Do TV shows like The Block glamorise property flipping?
Published 4:52 am 18 Apr 2019
Do you think that TV shows like The Block glamorise property flipping, and what are the real chances, if you took your hand to it, that you’d actually flop? DG Institute Founder and CEO, Dominique Grubisa explains what it’s really like at the coalface, flipping properties, where the risks and rewards lie, and how you can make sure you get the best possible result if that’s the strategy for you.
I often get asked when I go around the country speaking, is property renovation as easy as they make it look on TV shows like The Block? And the answer is, no. It’s actually really, really challenging.
I know this personally because I see a lot of people in our community who just roll up their sleeves and go at it, and I see the blockages and the issues that they have with doing it. I personally had the journey of starting out, the key is getting lucky in property, turning to try and manufacture growth and profit by flipping properties, and no getting into hot water doing that along the way. These risks come with not knowing what you’re doing.
Let’s look at what we’re really doing here, The Block, it’s glamorised for television, and even then, it often looks hard. When you see shows like The Block, and they’re racing against the clock and they’re painting walls at midnight, because they’re in a rush to get it finished, that is kind of what it’s like at the coalface, because there are limited finite profits to be made in a renovation.
At the end of the day, every cent you spend is a cent less that you’re going to receive in profit. Yes, you’re turning something that’s already there into something better, but, the market is still quite savvy, so unless you’re building something that wasn’t there before from the ground up, if you’re just taking a house or a unit and turning it into a better version of itself. There’s a ceiling, there’s a cap on the sort of profit that you can make, because the the market will say, yeah, it’s a nice kitchen, it’s a newer kitchen, and yes, it’s a nicer bathroom, and there is a bit of a premium for that but I can go to Bunnings, I can paint walls, I can put floorboards down, this is what a new sink costs.
We generally get a feeling, and there are enough people out there doing renovation because of shows like The Block, that people know there’s a disparity in the market. People know, buyers say, ‘well, this is what the un-renovated version is worth and this is what the renovated product should be costing me,’ so that sort of benchmark in the market kind of sets our low point and our high point.
The challenges people face then are finding the property at the right price. Sometimes, especially in a booming market, the un-renovated version is almost as much as the renovated version, people price in the dream, and the blank canvas and the profit, and charge you that upfront, so there’s little profit to be made later on.
The other thing that happens is that when you’re flipping, the market can see what you paid for. It’s quite common now to know when you’re buying a property what the property sold for three months ago. People are informed and ask if the current owner only paid $500,000 for it, why should I be paying $800,000 for it now? I’ll only give them a little bit more than what they paid for it. The recent sale can sometimes pull the price down for you.
Other hazards are just not knowing what you’re doing, quoting or working out your numbers incorrectly, so that your profit is eaten away. The usual process that I see in successful property flipping is that people get it down to a well-oiled machine, like fine art that they can just pump properties through, and they’ve got their trades and they’ve got a system for doing it. If they don’t get those economies of scale, they end up spending a lot of their own time doing it.
That means rolling up their sleeves, painting walls at midnight, and by the end of it, they get exhausted, they say, wow, that was a lot of work but it took six months and you know what, I was making more money in my day job. Reason for that is that with renovation, there’s only a limited upside, so there’s a certain amount of pie, I call it pie, the profit in the deal. There’s only a certain amount of profit to go around. The more you pay other tradespeople to fulfill that role and save yourself time and sweat, the less profit there is in the deal for you.
That’s why renovators end up doing a lot of it themselves, they call it “sweat equity”, they’re earning their money by actually having to do the work, and not pay others, and that model often isn’t scalable unless you’re doing volume for profit. So, before you even start and dive in the deep end to be a flipper, work out your strategy, work out your numbers carefully. It’s the work you do beforehand that will yield the results in the end.
Abraham Lincoln once said: “If I had to cut down a tree, I could spend three hours hacking at it with a blunt axe, or I could spend an hour sharpening that axe and taking it down in two strokes.”
That’s what you should be doing, do your research right, get the knowledge, get the system set up, and then, you can run it through like a well-oiled machine when it comes to flipping properties.
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