money in so that I can do other things with it. Sometimes other people look at selling if they want to get the capital back and reuse the debt, because one of the things that people get stuck on is serviceability and they can\u2019t borrow more.<br \/>\nSo, considerations are threefold. One is where are you in the marketplace and the timing? Two, can you use that capital for other things? And three, do you have a serviceability issue, or can you borrow some more or not? Potentially thinking about it that way.<br \/>\nDevelopment is always prolific. There are always times and opportunities to make money through development.<br \/>\n<b>Kevin:<\/b>\u00a0 You said reusing your debt; is that what you look at? Do you look at pulling the debt out of one part of your portfolio and looking at another area where you may be able to gear it a lot higher? Is that what you\u2019re talking about?<br \/>\n<b>Nhan:<\/b>\u00a0 Yes, what I mean by that is let\u2019s say you own a property and it\u2019s worth $800,000, and you owe $500,000 on that and you have $300,000 in equity. If you sell that property down, it allows you to go back to the bank and borrow another $500,000. Most people might have a limit of $1.5 to $2 million worth of borrowing. So what I mean is being able to use that leverage into another property that may give you a better return because you\u2019re buying in at a better price.<br \/>\n<b>Kevin:<\/b>\u00a0 But there are times when I guess you\u2019d hold on to that property and use the equity \u2013 you have that $300,000 \u2013 and gear against that. How are the banks looking at that, and what sort of gearing can you get out of, say, a $300,000 lump of equity?<br \/>\n<b>Nhan:<\/b>\u00a0 That\u2019s right. Generally the banks at the moment, on an investment level, they\u2019re looking around about the 80% loan-to-value ratio, or LVR as they call it. With that, let\u2019s say the property is once again worth $800,000, you go 80% against that, which is $640,000, and you already owe $500,000; you can pull out roughly $140,000 on that to buy another property.<br \/>\nI do believe, however, in not always gearing up in refinancing, simply because that $140,000 is still debt, as opposed to selling some of your portfolio down and keeping some. So I\u2019d talk about selling some, keeping some, and not necessarily selling everything and not necessarily holding everything.<br \/>\nThey talk about buy and hold which is <i>a<\/i> strategy, but some people apply that as the only strategy, which I think can be dangerous, simply because the more property you buy and hold, you have an exposure to debt. If interest rates go up \u2013 which they have been, especially for investors in the last three to six months with some of the interest rate rises \u2013 you can be exposed.<br \/>\nYes, it\u2019s a balancing act, and it depends on what your outcomes are as well.<br \/>\n<b>Kevin:<\/b>\u00a0 Yes, because if you are gearing that high, of course, you\u2019re going to be relying a lot on negative gearing, and with so much talk about the <i>possibility<\/i> of some changes to negative gearing, you\u2019re going to be highly exposed, I would have thought.<br \/>\n<b>Nhan:<\/b>\u00a0 Yes, exactly. One of the things Warren Buffett often talks about is buying, holding, and never selling. I believe that in an environment where you have debt\u2026 Berkshire Hathaway, they don\u2019t have debt; they basically have investors, and it\u2019s all capital, it\u2019s all cash.<br \/>\nIn a business or in a project where you have debt, it\u2019s a balance between selling some and holding some, and using that money to make it work for you and not just gearing up, because property is capital-intensive and you will run out of either serviceability at one stage or you\u2019ll run out of capital at another stage because you\u2019re just all in. Every time you buy a property, property is very capital intensive.<br \/>\n<b>Kevin:<\/b>\u00a0 Have you got a benchmark for your loan-to-value ratio in your portfolio? Is there a level you like to maybe not exceed?<br \/>\n<b>Nhan:<\/b>\u00a0 Yes, absolutely. When I was starting out and I bought my first property, I didn\u2019t have a lot of cash, a lot of equity, so I borrowed as much as I could \u2013 95%, 97%. These days when I\u2019m buying property, I\u2019ll go to the bank and we might borrow 80% just to get into the deal and we\u2019re not paying lenders\u2019 mortgage insurance. It\u2019s not because of anything other than it\u2019s an expense that I believe that if you have enough capital, it\u2019s unnecessary.<br \/>\nIn my portfolio, sometimes we\u2019ll push 50% or 60%. As your wealth grows and you have more equity and more cash and more cash flow, it\u2019ll pay itself down. Sometimes it\u2019s lower, sometimes it\u2019s higher, just depending on the project.<br \/>\nI did a land subdivision in 2015 where the bank was going to lend us $1.8 million. The valuation came in, I think, $3.4 million for the total project. That was just a little bit over 54% on the loan-to-value ratio.<br \/>\nSo it depends on the project and it depends on individual circumstances, but I prefer to keep my LVRs \u2013 or loan-to-value ratios \u2013 down, just because I don\u2019t want to be at the whim of interest rates when they go up.<br \/>\n<b>Kevin:<\/b>\u00a0 Do you think this is the time to drive your LVRs lower?<br \/>\n<b>Nhan:<\/b>\u00a0 Like I mentioned before, I personally think those three things are critical. The fourth thing might be in the time of your life. Some of you might be wanting to go into a retirement phase and want to capitalize and get your cash back so that you can spend that capital. I think LVRs are one of those things that is dynamic. I\u2019m not going to say definitely bring It down; I\u2019m just saying to manage your interest rates, because if they go up\u2026<br \/>\nBasically a big topic everyone like Malcolm Turnbull and Scott Morrison are talking about is housing affordability and how they can bring that back and they banter back the negative gearing. If they basically hand-brake the negative gearing, that can affect the market terribly as it had in America. I think it was the late 1990s when they did that. They basically scrapped negative gearing, and the market just went into freefall.<br \/>\n<b>Kevin:<\/b>\u00a0 How do you go about finding the properties?<br \/>\n<b>Nhan:<\/b>\u00a0 One of the key sayings I use in my training is \u201cYou make your money when you buy, not when you sell.\u201d That can relate to when you\u2019re buying a house to live in, or an investment, or a development site. A key part of this is knowing what the market values are.<br \/>\nIf you\u2019re looking at buying a car and you know it\u2019s worth $20,000, how can you get that car for $12,000 or $15,000? People trade in their cars all the time at a wholesale value and then it gets sold at a retail value.<br \/>\nIt\u2019s the same thing with houses, and so if you\u2019re looking at buying a house and it might be worth $350,000, how can you get it for $300,000 to $320,000 so that you make your money when you buy?<br \/>\nThere are a handful of strategies that I use there. Firstly, I look for a motivated seller. I look for someone who\u2019s genuinely looking to sell quickly and might want to settle in 30 days, and I can help them move on that transaction but the house might need a bit of work. It might need a paint job or it might have some termites in it. So I\u2019m definitely looking for motivated sellers.<br \/>\nThe other thing is if I have to pay retail I look for what we call a free block of land. So it might have a big back yard, it might be on a corner block. One of the sites that I bought recently on the south side, about 16 kilometers out, is zoned for units and townhouses and the owner wasn\u2019t aware of that and he didn\u2019t really care. He just wanted to sell the property.<br \/>\nI bought the property and I cut it from a one into a two on a corner block. It\u2019s about a 600-square-meter block and you might think this is crazy, but I cut a 184-square-meter block off the corner there and I found a buyer for it.<br \/>\nMy point there is looking for either a motivated seller who wants to sell now and you can get it at a low price or you\u2019re looking for another upside, which is what we call the free block of land to add value \u2013 like a big back yard or cutting a block off.<br \/>\n<b>Kevin:<\/b>\u00a0 How do you find these people?<br \/>\n<b>Nhan:<\/b>\u00a0 There are a handful of ways to do that. One is you can talk to a real estate agent and tell them, \u201cI\u2019m looking for a deal. I\u2019m looking for an opportunity to develop. I\u2019m looking for a motivated seller.\u201d That\u2019s definitely one way. The other ways that we use are off-market, where you can door-knock, you can send flyers out, you can send letters out, to property owners directly. That is my preferred option, especially if the marketplace is hot.<br \/>\nI have clients in Sydney where you go to auctions and you get outbid all the time, but if you\u2019re approaching owners directly, you\u2019re not being outbid, you\u2019re not being out-negotiated or competing with other buyers. Those are a handful of ways.<br \/>\n<b>Kevin:<\/b>\u00a0\u00a0 I imagine in that scenario, being a real estate agent and knowing that that\u2019s how they prospect, there are a lot of dry gullies, aren\u2019t there? You put a lot of flyers out there, send a lot of letters, you\u2019ll get some calls, people who are just interested in knowing what their house is worth. You obviously have to go down those dry gullies.<br \/>\nHave you ever thought about how many people you have to contact to actually get a deal?<br \/>\n<b>Nhan:<\/b>\u00a0 Yes, absolutely. As an example \u2013 and I\u2019ll give you some statistics here \u2013 in the last 12 months alone we sent out roughly a thousand letters and we\u2019ve purchased three properties, and we\u2019ve sold one of them. I made a quick $60,000 on that. The last two projects, we\u2019ve projected around about $250,000 to $290,000.<br \/>\n<b>Kevin:<\/b>\u00a0 It\u2019s a very good return on a thousand letters. Would that be because you really target the areas that you go to?<br \/>\n<b>Nhan:<\/b>\u00a0 Absolutely. This is not just a blanket approach, because you\u2019d be sending out brochures or flyers to any Tom, Dick, or Harry, but really this is a targeted approach into targeted areas that we are experts on.<br \/>\nThat\u2019s the other part of it: when you\u2019re buying any property or any item, you need to become an area expert. You need to know your item or your zonings, you need to know whether there\u2019s flooding, is it too close to the train line, the noise corridors? There are so many aspects of it that you need to consider.<br \/>\nFor example, if you\u2019re looking to do renovations, you wouldn\u2019t go into a new suburb; you\u2019d go into an older suburb with a lot of Queenslanders or a lot of timber houses that potentially need a lot of work.<br \/>\nWe generally focus on a zoning called a low-to-medium residential, which has a lot more potential for unit and townhouse developments, and there\u2019s a lot of upside there, whereas there are a lot of people looking for double blocks out there \u2013 which is great \u2013 but I\u2019m looking for a different angle where I can add a duplex at the back, I can subdivide the blocks off smaller, I can potentially build a block of five to ten apartments in the future.<br \/>\n<b>Kevin:<\/b>\u00a0 It\u2019s very important what you say about becoming an expert in your local area \u2013 not only that but also understanding what those zonings are. That zoning you mentioned there may be applicable in one area, but if you\u2019re looking at even a different council area somewhere else in Australia, a different state, they\u2019re all very different. You have to become an expert in that area.<br \/>\n<b>Nhan:<\/b>\u00a0 Exactly. Like I mentioned before, I have a client in Sydney. She\u2019s looking at a zoning called R3, which is a multi-unit dwelling as well, and there are limitations there.<br \/>\nSo you need to become an area expert wherever you are \u2013 whichever city, whichever state.<br \/>\n<b>Kevin:<\/b>\u00a0 When you get a call from someone who receives one of your letters and they show some interest, what sort of conversation do you have with the owner? You mentioned there that you\u2019re trying to find out their motivation. Tell me about some of the conversations.<br \/>\n<b>Nhan:<\/b>\u00a0 Some of the conversations start with \u201cHave you tried to sell your house recently? Why are you returning my call? Have you tried to sell your house previously in the last 6 to 12 months? Is it rented?\u201d just to find out more about the owners themselves. Are they working? Are they looking to sell now? And then we slowly broach the aspect of price: \u201cHow much are you looking for?\u201d<br \/>\nOne of the things that we aim to do is test their motivation. We need to be able to see if it\u2019s worthwhile having a further conversation with them, and we ask \u201cWhy are you looking at selling? Are you looking at selling sooner rather than later?\u201d One of the other key questions we ask them is \u201cWhat\u2018s the least that you\u2019d consider?\u201d Basically it\u2019s a negotiation just like buying a car or selling anything else: \u201cWhat\u2019s the least that you would take?\u201d<br \/>\nAnd like you said before there, Kevin, 99% of the time they are dry gullies and we\u2019re not concerned about that; we\u2019re just looking for the diamond in the rough.<br \/>\n<b>Kevin:<\/b>\u00a0 I imagine some of those dry gullies, too, would come to something at a future time. Do you keep in touch with some people?<br \/>\n<b>Nhan:<\/b>\u00a0 Yes. I think it\u2019s very, very important not to think that just because you\u2019ve sent out a letter or had a door-knock and you\u2019re having a conversation with an owner that they\u2019ve said no. You have to get that it\u2019s just no for now and eventually, they have to sell. Like it or not like it, eventually we have to sell our properties because you\u2019ll move on at some stage \u2013 whether it\u2019s the next 10, 20, 30, or 50, years, the property is going to be transacted on.<br \/>\nWe had a recent transaction where we\u2019d spoken to them in February and they said, \u201cYes, we\u2019re keen to sell but we\u2019re not keen to sell now.\u201d It\u2019s very important that you ask the sellers that before they list with an agent and before they sell, just to give you a chance to have another go, have another quick conversation before they list on the market. You just want that first dibs. Once it hits the Internet or once it hits a real estate agent, it can be gone forever. All you want is the first dibs.<br \/>\n<b>Kevin:<\/b>\u00a0 Nhan Nguyen is my guest from Advanced Property Strategies. We\u2019ll take a break and come back after that, and we\u2019ll talk more about becoming a property developer.<br \/>\n&nbsp;<\/p>\n<h2>How to find the best deal\u00a0\u2013\u00a0Nhan Nguyen<\/h2>\n<p><b>Kevin:<\/b>\u00a0 We\u2019re back with Nhan Nguyen from Advanced Property Strategies. Nhan is giving us some tips on becoming a small property developer.<br \/>\nI wonder if you could just share with us a couple of stories, Nhan, about people you\u2019ve worked with and what you\u2019ve seen them accomplish.<br \/>\n<b>Nhan:<\/b>\u00a0 Yes, absolutely. A couple of clients who\u2019ve worked with me who have applied the strategies: a guy named Graham, who\u2019s out in the Ormiston<b> <\/b>area, bought a splitter \u2013 which is a site already on two titles \u2013 and knocked down the house. He made a quick $60,000 in a period of 10 weeks.<br \/>\nBecause it\u2019s already on two titles \u2013 we called it a splitter \u2013 you can get in, you can get out, and get paid. Because it\u2019s already on two titles, it allowed him to get in and get out quite quickly there.<br \/>\nI had another client recently in Kenmore, Kate, who bought a house that had a lot of termite damage in the property. She bought it in the high $400,000s, spent a good chunk of change on the renovations, and sold it in the low $700,000s to make about $80,000 or $90,000.<br \/>\nIt\u2019s about having a clear exit strategy in mind and with a mindset of getting in and getting out and getting paid.<br \/>\n<b>Kevin:<\/b>\u00a0 Just because it\u2019s on two lots doesn\u2019t necessarily mean you can get two houses on it, either. It depends on the type of house that\u2019s on there and whether or not it can be removed or shifted sideways.<br \/>\n<b>Nhan:<\/b>\u00a0 Exactly. And there are a few things with the splitter as we talk about. One is the house might be under a demolition control or character precinct \u2013 you may not be able to remove the house \u2013 or the blocks themselves might be what we call widow blocks, which may be on two triangular blocks as opposed to two rectangular blocks.<br \/>\n<b>Kevin:<\/b>\u00a0 Are there many of those around anymore, the widow blocks? That\u2019s where it goes diagonally across. You\u2019d need to get a realignment for that?<br \/>\n<b>Nhan:<\/b>\u00a0 Yes, exactly. So imagine a 20-meter wide block with a 40-meter depth and from one corner to the other corner you have two triangular blocks. That\u2019s what we call a widow block.<br \/>\n<b>Kevin:<\/b>\u00a0 You know why they\u2019re called widow blocks, don\u2019t you?<br \/>\n<b>Nhan:<\/b>\u00a0 I\u2019ve heard, but I\u2019m not sure if I believe that story.<br \/>\n<b>Kevin:<\/b>\u00a0 What is it? What did you hear?<br \/>\n<b>Nhan:<\/b>\u00a0 They said that before people went to war, they changed the lines or the dimensions of it so that the widows wouldn\u2019t sell the blocks while their husbands were away.<br \/>\n<b>Kevin:<\/b>\u00a0 That\u2019s exactly what I heard, too. And I don\u2019t know whether it\u2019s true, but it\u2019s a fascinating story.<br \/>\nHow hard is it to become a property developer? You and I were just talking about the fact that you have a course that runs for about two years. So it\u2019s all about education, Nhan?<br \/>\n<b>Nhan:<\/b>\u00a0 Absolutely. We teach people how to do it themselves. We call it the Fast-Track Mentoring Program. It\u2019s about small developments being made easy.<br \/>\nThere are so many different ways that you can do development. You can do townhouses, you can do removal homes, you can do subdivisions, you can do splitters, structural renovations. We break it down. And the majority of our clients like to start small. They might do a cosmetic renovation, they might do a one-into-two subdivision. That\u2019s what we teach people how to do.<br \/>\n<b>Kevin:<\/b>\u00a0 If I decided to do it now, the process of education, how long would it be before I could start putting deals together?<br \/>\n<b>Nhan:<\/b>\u00a0 If you get the education right, you could be in the marketplace in two to four months really, really quickly. That\u2019s assuming a couple of things. One is obviously getting the right education, but secondly, you have to be deal-ready and market-ready, as we call it. You have to get your finances ready. Maybe you have to get your pre-approval with a finance broker so that you\u2019re able to purchase.<br \/>\nIn two to four months, you could be in a deal, and two to four months later, you could be out of the deal if you knew what you were doing. We encourage people to think big but start small. Just start with something small \u2013 a sub-$600,000 purchase ideally.<br \/>\n<b>Kevin:<\/b>\u00a0 What sort of research tools do you recommend people should use? There are lots of excellent online tools. Are there any that you recommend?<br \/>\n<b>Nhan:<\/b>\u00a0 Yes, sure. The basic ones that a lot of people use already are, for example, Google maps. That\u2019s really great. Google Earth is another good tool. A handful of other paid subscription tools: ones like Price Finder or RP Data, are good databases with actual data of property ownership, property sizes, dimensions, sales history, and things like that. Those are important as well.<br \/>\nGoing to another level of getting more specific information are the local property development tools that are online. What I mean by that is that Brisbane City Council has a PD online as part of their website. New South Wales has a planning portal. It\u2019s called New South Wales Planning Portal. And you need to use those tools there.<br \/>\nThose are a suite of tools. Obviously you have to learn how to use them.<br \/>\n<b>Kevin:<\/b>\u00a0 You mentioned there about understanding how they work. Does someone who buys into those tools get the same sort of information that a real estate agent would in terms of zoning and ownership and when they purchased and so on?<br \/>\n<b>Nhan:<\/b>\u00a0 Absolutely. Those are the same tools pretty much that real estate agents use. However, you have to learn how to interpret that information. But if you don\u2019t know how to use it \u2013 looking up the interactive mapping, looking up the flood maps, looking up the biodiversity \u2013 there\u2019s not just the information, it\u2019s learning how to interpret the information and use it.<br \/>\nWhy should a property be disregarded? Because it might have this overlay or a noise corridor in it. Why should it be disregarded as opposed to why is there an opportunity there?<br \/>\n<b>Kevin:<\/b>\u00a0 You mentioned earlier that it\u2019s logical if you\u2019re going to get the education, in maybe two to four months, you could be inside your first deal, and in another two to four months, you\u2019re coming out of your first deal. In other words, you\u2019ve made some cash flow. You\u2019re looking there at anything from four to eight months before you can actually start to pull some cash out of what you\u2019re doing. I know you do this full time. This is what you do.<br \/>\nHow many people would be able to support themselves in this type of lifestyle, and how long does it take?<br \/>\n<b>Nhan:<\/b>\u00a0 I say to people, I\u2019d be wanting you to do that for ideally 12 to 24 months when you can make six figures before you can, for example, replace your job, because there are a couple of times there you might get started and you do a deal and you make $50,000 to $100,000, which is great. However, was it beginner\u2019s luck?<br \/>\nSometimes we have what we call Superman Syndrome where they might do a first deal and think they know everything and they go into another deal that is a little bit different and has a few different things that they are unaware of or they neglected to check because their ego got a bit inflated. So I do suggest between 12 and 24 months after you\u2019ve done it consistently, made six figures consistently, then look at transitioning from your job.<br \/>\nThat\u2019s what a lot of our clients want to do. They want to transition away from their job. It might be because they just don\u2019t like the hours or they like what they do but they just want to be able to do it because they <i>want<\/i> to do it and not because they <i>have<\/i> to do it and have other sources of income.<br \/>\nThat\u2019s what we help people generally do: replace their income doing property development.<br \/>\n<b>Kevin:<\/b>\u00a0 Thanks, Nhan.<br \/>\nMy guest has been Nhan Nguyen from Advanced Property Strategies.<br \/>\n&nbsp;<br \/>\n&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Highlights from this week: Why buyers are terrified about auction What can be done to make property more affordable? It looks easy to make money from property developing &#8211; but is it really? How to find the best deal Making a good living from property&#8230;<\/p>\n","protected":false},"author":176692471,"featured_media":11553,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[10,11,13,24],"tags":[101],"class_list":["post-11552","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-shows","tag-podcast"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>If not \u2018hot spots\u2019 then what? + A formulae for small development success + Why buyers hate auction - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/if-not-hot-spots-then-what-a-formulae-for-small-development-success-why-buyers-hate-auction\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"If not \u2018hot spots\u2019 then what? + A formulae for small development success + Why buyers hate auction - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"Highlights from this week: Why buyers are terrified about auction What can be done to make property more affordable? 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How to find the best deal Making a good living from property...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/channels.realty.com.au\/realtytalk\/if-not-hot-spots-then-what-a-formulae-for-small-development-success-why-buyers-hate-auction\/\" \/>\n<meta property=\"og:site_name\" content=\"Realty Talk\" \/>\n<meta property=\"article:published_time\" content=\"2017-05-04T17:00:08+00:00\" \/>\n<meta name=\"author\" content=\"rolanrush\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rolanrush\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"42 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/channels.realty.com.au\\\/realtytalk\\\/if-not-hot-spots-then-what-a-formulae-for-small-development-success-why-buyers-hate-auction\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/channels.realty.com.au\\\/realtytalk\\\/if-not-hot-spots-then-what-a-formulae-for-small-development-success-why-buyers-hate-auction\\\/\"},\"author\":{\"name\":\"rolanrush\",\"@id\":\"https:\\\/\\\/channels.realty.com.au\\\/realtytalk\\\/#\\\/schema\\\/person\\\/384a57ac9e52cb9bf19896cb15eaa52d\"},\"headline\":\"If not \u2018hot spots\u2019 then what? 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