Suburb gentrification | 7 ways to bleed the banks dry | Deposits on contracts | Successful renovators | Handover | What does 'flipping' mean?

 
We talk to Cherie Barber about why some renovators become hugely successful with some skills they employ without even picking up a hammer. She also tells you why the internet is not a great tool to rely on when you are researching a property or market.
Recently there’s been a lot of talk about banks changing the goal posts making it harder for property investors to get loans so Michael Yardney details the 7 ways to bleed the banks dry.
Conveyancer Garth Brown answers my questions about deposits on contracts. Amongst them …. what happens if there is no deposit, what are the circumstances that would see a buyer loose the deposit to the seller and how to avoid that?
Suburb gentrification is the new term for a hot spot. So what determines that an area should be, or is about to be, gentrified? Property lecturer and author Peter Koilizos says many investors have jumped in thinking an area is about to be transformed when it was never going to happen because the fundamentals were never there. Peter tells us what to look out for.
Shannon Davis explains what flipping is and how it stacks up against other strategies like buy and hold.
If you are building a new home either as a principal place of residence or as an investment, one of the ‘knife edge’ moments, apart from deciding on the location, design or builder, is when it comes time to do the handover. It needs an expert eye. Don’t rely on a contractor supplied by the builder. That just set up a conflict of interest. We will have the solution for you today.
 

Transcripts:

Cherie Barber

Kevin:  One of the reasons why many people become very successful in property and through renovation is because they thoroughly research and understand the market before they purchase, not after they purchase. I know this is a topic that is near and dear to the heart of our next guest, Cherie Barber from RenovatingForProfit.com.au and also a regular guest on The Living Room on Channel 10.
Cherie, some of the techniques that you use that you’d like to highlight for us to make sure that we actually buy the right property at the right price?
Cherie:  Wow, that’s a big one. It takes about two days to explain that in my workshop. Let me try and give you a couple of key tips first of all. One of the first things that I say to people before they actually rush out and buy a property… That is very tempting. A lot of the renovation shows on TV spur people into going out on the weekends and wanting to do a renovation, and they jump into it before doing the proper research.
I think the first thing is become an expert at the suburbs. You only have to spend about a week in a suburb, driving the streets, looking up suburb demographics online. There is so much suburb data on the Internet these days. It’s incredible. First of all, do your suburb due diligence. That will take a week or two to get a really good feel of the suburb.
Once you’ve done that, you need to then move to pricing due diligence. One of the big things is a lot of people do a lot of their pricing research via the computer these days. As you know, Kevin, you call that desktop valuation. It’s simply not enough, because all of those Internet reports are great tools but if that’s your sole mechanism for determining the value of a property, you’re in serious trouble, because none of those Internet online reports will tell you where the negative and positive price pockets are at a suburb level.
What I mean by that is that you can go into a suburb and some streets pull higher prices –  and for no logical reason, you have other streets that historically have lower property value. What can also skew that is the location of infrastructure, like if you’re closer to the water, naturally, property prices are going to be higher. If you’re closer to the shops, property prices could be lower. You need to be going through properties, you need to be going through other people’s homes, and actually trying to work out some of this stuff yourself.
Kevin:  As you said, those desktop valuations or the supplies of those don’t really keep up to date with the things that are happening in the area nor what is being renovated in the area. I’ve quite often seen houses put up as three-bedroom when in fact they are four-bedroom because they have been extended, Cherie. It makes a huge difference to the valuation of every property.
Cherie:  It does. I’ve had a lot of conversations with valuers over the years. Obviously, I’m in the game of buying and selling or buying and renting properties for a living, so I deal with valuers a lot. When I finish a renovation, I call the valuers in to get it re-valued, so I can tap into the new increased equity so that I can go out and buy my next property.
I’ve always been having conversations with valuers about the values of property, and I can’t tell you how many times evaluations have come in low. You’re not having arguments, but you’re having heated debates with valuers saying, “Yes, but apples to apples, that property that you’re basing that figure on didn’t have this, it didn’t have this, it didn’t have that, and it was unrenovated. Mine is renovated.”
Valuers and people who do the desktop valuations – you’re right – they don’t have that insight to the condition of the property at the time of the sale. It can mean the difference between tens of thousands of dollars.
Kevin:  That is a fantastic tip that you’ve given us there, because we have come to rely very much on the Internet to do our research, but you’re saying get on the ground and get that on-ground experience.
Cherie:  The Internet is great, and I hate to say it, but the Internet has made us lazy. The good old-fashioned way, just go through people’s homes. It’s actually not a bad thing, because when you go through people’s homes trying to work out which properties sell higher for higher prices, which style is more in demand.
If you go to an open for inspection and buyers are swarming all over a beautiful federation house, probably in the suburbs, you go, “Maybe I should renovate my house more in a federation style as opposed to a more contemporary style.” You actually learn a lot about hitting the pavement.
At the same time, you also develop good relationships with the real estate agents, so they know that you’re a more serious person, you’re not a tire kicker. When they see you going through properties, they’re more likely to go, “I saw that person coming through the open for inspection. I might give them a call and let them know that this property is about to come on the market soon.”
I’ve sourced a lot of properties over the years just by being present at the open for inspections. There is a whole heap of benefits there that you can really do on researching a property.
Apart from that, I have a property due diligence checklist that I have developed for my students. In fact, what you may not realize, Kevin – you may have to do an episode on this one day – there are 60 things that you should research on a property before you sign that contract of sale. Can you believe it?
Kevin:  Sixty things? Is that right?
Cherie:  Sixty things. The good thing is the 60 things don’t actually take long to do. It takes my students about one and a half days or less to tick off every single thing. I can probably give you a couple of things now if you have time.
Kevin:  Yes, please.
Cherie:  For example, really basic stuff that people don’t think to research: my students when they buy a property will make a quick call to their council and say, “Can you tell me what the zoning of the property is? Can you tell me if this property is heritage listed? Can you tell me if the property is in a heritage and conservation zone?” That is different to heritage listings.
“Can you please tell me are there any tree preservation orders on this property? Can you tell me is this property in a bushfire-prone zone? Is there any land contamination that you are aware of? Has anybody tried to lodge any development applications on this property in the past with council? And more importantly, have any of the neighboring properties been approved for development?”
They’re just a small handful of quick questions that somebody can either phone council or walk into council, and that can uncover a lot about a property before you rush out and sign that contract.
Kevin:  Yes, another great reason to make sure that you get into one of Cherie’s workshops. They go for two or three days, I think, don’t they, Cherie?
Cherie:  Three long days. It takes me about three weeks to get over one, Kevin.
Kevin:  They’re fantastic. You can get all the details at Cherie’s website, RenovatingForProfit.com.au, and pick up the free DVD while you’re there.
Cherie, always great talking to you. I look forward to seeing you on The Living Room and more importantly, having you back on the show again really soon. Thanks for your time.
Cherie:  Anytime. Thank you, Kevin.
 

Michael Yardney

Kevin:  There is a lot of talk about macro-prudential controls and ways that the banks are going to make it more difficult for property investors to get their loans. Is this all that new, and what are the ways that you can actually overcome this and protect yourself a little bit more?
Michael Yardney joins me. Michael, I know you’ve been investing for decades. Is this all that new?
Michael:  “Investing for decades” – that makes me sound old, Kevin. The rules are changing all the time with lenders, but that has always been the case. I remember the old days of credit squeezes where the Reserve Bank was able to restrict bank lending, so it’s now new, Kevin. You just have to make yourself attractive to the banks.
Kevin:  How do you go about doing that, Michael?
Michael:  It all has to do with serviceability. That’s the term that they use to protect themselves from taking on what they see as risky loans. Fortunately, not all lenders use the same criteria to determine your serviceability – how well you can service the loan – and that can make a really big difference.
I know some lenders will lend up to $100,000 more than others to the same person just based on how they take into account their income, their credit cards, and their job. I think it’s important to shop around to different lenders, but you have to do it in the right way. That’s why I think having a good finance strategist on your side is a good way to start.
Kevin:  So it has nothing to do with how you dress and how you talk, Michael?
Michael:  It used to be in the old days. I remember I used to have to put a suit on, go make an appointment, sit with the bank manager, and impress them. You also used to have to have a savings record. Remember those little savings books that you had before? The rules have changed now, so you just have to play with the current rules, Kevin.
Kevin:  What are some of the things we should be aware of to make our profile better with the bank?
Michael:  They check your credit record before they make any decisions. One of the things they look at is what your income is and what your expenses are, but they also have a look at how many credit cards you have, have you defaulted on your credit cards, because they actually see the potential for you to max out your cards even if you’re well disciplined.
My suggestion would be look at your credit cards, and maybe get rid of one or two – if you don’t need them – prior to applying for a loan. If your balance is zero, they still see that you could potentially use up those balances.
Kevin:  Yes, you have access to those funds. I guess in doing that sort of homework too, making sure that your records look good when you take them in, like you know what you’re doing.
Michael:  You should because banks require you to give proof of your income. If you’re self-employed, they request that in different ways. Often, it’s more than just a couple of pay slips. Having all that paperwork under control makes you a better investor any way, but it also makes you look as a better investor to the banks.
Kevin:  When you’re putting all that together, Michael, is it as simple as money coming in is simply income?
Michael:  You would think that, wouldn’t you, Kevin? But some banks take into account 100% of your rental income. Some only take 80%, and some less. Some see dividends, second jobs, child maintenance, company bonuses, commissions, government benefits, and annuities all differently.
That is, again, the reason why you have to have somebody who understands the rules of the game to take you through the maze. That’s where an experienced finance broker can really be immensely helpful.
Kevin:  Michael, you mentioned earlier about credit cards. I guess included in that would be lines of credit. Is it important to have an understanding of those and try to get rid of them if possible or reduce them?
Michael:  I think that’s a good idea. One of the ways you can sometimes do that is even roll them up into your home mortgage and pay them at a lower interest rate. You may have a couple of store cards that you’re now paying 18% or 19% on, and that way, you actually can maybe only end up paying 4.5% or 5% with your mortgage.
The real trap, though, is if you do roll up your debts into one lower interest rate one, you have to pay them off quickly, make sure that you get rid of them, not pay them for the next 30 years of the length of your mortgage.
Kevin:  Indeed, mate. You mentioned there about working with brokers. That’s all a part of looking around for those discounts, but it’s also difficult to know how to compare them, Michael.
Michael:  It is, and I wouldn’t just choose a bank based on the discounts they give you this month, the fees, or the interest rates. There is a lot more to it, and a good broker would also look at the flexibility of the loan. I think everyone needs one loan with all the services with an offset account and credit cards. But once you get into your second, third and fourth investment property, sometimes the loans don’t require all those bells and whistles. You can go to a smaller secondary lender who is going to maybe have a better package for you.
Kevin:  Some of the other issues, just to round it out, Michael?
Michael:  One of the things that you could consider is taking on loans for longer terms if you can’t afford the serviceability. Kevin, do you know that there are some banks that still give 40-year terms?
Kevin:  Goodness, they wouldn’t do it for me.
Michael:  Maybe not for you and me because they’re not figuring we’re going to be around for a long time. The concept is, though, that if you take a $300,000 loan over 30 years or if you take it over 40 years, what is going to happen is your interest payments are less, your monthly payments are less, and it makes it more serviceable.
The trouble is that you’re paying it for longer, so over the term of the loan, you’re going to be paying back much more. But it’s a good way to get in, and then consider refinancing it down the track.
Kevin:  It goes back to that first point that you made about serviceability, doesn’t it?
Michael:  It all has to do with how the banks see serviceability. Maybe a final point is that while they are all very different, sometimes the banks are on your side, and sometimes the right thing to do is nothing.
If you haven’t got the serviceability, don’t get yourself into trouble by taking on a commitment now considering that down the track somewhere interest rates are going to go up and you may have difficulty sticking to your commitment.
Kevin:  Wonderful stuff. Thanks again for your time. Michael Yardney from Metropole Property Strategists. Michael, your blog if we want to catch up on more?
Michael:  PropertyUpdate.com.au.
Kevin:  Always good talking to you, mate. Michael Yardney from Metropole Property Strategists. Don’t forget they have offices all around Australia, and you can contact them through their website, as well, Metropole.com.au.
Thanks for your time, mate.
Michael:  My pleasure, Kevin.
 

Garth Brown

Kevin:  We often think when we buy a property that the deposit is just part of the process, that’s what you have to pay. Quite often, I get asked the question, “How much deposit should I pay?” Let’s have a look at that, and we’ll also have a look at what really makes up a deposit and why it’s important to have one with every contract.
I’m talking now to Garth Brown from Brown & Brown Conveyancers. Garth, thanks again for your time.
Garth:  Thanks, Kevin. I appreciate it.
Kevin:  How important is it to have a deposit with a contract? Can you actually form a contract without a deposit?
Garth:  No, you need to have the deposit. It’s part of a valid and binding contract. It’s known as consideration. There needs to be a deposit paid, a contract signed, and an intention to be legally bound. It’s a major part of a valid contract. It must be there. If it’s not there, you don’t have a valid contract.
Kevin:  How is the deposit used? Once it has been gathered by the agent, what happens?
Garth:  The agent places the deposit in a trust account. It’s held there until settlement.
Kevin:  Okay Garth, so that goes into a trust account, which means it’s held in trust. It is owned by neither the seller nor the buyer at that stage. Is that correct?
Garth:  Yes, that’s right. It’s held by the agent as a stakeholder, and that is just ensuring the obligations of both purchaser and vendor. When they’re completed, the deposit is released after the agent deducts their commission from the deposit.
Sometimes what happens is that part of the deposit is needed before settlement. Both vendor and purchaser conveyancers agree to have part of the deposit released before settlement so that it can be used for the property to settle. Maybe the mortgage is a lot higher than what the contract allows for, so the deposit needs to be released to help out the settlement.
Kevin:  That has to be by agreement between all the parties.
Garth:  That’s right. It’s very important that all parties, once a contract is exchanged, that the settlement proceeds do cover what is required at settlement to pay up the mortgagee. If not then all parties need to agree to have part of that deposit released to make sure that there is enough surplus to cover the mortgage to pay it out.
Kevin:  You said earlier that it’s there to allow the settlement to happen. In a scenario where it goes all the way through to settlement, the purchasers may have a pre-settlement inspection and find that there is something not quite right. At that point, is the settlement held up, or can it still go ahead?
Garth:  The object is to get the property across the line to settle. What can happen is that part of the deposit – it could be $1000 or whatever – could be held back. This would be resolved after settlement. They would just get the property to settle and then come back to sort out the smaller part of the transaction. The main objective is to get the property settled and then come back and sort out what is needed from there.
Kevin:  Rather than let the sale fall over, it settles, the purchaser get its, they still get occupation, and then whatever problem needs to be sorted out with that $1000 or whatever the case may be, that’s then done.
Garth:  That’s right. We had one in country New South Wales, where the hot water system was faulty. It was working at the time of the inspection, but when it came to the pre-settlement inspection, the hot water system wasn’t working. What happened there, the vendor agreed to hold back $1000 and to allow the property to settle. Then both vendor and purchaser negotiated together. They decided to replace the hot water system with that $1000 by the vendor, so it worked out really well.
Kevin:  Right back at the start of our chat, you said that the deposit is paid to make it a binding contract. In the event that the sale doesn’t proceed – because maybe the purchaser can’t get their financing and has to terminate as normal – what happens to that deposit?
Garth:  Particularly in New South Wales, if you don’t settle on that contract settlement date, you’re issued with 14 days notice, known as a notice to complete. If you don’t settle within that 14 days, the vendor can terminate the contract and keep your deposit, and then the vendor can go and sell the property to someone else.
Kevin:  Under what circumstances can the purchaser get their deposit back?
Garth:  Particularly after you have exchanged contracts and paid the deposit, the purchaser’s conveyancer would undertake checks to make sure that there are no road proposals to go through the property, or any railways, to acquire the land for education, or to put power lines through.
These sort of things affect the value of the property, and if they haven’t been disclosed in the contract, in the special conditions, before signing and you find out about these after you’ve signed the contract, then you can rescind the contract to retrieve your deposit back based on some legislation there.
Kevin:  There are parts of Australia where a contract can fail subject to finance, and I know in New South Wales, you’ve explained that that is not the case, but in some parts of Australia, if it fails on the finance, for instance, the deposit is paid back to the purchaser.
Garth:  Yes, as long as that condition is in the contract there.
Kevin:  A lot to get through. We will come back with Garth at some future time. I do want to talk to you about agency agreements, because that is another critical area that sellers in particular should be aware of.
Garth Brown from Brown & Brown Conveyancers. Thanks for your time, Garth.
Garth:  Thanks, Kevin.
 

Paul Corn

Kevin:  Many property investors, of course, decide that they want to get a new property built because there are obvious advantages of that – of depreciation and so on that we have covered in the show before – but one of the things you’ll find if you do have to build a new home or you want to buy into a new unit complex is the difficulty you’ll have at the point of handover.
You have to assume, therefore, that everything has been done properly, and quite often, builders, you’ll find, will have their own inspection done prior to settlement. But is that good enough? Maybe you should get an independent party to have a look at it for you.
There is a company I’m going to suggest to you now – Handovers.com. That is what they do. They come in. They will represent you as the buyer, have a look at the property, and then give you an impartial report about the things that need to be done to bring it up to standard if that is necessary.
Paul Corn is the man behind Handovers.com, and he joins me. Good day, Paul.
Paul:  Hi, Kevin. How are you?
Kevin:  Good, mate. A great service that you offer. What do you see as, obviously, the benefits of this, but also where do a lot of these areas of concern come up in your experience?
Paul:  Kevin, it seems that a lot of builders e-mail or ring the client and say that it’s a practical completion and they have to make their final payment. What we do is go out and have a look, and if it is at practical completion, we will tell the client it is but if it’s not, we then recommend that they don’t make their final payment because it’s not a practical completion.
Kevin:  What are some of the things that you look for, some of the problem areas that may emerge in this that I, as a novice, wouldn’t know?
Paul:  We look at everything that you, as the novice, look at, but we know what is either right or wrong. We look at paint, tiling, door margins, all that. Brickwork, you name it, we look at it. We’re just making sure that the builder’s interpretation of quality is what is acceptable. If not, we do a list, and for paint and plaster, we use a safe removal tape on the walls and then we ask the builder to rectify those items.
Kevin:  How much control or how much power do you have over the builder to do that?
Paul:  We have the same amount of power as the owner, but in saying that, we know what’s right or wrong. If it had to go to one of the governing bodies, we believe that our report, everything that we write down, would be asked to be rectified by the governing body.
Kevin:  I suppose from time to time, too, Paul, there might be things that I, as a consumer, would think need to be done but practically, they don’t have to be, and you’re that third person who can say, “No, that’s not the role of the builder.” Is that a fair comment?
Paul:  That’s a fair comment. We see numerous times where an owner has gotten themselves worked up into a bit of a lather because they believe that this certain item isn’t right, but if it is right, we will tell the owner and we’ll explain why it’s not a defect.
We have to work within the guidelines. There is a document called Guide to Standards and Tolerances. It’s a condensed version of Standards Australia. We use that document. It might be the margins on a door or the architraves around a window, but everything has a standard and tolerances. That’s what we have to work to.
Kevin:  You mentioned this earlier in our chat, too, that you come in prior to that final payment being made. That is fairly critical, isn’t it? If that final payment is made over and then you come in and do your report, you might even find it almost impossible to get the builder to come back and rectify some of those problems.
Paul:  We have had where the builders have said, “No, you haven’t written it down, and we’re not going to fix it.” We have gone out and had a look at it, produced a report, had a discussion with the builder, and all of my employees, we all speak “builder speak,” so to speak, and we can negotiate with the builder.
We have never had to go to any of the tribunals or whatever, because we can talk to the builder, and most of the time, we’ll get it through that yes, it has to be fixed – because a defect is always a defect. It never changes.
Kevin:  Paul, before we need to go, I understand you have flying cameras up and around Australia, too, to help investors have a look at where their property sits. Tell me about that service.
Paul:  We have these flying cameras. It’s just an add-on service where a lot of owners don’t see their investment property. What we do is we will use the camera, hover above the house, give them a 360-degree aerial shot of where the house is, and they can have a look at where it is in the town that they’re built in, what it looks like. It’s just an add-on service that we have for our clients, and it seems to be taking off rather well.
Kevin:  I think that the service you offer just in helping investors in that handover process is very powerful. Paul, thank you so much for your time. The website is Handovers.com.
My guest has been Paul Corn. Paul, thank you for your time.
Paul:  Thanks, Kevin.
 

Shannon Davis

Kevin:  There is an American term you might have heard us use in the show here that has come into our vocabulary, and that is “flipping.” Flipping is where you buy a property, renovate it, and flip it back over – but you need to do it quickly. Is that a good strategy to use in this market as opposed to a buy-and-hold strategy?
Shannon Davis from Metropole Properties in Brisbane joins me. Shannon, is it different in each city. Would you be flipping right now in Sydney as opposed to Brisbane?
Shannon:  With a market like Sydney right now, there is a much better chance that it’s going to make it.
Kevin:  Yes, you’re really taking the punt by the time you buy it, renovate it, and then flip it – which can probably take anything up to six to eight weeks – that the market is going to continue to grow, because if it folded in Sydney, you’re going to be in a lot of strife.
Shannon:  Yes, exactly. The more you have to time your exit strategy, the more that I’m worried about it, because no one can control the market. In Sydney’s market right now, you probably could do nothing for six to eight weeks and still make a profit.
Kevin:  That may be, but then it might tank in two months, too.
Shannon:  Yes, that’s correct. For me, I’m a buy-and-hold person. I don’t like the entries and exits of property. You have stamp duty, you have sales commission, you have conveyancing fees, and often, finance costs on top of that. You have to make the improvement, buy well, have the market not turn against you and then with all those entry and exit costs, still make a profit at the end of that. Then, if it’s sold in the first year, you have capital gains tax in the full whack.
For me, if you have a clever finance person, you can still make those gains, do your value-add, but refinance in order to get yourself another deposit as well as hold the asset. If we’re doing it for wealth, then that’s a much better strategy, because you’ve paid no entries and exits, you’ve paid no taxes and you still have another appreciating asset as part of your wealth.
Kevin:  We’ve heard Michael Yardney talk about looking for properties that you can maybe add a twist to. You might pick it up at a certain figure, you might do some slight improvements to it that are going to maybe return you more, because you might have added another bedroom or something. Is that part of your strategy?
Shannon:  Definitely. If you can see opportunities where others see obstacles, like adding an extra bedroom, that is going to definitely pay dividends in the long-term for the value-add. Property is the one thing that we can add value to. We can’t do it with shares, fixed interest, or gold and silver. If we’re in property and we’re going against value-add techniques, then really, that’s the one thing you have in your favor.
Kevin:  It’s very true. When you think of it, that’s the one thing that stands out, and if you’re not utilizing that, then you have rocks in your head. Why are you doing it?
Shannon:  That’s right. Even in a falling market, I’ve added value to properties through renovation. That means you’re in control.
Kevin:  Let’s look at the Sydney market for a moment. If you were going to flip in Sydney, one of the things you probably should do is try and get early access to the property so you can be renovating before you even settle, before you have that major capital outline.
Shannon:  Yes, and it needs to be agreed with the other party and solicitors, and there is a little bit more risk in doing that for both parties.
Kevin:  All right, there it is, a bit of a scenario for you about flipping and a good explanation about flipping as well.
Shannon Davis from Metropole Properties in Brisbane, thanks for your time, mate.
Shannon:  No worries, Kevin. Any time.
 

Peter Koulizos

Kevin:  A suburb that’s gone through gentrification is a suburb that no one really has wanted to live in for some 30 to 40 years but which is now desirable and a more expensive place to live. As an example, Balmain in Sydney, St. Kilda in Melbourne, New Farm and Newstead in Brisbane, as well as Paddington in probably both Brisbane and Sydney. How do we find out the next ugly duckling waiting to turn into the next swan?
Peter Koulizos, property lecturer and author, has been looking at this, and he joins us. Peter, why does gentrification occur?
Peter:  Gentrification occurs when wealthier people move into an area, in particular, an area close to the city or close to the sea. But very importantly, it needs to have character and/or period-style buildings, because it’s those sorts of buildings that the people are looking for to update and live in.
Kevin:  Generally, how long does it take for a suburb to become gentrified? I mentioned there at the start about Balmain in Sydney and St. Kilda in Melbourne. Typically, how long? Is it like a generation?
Peter:  Yes, a generation, decades. It doesn’t happen overnight. Places like Balmain didn’t become highly sought after overnight. It was down and out for maybe a century. I’m not exactly sure, but it was certainly down and out for a long time. It could take 20, 30, or 40 years to come good. Then people very much want to live in those sorts of areas, but obviously pay a very high price to live there.
The key is just because something has started to gentrify doesn’t mean you’ve missed the boat, because you still have many years to go. In many cases, you’re far better off being relatively sure that the area is being gentrified rather than buying in somewhere thinking, “Oh, yes. Well, surely, this has to be gentrified sooner or later.”
Don’t forget, if your property investment goal is only five years – and I’ve just said that gentrification could take 30 to 40 – well, buying in an area that hasn’t even taken off yet is not going to meet your property investment goal.
Kevin:  But I guess in a sense, the longer it takes, probably the more substantial it’s going to be. It’s a bit like oak trees take a long time to grow, whereas weeds grow almost overnight and don’t have any life span.
Peter:  I like that analogy, Kevin. That’s very good. Can I use that, as well?
Kevin:  You certainly may. Any time at all.
Peter, what sort of impact does gentrification have on property values?
Peter:  Oh, it’s fantastic. You have the solid bones of an older-style property, a character property. Somebody comes in, polishes the floorboards, updates it and keeping the character, possibly does an extension, pours a lot of money into the property. At the same time, the local council and possibly state government are also fixing up the area. So, so far as property values are concerned, it’s fantastic. They increase markedly, especially compared to the majority of the property market.
Kevin:  Yes, I guess it comes down to pride, too, doesn’t it? If people can see their area improving like that, they’ll take a lot of pride in their own property, as well, Peter.
Peter:  That’s right. Don’t be scared off by the high prices because in my opinion, you’re far better off getting a small property in a good location than a big property in a poor location. Even if you can only afford in a one-bedroom unit in an area that’s going up in value, that’s being gentrified, you’re far better off doing that than spending the same money in another area to buy a house that is a long way from town and is a long way from being gentrified.
Kevin:  Peter, I’ve heard you say that you should drive through a suburb. What is it – when you do – that you look for?
Peter:  I look at a number of different things. I look at the people in the area. Are there young adults wandering the streets in the middle of the day and there’s vandalized bus shelters, or are there lots of well-dressed parents pushing prams with young kids in them?
As you mentioned before, housing. Is there evidence of people being house-proud, or are the front yards full of weeds and car wrecks? So far as cars are concerned, are there lots of little prestige cars, like little black BMWs, Audi, or Lexus? This is a sign of wealth. Streets: are there wide tree-lined streets? Are they lined by – in the main – character or period-style homes?
There are lots of little things that I look for. Even looking at places where people go to have a drink or have a bite to eat. If you go to the café, are they just selling your standard cappuccino flat white, or are they selling herbal teas and affogatos and macchiatos, and for the little children, babycinos. The second type of café, you will generally find in a gentrifying area.
The local pub: is there a jazz band on a Sunday afternoon playing in the courtyard? Is there a wide selection of boutique beers on tap, or is it mainly VB and Tooheys on tap, horseracing on the big screens, and not a glass of wine to be seen anywhere?
Kevin:  You really have to get your feet on the ground, haven’t you? When you’re going through these suburbs and you identify them, what types of properties do you look for in those areas, Peter?
Peter:  The keys are the older style, the character properties, and the date or the event to remember is the 1940s or World War II, anything before then. Some of the common styles are art deco, bungalows, cottages, villas, or in Queensland, the typical Queenslander-style property. They’re the sort of properties that do best because many people – and in particular white-collar workers – are willing to pay a premium for those older style homes in anticipation of updating them.
Or you can even take the next step. You can buy one of those older-style homes, update it yourself, and then people will pay you a huge premium for that.
Kevin:  My guest this time has been Peter Koulizos. Peter, thank you very much for your time.
Peter:  My pleasure, Kevin. Thank you.

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