Gippslandia #5 - Home Department - House Flippin

Flippin’ houses.

The Gippsland property market is heating up. Opportunities to purchase an ‘average’ place with good bones and potential, then knuckling down to cut and polish that raw gem into a jewel, before selling it again for a healthy increase apparently abound. Like many people, we’re interested in understanding how ‘house flipping’ actually works, having the concept demystified and the potential of such ventures outlined for us. Gratefully, the fine realtors, Peter Clark and Chris Martin were happy to share their wealth of knowledge.

Peter Clark of Clark NextRE (Warragul & Drouin) explains the concept of house flipping and why his patch, West Gippsland, is a prime place to invest.

House-flipping isn’t something that’s only reserved to the high-end, affluent suburbs of our bustling capital cities. Regional areas can provide very lucrative opportunities if you’re willing to study and work the market. Yes, I said ‘study’ and ‘work’! Be careful not to fall into the trap of watching reality TV shows and thinking that turning a profit on real estate is a glamorous and easy task. The real reality is very different indeed. You need to know your market, understand the area’s trends and be aware of the “real” costs associated in doing the work required to complete your project is paramount. You may want to buy into the legends of ‘a friend’ who once made a killing doing very little. Yes, I’m sure that quite a few people have been in the right place at the right time and gotten lucky (do you ever hear about the ones that weren’t?), but with so much money involved, do you really want to rely on luck?

Certain parts of Gippsland host areas where we see house-flipping occurring on a regular basis and many of those that study their market closely are doing very well. There are undoubtedly higher performing areas for those seeking higher capital gains and a larger marketplace, but many people are quick to forget that many of the areas that exhibit rapid dramatic spikes in the market, can also often see the similar, but in the negative!

Many areas of Gippsland have proven to be constantly steady in both capital gains and rental turnover performance, which simply means that it’s easier to predict the market – making the calculation of return on investment easier and often less risky. Certain towns have performed better than others, however, in recent months many have seen enviable solid increases in capital gains and strong spikes in inquiry levels – an added bonus to our already strong performing market.

Affordability is another great benefit of our region. With a large percentage of greater Melbourne now boasting median house prices in excess of $1 million dollars, it makes ours (typically between $185K (Moe) and $390K (Drouin)) a modest investment indeed. Mathematically, a home in a high median price suburb may stand a chance of producing a greater dollar return, but for many of us, it’s simply an unaffordable option. Our comparatively more affordable properties actually allow us the opportunity to enter our own exciting real estate adventure. Our office has recently assisted a property investor to flip a home in Warragul in under seven months for a net profit of approximately $80,000. That’s proof in the merits of our regional flipping market right there.

Warragul and Drouin have become a bit of a real estate beacon in the Gippsland real estate market. The increasing population of Melbourne’s eastern suburbs and the ever-growing urban sprawl has resulted in Warragul now being a commutable distance to the city for many people. Located along the train line and freeway, while also boasting some enviable schools and medical facilities, have made the towns a very popular choice for those who want to escape the city or simply want to afford a more desirable lifestyle.

With occupancy rates nearing 100% (certainly for our offices) and comparable yields to other markets, it’s also become a popular choice for many investors. Possibly the area’s greatest asset is that it simply doesn’t rely on any one single driving factor or influence to drive the market. People choose to buy here to get away from Melbourne, closer to Melbourne or for affordability, lifestyle, work, a tree change, schooling and so on. Not relying on single influencing factor creates strength and stability in our market, which is very enviable.

Now Chris Martin of King and Heath First National (Bairnsdale, Lakes Entrance, Metung and Paynesville) touts the numerous benefits of investing in East Gippsland.

East Gippsland is the place that every tree-changer and seachanger imagines when they want to make the move from the city. Pristine lakes, secluded surf beaches, mountains, an abundance of wilderness and national parks to explore, and a collection of cosy waterfront villages where boating is part of the lifestyle.

Situated around 3.5 hours from Melbourne, the CBD of East Gippsland is the town of Bairnsdale with around 14,000 residents. Bairnsdale is often referred to as the gateway to the Gippsland Lakes and is a short drive from villages such as Paynesville and Metung, and the better known holiday destination of Lakes Entrance.

For all of its beauty though, is it a great place to live?

In terms of employment opportunities, the region has a range of industries, with strengths in food manufacturing, agriculture and tourism. Large businesses including Patties Food, manufacturers of Four’n Twenty Pies; and Vegco, the largest fresh-cut salad producers in Australia call Bairnsdale, ‘home’. Additionally, the Lindenow flats west of Bairnsdale produce an abundance of vegetables and salad products distributed Australia-wide.

East Gippsland has a thriving corporate environment with a large number of small to medium-sized enterprises operating in the region; and a large Government sector that manages health care, national and state reserves; local waterways and other important services.

House prices in Bairnsdale are very affordable, with a median house price of $265,000 as of July 2017, and a percentage growth of 23.93% over the last 10 years, according to RP Data. Houses and units are also very popular with investors with an average vacancy rate of around 2-3% not uncommon throughout the region. These properties will generally return 5% – 8% gross depending upon condition and location.

‘House flipping’ is not common in the region. Most people are buying for their own living requirements or as investments, with a large percentage of investment properties purchased by those looking to retire in the area in future.

The surging market in Melbourne and outer areas have seen growth from this style of buyer who has taken advantage of the significant increase in the value of their property and securing a piece of the East Gippsland area for their future. This demographic of buyer has been very strong in the areas around the water.

The First Home Buyers Grant (FHBG) has a significant impact on buyers in this market in the region. As the value of land is very low compared to other areas, the $20,000 grant to build a home comprises so much more of the total package price of the end product. This has certainly influenced many First Home Buyers to favour building over buying. We believe this trend will continue for the foreseeable future.

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