Chapter 1: What is the main topic of property flipping discussed in this episode?
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And welcome to Thursday the 21st of April for 2022 and coming up in just a moment we're going to be talking about the cooling market and the viability in risk and in the numbers of doing a flip on a property and the exposure for people doing this being caught out. But first let's take a look at the weather. It's the main centre forecast with propertybuyer.com.au.
And Sydney expecting a shower or two developing today with a high of 23 degrees. Melbourne cloudy but mainly dry and 17. Brisbane expecting a fine one with some cloud cover and 28 degrees. And in Perth expecting a mainly fine day and 28 degrees. We feature market updates, interviews and trends. It's your real estate podcast for breakfast.
So what did you think of the debate last night between Morrison and Albanese? Did you learn anything that you didn't already know? Were you informed and enlightened, learning things that will help form your decision come voting time? Well, the firecracker debate, it was not.
Chapter 2: How is the current property market affecting flippers?
One thing's for sure, though, I think that we will be hearing a lot more about the security around the Solomon Islands and China's influence in the region. The policy around that will go well past the election, but each party's clear signalling will be important with the run-up to voting day, which, of course, is getting very close. Saturday, May the 21st, it is just 5pm.
Well, there's been some predictions around Sydney's cooling property housing market that it's created a bit of a headache and a concern for property buyers who have paid big and large amounts for properties in the hope of flipping them for a profit. Some commentators are saying that people who have paid these high property prices to speculate on could be in a bit of trouble.
Well, to discuss this further is James Elgar from Mortgage Choice. Good morning, James. Welcome to the Property Podcast. Good morning, Craig. Thank you for having me. Great to have you on. And yeah, it's a bit of a problem. A plan to speculate might not be as smooth sailing as a lot of these property flippers would like at the moment. The tide is definitely turning.
We've seen clients looking to enter this space more of the lifestyle style.
Chapter 3: What risks are associated with property flipping in a cooling market?
type approach, we're definitely seeing some of those people facing bigger challenges or not looking at such great returns given not just the prices they're paying, but that calling in the market.
You know, it's almost like in every property cycle, you're kind of caught in this no man's land where, you know, it's starting to move and you can get people sort of caught right down in the crevasse of the shifting tide. And that kind of feels like where we are with this sort of subject of people paying for properties, trying to flip them and potentially just paying too much. Absolutely.
I couldn't agree more. And look, there's no doubt there'll still be opportunities where perhaps sellers are nervous about the exact same situation in the market. But those clients who have either committed earlier towards possibly earlier this year or back end of last year in the hope that the market would keep moving ahead are definitely facing some headwinds.
And I guess as far as you're concerned, being in the mortgage game, I mean, you would have seen this for such a long period of time, James, you know, over the last couple of years. And you'd also be thinking, well, at some point, you know, this is going to change and it is going to have an effect. And you just hope that people sort of, I guess, pick the market correctly.
You're absolutely right, Craig. So for the last two years, we've seen some of what I would term to be those professional property flippers, you know, slash small-time developers.
They've really started to slow down and back away from the market, not just in the last few months where it's much more apparent, but probably over the last 18, we've seen some of those clients having conversations now saying, hey, there's not enough value versus the risk, or Or we're competing with people who are just paying huge money in the hope the market keeps booming.
So even more so in the last couple of months, there's been the odd record price paid in some suburbs.
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Chapter 4: How do professional flippers differ from casual investors?
But on the whole, most of those big prices are not being paid by those professional flippers. You've got people thinking, well, we hopefully see some double digit growth again this year. So if I end up paying a bit more now, I'll collect it back in the future. But you would need to take a few brave pills to be doing that right now.
And you were saying that you're seeing mostly professional types that are doing the flippings. Of course, you're always going to get some people that have watched a lot of the block and thought, gee, yeah, I could probably flip a property or two. I mean, they're going to be really exposed if that type of person has gone out and overpaid for a property.
But by and large, most of the flippers you're saying that they are tradies. professional people. That's right. So we do still see the odd lifestyle flipper still around. They're the, like you say, the people who've seen the TV shows, the block and decided that might be a great lifestyle. But nine out of 10, probably of the clients I'm dealing with,
are active tradespeople with a plumber or electrician or a builder who have a day job which naturally leans towards their ability to deliver home improvements or property subdivisions or extensions, renovations, that type of thing at a far lower cost than the regular mortals like us who have a day job in an office.
I've got countless plumbers and electricians who are still very confident they'll deliver profits from turning property over because their costs to do those renovations are substantially lower than people like yourself and myself where we don't do this as a day job.
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Chapter 5: What role do private equity loans play in property flipping?
I mean, we might look good wearing a builder's apron, but it might be costing us a lot more to look good, you know? And they're not necessarily cutting corners, those kind of tradespeople, but they know how to deliver something that looks a million dollars that doesn't cost a million dollars.
And tell me a little bit about the challenging times for loans because starting to hear that there is more of this private equity loans around, I guess some people are going to fall into one way or another potentially. Yeah, look, it's continued growth in that private equity lending. The cost of funding is substantially higher than your mainstream lenders. That's, I think, twofold.
One is lending standards. Responsible lending rules have seen a lot more of the mainstream lenders pull away from lending for property renovation or development per se. where that space has definitely been filled with the private equity lenders who are looking to get in and out and help people turn property over and help them make a big piece of the action in return.
But obviously that comes with an increased risk too, because typically that's commercial lending. It's not so regulated. And so giving consumers that level of protection they might assume they'd get with a typical home loan. Yeah, we're definitely seeing more of that private lending.
It's almost certainly as a result of tighter lending standards, which are all being put in place for the right reasons. Well, we're certainly in interesting times.
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Chapter 6: What strategies can flippers use to mitigate risks?
I think between now and the end of the year, boy, it's hard to just imagine what is going to unfold. For those clients who've perhaps paid a bit too much and are highly leveraged, then they're going to need to be pretty confident about their future, maybe thinking about what other avenues they have in terms of holding property longer if they can't trade it out.
The smarter property flippers have got two-pronged attack. They're thinking, I'd really like to sell it for this, but if I don't sell it for this, I have plan B, which is to sit and hold. For those people that are willing to sit and hold and can indeed sit and hold, then I think like everything in real estate, it's a long game. And the longer you're in, the less risk. That's exactly right.
Yeah, it's the long game that everybody should be looking at. Number one, always the long game, I think. Hey, James, thank you so much for coming on to The Real Estate Podcast this morning. Really appreciate it. Pleasure. Thanks for having me, Craig. We connect you to the best real estate information across Australia. The Real Estate Podcast.