No doubt you’re familiar with the TV reality show The Block, hosted by Channel 9 (in Victoria). The reality show is currently running another series at a site in St Kilda, Melbourne. The show has attracted a very large following (audience) over the years, making it a very profitable venture for the Channel 9 network. If you’re a fan of The Block, and a fan of property as an investment vehicle, then perhaps it’s a timely reminder to ensure the success of the show does not derail you as a property investor and does not cost you in long-term wealth?
Let me explain…
There are many self-made multi-millionaires that have achieved true financial freedom from property investing, however you would struggle to find a property flipper that has attained the same level of wealth or financial freedom.
I regularly get approached by prospective clients wanting to make a squillion dollars from property, thinking that flipping is the way to riches. You see, these guys watch a TV reality show like The Block and get motivated to do the same, particularly when auction day arrives and record prices are achieved.
The model seems easy. Buy a run-down property, renovate it, then flip it for a profit. Repeat this several times a year, and you’re on the road to riches. Sounds easy, right?
If this is your strategy, I’m here to tell you that you have a very small chance to ever become a self-made multi-millionaire from property, and that you’re unlikely to reach true financial freedom from property.
Wealth is a measure of your holdings. Flipping is a transactional business that generates a profit (and cash flow) if you get it right. But the reality is that you cannot save your way to wealth. In this game, the tortoise usually wins the race.
The problem with TV reality shows like The Block is that they build on your emotion, as they want you (as the spectator) to tune in and watch it all unfold. This is their primary objective as it builds ratings, which in turn generates substantial revenue for Channel 9 as they leverage off their ratings to sell air time.
You see the significant revenue achieved by the network is not made from flipping a run-down property, but from the advertising space (run during the commercial breaks) paid by businesses to reach their target audience.
Now don’t get me wrong, I’m not saying that you can’t run a successful business renovating properties for a profit, but if you want to create significant wealth through the power of property, and through the use of productive debt, then time in the market is the secret. The power of compounding is the key to creating significant wealth through the power of property and to achieve true financial freedom.
If you think about it, The Block TV show receives significant marketing leverage by airing the episodes on TV around Australia, achieving significant reach to a large audience. Even if you thought renovating for profit is a bullet proof model and will make you millions, there is no way you can afford the same marketing budget (reach) that The Block achieves through the air time it has on TV.
If you’re confused and don’t know what you’re best suited to, perhaps ask yourself the following questions to test whether you can replicate the success of The Block:
- Do I have the necessary skill to renovate for profit?
- How much time do I have on my hands to keep on top of tradesmen to turn up and do the work?
- What is my risk tolerance?
- What is my borrowing capacity and what are my borrowing options?
- What’s easier to finance? A buy and hold property or a property to buy and flip?
- What are my funding sources?
- Do I have adequate financial buffers in place to cover the holding costs whilst I renovate? (such as mortgage repayments)
- What if the market has a different opinion on the final value of my renovated property?
You get the drill. Flipping properties for profit is a full-time business that works if you know what you’re doing, you buy the right properties at the right price, and you can devote all your time and energy to profit from it.
If you’re like most people and are time poor, then the boring way is often the most efficient and most effective method, so long as you are patient and let the market do all the heavy lifting.
In closing, I want to remind you of this. “Wealth is the transfer from the impatient to the patient”…as regularly quoted by the world’s most successful investor and billionaire, Warren Buffet.
I hope my blog today gives you food for thought and clears up any misconception that you may have about property, and what works and what doesn’t.
Disclaimer: The Information is general in nature and does not take into account your particular investment objectives or financial situation. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the information without first seeking expert financial advice. Your full financial needs and requirements would need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.