In today’s show Shannon Davis, from Metropole Properties in Brisbane, explains what flipping is and how it stacks up against other strategies like buy and hold.
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.