Frequently Asked Questions

How will rising interest rates affect the market?

Real estate markets are cyclical.  Rising interest rates usually signals a slowdown in the market.  The last 6 years has seen what is known as a "sellers" market.  This simply means that there are more buyers than sellers, and hence prices go up.  As rates go up, the balance swings the other way with more properties available for sale than there are buyers.  The result of this change is that prices flatten out, and in some cases go down.

Does this mean that it's a bad time to invest in real estate?

Certainly not.  Whilst we may not see the same rates of capital growth, there will be more buying opportunities for the astute purchaser.  The old saying is that "you buy in gloom and sell in boom".  Difficult markets are when the serious investors make their money buying from desperate sellers.

What are the benefits of renovating as opposed to the traditional "buy and hold" method?

Firstly, there is nothing wrong with "buy and hold".  The downside to this method is that you need the market momentum to make capital gains.  Therefore, once the market slows down, it may take quite a few years before you make further capital gains.

On the other hand, a buy and renovate method allows you to add instant capital gains, and increased rental returns in virtually any market.  This means that you can continue to accumulate properties without having to rely on the market cycle.

Why do I need a game plan?

Investing in real estate is no different to running a business.  Therefore you should treat it as a business, and develop a business plan.  

What is the biggest mistake I can make when getting started?

Not doing your research! You need to spend some time learning market values, neighborhoods, and how to estimate repair costs. All of this is necessary to avoid overpaying for properties and buying in the wrong neighborhoods.

Do I need special knowledge or skills in  renovation?

Renovating for profit does require knowledge in certain areas, all of which are covered in the book . However, you can still profit from this type of investing, without having any "handyman" skills.

But don’t you need to do all of the work yourself in order to make a profit?

Yes it is true that you can save money by doing the work yourself.  However, in the chapter on "Leverage" I refer to the use of time leverage.  It would be silly to save $20 per hour if you earn more than that!  You may also be better off spending your time finding deals.

Surely the use of builders will eat up my profits?

The key is to factor these costs into the purchase price. When I calculate my ideal purchase price, I factor in all costs and profit margin.

Is the purchase price crucial to my success?

Absolutely! You should always pay a "wholesale" price, add value with a quick renovation and then sell at full retail value.

How Do you buy properties at "Wholesale" price?

I guess the the term "wholesale" is a bit misleading.  What I really mean is that you should buy at a price that is below fair market value.  To do this, you will need to find distressed or desperate sellers, and then negotiate a good price.

Doesn't it make sense to hold the properties instead of selling?

This will depend on your personal objectives.  If you want to build a portfolio of properties and take advantage of future gains, then hold them by all means.  On the other hand, I don't have a problem with cashing out on a property if the profit is good, or if my objective is to create an income stream from trading properties.  

What is your criteria in deciding whether to sell or hold?

I only hold a property if I can redraw my initial cash outlays and it is either cash-flow positive or neutral.  These days, the property must be at least cash-flow neutral at 80% LVR.  Having been caught out at 90% LVR when interest rates were at 18.5% has taught me a valuable lesson: Negative gearing is a bit like margin lending- fantastic when the market is going up, but deadly when it goes down.  You see, like any business, cash-flow is king.  Without it you may be forced to sell when the market is bad and realize some serious losses.

Can I renovate for profit part-time?

Unless you are able to bank a year's wages to see you through, I strongly recommend that you start off on a part time basis.  Remember that it could take up to 6 months from the purchase date until you see any money.  Running it as a part time business is also a great way to leverage your time.  You can create an additional income stream.

What about as a full-time business?

If renovating is your passion, then go for it!  Be sure to understand the financial implications (see previous question) before deciding to quit your job.