Flipping always looks like a great strategy in the good times. But are some investors about to come unstuck?
Sometimes you strike it lucky in property.
Like this story of a guy on the Gold Coast who flipped a parcel of land for a $130K uplift.
(The story appears in the UK’s Daily Mail, because there’s a picture of him with his girlfriend in a G-string. Pure class).
A 23-year-old man has made more than $101,000 profit after buying a plot of land and mowing it twice.
Anthony Dart, 23, bought the property on the Gold Coast for $310,000 and 13 months later he sold it for a staggering $439,000. Mr Dart told Daily Mail Australia he made a solid profit of $101,000 after expenses.
The young entrepreneur was shocked by how much the property appreciated in value in just over a year.
Hats off to him. From what I know of the Gold Coast market, at that price I expect he bought under market value, and that’s what made those kinds of gains possible.
And with property prices on a tear-away in recent years, a lot of people would have similar stories.
Trouble is though, people seem to think that these kinds of stories are the norm.
Amazing deals like this happen when you do your research and buy under-market, or when you do your research and buy in an area primed for growth.
That is, when you do your research.
If you’re not doing your research, then you’re only going to get these kinds of results if you get lucky. And if you’re relying on luck, then you’re just gambling.
And all gamblers lose at some point.
Western Menbourne might now be about to become a case in point.
There’s been a bit of a frenzy going on out there in recent times around house and land packages.
It’s pulled in a lot of speculative activity, with buyers looking to flip their purchases before settlement.
As prices stall though, there’s an air of panic brewing:
Speculators who hoped to get rich on a boom in Melbourne land prices are “panicking” as settlements loom and they can’t find developers to on-sell their sites to, according to Resi Ventures’s Khurram Saaed, who has been developing for 15 years.
Mr Saaed said he was getting one call a week from panicked speculators, including one buyer who had put down $21 million in deposits on a number of sites and risked losing all their money.
“These are people who have been successful in other business, and who have just bought land with no due diligence in the hope of making a lot of money in three to four years’ time by flipping the site prior to settlement,” he told The Australian Financial Review.
And there’s been a strong rise in people taking to gumtree to offload their properties, as real estate in general takes longer to sell:
A rising number of land owners in Victoria are selling off-the-plan housing lots on classified advertisement and community website Gumtree ahead of their expected settlements next year.
In the first three weeks of October, nearly 50 advertisements have been uploaded – more than twice the number in September – offering sales of lots in communities like Dahua Group’s Orchard project in Tarneit, Satterley Property Group’s Botanical in Mickleham, MAB’s Merrifield in Mickleham and Stockland’s Edgebrook Community in Clyde and Cloverton in Kalkallo.
Other land sites for sale are in places such as Greenvale, Melton, Lyndhurst and new suburb Weir Views, all of which are about 20 to 35 kilometres from the Melbourne CBD.
I’d be keeping a wary eye on this space.
I don’t think the growth corridors of Western Melbourne were bad places to invest, if you were genuinely investing. I think they’ll be decent going forward.
And I wouldn’t say no to buying there now… but I would be driving a very hard bargain with eyes wide open.
But if the flipping spree was as widespread as they say it was (possibly isn’t, who knows), then some extra diligence really is in order.
Don’t say I didn’t warn you.