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Wholesale Real Estate: Pros and Cons Every Investor Should Know
147 Plays1 month ago
What if you could buy a property today that's already worth $50K–$100K more than you paid? In this episode, investment strategist Chris McNulty from Lucid Property Investments reveals three proven wholesale property strategies that help you create equity from day one—without relying on market growth. Learn how to spot undervalued opportunities, avoid common investment mistakes, and gain an edge in the 2025 property market.
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Transcript
2025 Property Success: Value Creation Over Growth
00:00:00
Speaker
What if I told you you could buy a property today? It's already worth 50 to $100,000 more than what you paid for it. Well, in 2025, the key to success in property isn't waiting for growth. It's creating value upfront before you even settle on it. We're gonna show you how wholesale property strategies can help you unlock opportunities that other people miss.
Instant Equity Strategies with Chris McNulty
00:00:18
Speaker
I've got Chris McNulty here from Lucid Property Investments. He is an investment strategist, a complete pro, been doing it for 15 years, and he's gonna take us through three proven strategies that are gonna help you create instant equity in property.
Australian Housing Market Guide
00:00:31
Speaker
Welcome to the Buy In Your First Home Podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home. From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your fingertips. So let's take the first step towards unlocking the door to your new home.
Wholesale Property Edge in 2025
00:00:56
Speaker
Today we're going to explore how wholesale property opportunities can give you an edge in 2025 without relying on risky strategies or complicated property developments. So Chris, when we talk about wholesale property, what what does that actually mean?
Types of Property: Retail, Vanilla, Wholesale
00:01:07
Speaker
Well, talk about wholesale property. Like when I look at property, I see that there's really three types of property. I break them down into the first one being retail.
00:01:17
Speaker
which is your standard sort of house and land package sold by an investment group, all shiny, all the marketing attached to it. You're going to pay top dollar for something like that. It doesn't make it a bad investment, but you're paying full dollar, full retail prices for it. The second one is what I call vanilla, which is your standard just house or unit in the suburbs. Anybody can sort of go and buy themselves off the standard real estate agent. um Again, not a bad investment, but it's not going to break any yeah any any real records. And the third type is what I call wholesale. Wholesale for me is something that's, it's a little bit more complex. There's more to it than meets the eyes. There's layers to it. um The best way that I describe it to clients is imagine
00:02:08
Speaker
You know, Warren Buffett is out there and he's he's looking at this company and he's gonna buy it for $500 million. dollars He's buying it for $500 million dollars because he's worked out that the underlying value of the of the business is actually $600 million. dollars And he's done the research to determine that and had all the people looking at it and they're confident to go, this $500 million dollars business is worth 600. And that's kind of what I do when it comes to property doing the wholesale investment strategies.
00:02:37
Speaker
Yeah, because it's really, I guess, some of the stuff I've seen you do is like you're actually creating value at the time of purchase. You're not relying on the market.
Critique of Market Growth Reliance
00:02:44
Speaker
You know, there's always people talking about, oh, you got to look at the data and the fundamentals and and that stuff. And you you look at that, but you you sort of look beyond that. So why does it work? Like, why is it a game changer compared to just buying something in Perth and then hoping it's going to go up by 20% in the next year, crossing your fingers, you know?
00:03:00
Speaker
Yeah, yeah. Well, look, that's always been this strategy is the um hope and pray truthfully as well. like For the last 20, probably ah close to 25 years now in Australia, people have been fortunate that values have increased for every pretty much every property asset. And so that strategy of just buy something, wait has been effective.
Benefits of Wholesale Strategies
00:03:22
Speaker
um and I think it's made people lazy and it's also made people expectant that that will continue and it might continue but when I look at property I think well sure that's great um that's fantastic if that growth is there but how about we do better than that and let's buy something for more than what it's actually worth and so why it works is I guess There's three reasons why the wholesale strategy works. um you know The first one is, and this is all contingent on buying the right property as well. you know It's not just a, oh great, I'll just go out there and do this. It's very much contingent on the right ah the exact right property. But yeah, the first thing is you end up with instant equity of, you've just described, ah it's worth more than what you pay for it. um There's this value in there that's higher than that. The second one is,
00:04:09
Speaker
that the appreciation of the property is likely to be faster than what a regular house would be. ah The main reason for that being that if the underlying value of the asset is actually higher than your purchase price, the capital growth starts from the value of the property, not your purchase price. So if you've paid $800,000 for a property that has an underlying value of 950, the capital growth actually starts from that 950,
00:04:39
Speaker
rather than the 800. And so the the magic of compound indra interest will sort of take care of the rest. And the third one, and again, this is super contingent on it being the right property, is if you're doing it right, undertaking a strategy like that should have not really any more risk than buying a regular house.
00:04:56
Speaker
it should have the same sort of risk profile like it's easy i think it's very easy to get greater returns in property however in doing that i see my strategies involved taking much higher risks and so for me if you can do it without taking strong risks then you know that's just a game changer All right, so that that sounds great, like fundamentally, but like, what
Wholesale Strategy Property Examples
00:05:18
Speaker
does it actually look like? You sort of like going to an old lady, like haggling her down and getting it under, like, yeah, what are some examples of this where, you know, what does that actually look like? You know, it's funny. It's um where you say the haggling the old lady to get it on the market value. It's it's funny because it's quite it's quite the opposite. It's like, because we're looking at these properties in such depth, it's
00:05:39
Speaker
More often than not they just sitting there on the open market ready to go and people are just not looking at it quite the same way and so something for us something might look fairly expensive for somebody else at nine hundred thousand dollars but because the way we're looking at it at nine hundred thousand dollars it's a steal so i'll give you some actual examples of it. um yeah know I'll start with, yeah we we spoke about three different types of of properties, um different types of strategies, and I'll sort of run through each of them now. and The first one being sort of a regular dual occupancy ah strategy.
00:06:10
Speaker
And there was a property where we paid $780,000 for it. The rent on that house was $625 a week, which gets you a, I think the the rental return on that was 4.2%, which is, you know, it's not a crazy rental return, but it's also not bad by any stretch.
00:06:29
Speaker
So once we've finished the dual occupancy project, the we we valued the existing house at $690,000 and the new house at $710,000. So we've got sort of $1.4 million dollars of value um and then the construction costs on that with $370,000.
00:06:47
Speaker
So 380, 380. And so we're looking at it and you go, all right, well, there's sort of $1.02 million dollars in value there, a value uplift of, I think it was $230,000. So that's one example of it. um Another example is is using a um ah subdivision.
00:07:03
Speaker
a future subdivision strategy. There was one down in ah in Victoria Point that we recently purchased for $1.1 million. dollars Once the client actually rented it, we got $1,000 a week. So that was 4.7% yield. So you know just on its own, that rental yield is actually much better than what I find most properties are getting anyway to start with. So I think that was 4.7%.
00:07:28
Speaker
But with this one, it had a ability to do a subdivision where you retain the existing house at the front and built a block out the back. Now the block out the back was probably worth $550,000. The house on completion of the projects, it was quite a nice house with water views, ah worth about $900,000. So we've got we've created assets there of $1.45 million. dollars And then the cost to do that is about 150,000. And so we're looking at $1.3 million dollars worth of value and in in such um for a purchase price of 1.1.
00:08:07
Speaker
and I've seen those ones done over the years where like, you know, if you get the right block, you almost get the house at the front free. Like in in something like that, like you you sort of buying it, you can sell, you know, the house at the front, almost for what you paid digital block, like, and and you're creating that value upfront. It's incredible. With a lot of market growth and luck and stuff like that, that's definitely possible. And that's kind of the idea on it is that, that that's, that that value can be created.
00:08:35
Speaker
over that, over the long term
Long-term Value: Renting with Development Potential
00:08:37
Speaker
as well. um But it all comes down to buying right at the start, there's plenty of opportunities where that doesn't happen. And but most of them like 95% of the properties we look at, we look at and go, Oh, okay, like you can see how this strategy could work, but the numbers just don't work. And it's either, you know, speculation is just rife, that people are paying too much for it. Or it's such that it just like the the physical characteristics of the property don't really lend themselves to the strategy that we're doing. So it's it's an incredibly thin landing strip that we're working with here, which makes it terribly difficult. um And im yeah, I feel sorry for my analysts in the office so of of what I forced them to do and and how how hard it is to actually identify the right property. But if you can get it right,
00:09:27
Speaker
It can really work. Yeah. And there was another one you helped a client of ours with recently, a property in Brisbane for under $700,000 on 800 square meters that you can put a house behind. And the interesting thing with with that particular deal was like, you didn't necessarily have to develop it. Kind of like these ones you're highlighting, like you can, there's nothing with some of the opportunities that you've been able to find with this wholesale strategy, you can just buy it as an investment.
00:09:51
Speaker
It's a $700,000 house in Brisbane, which is nuts, but you can just sit on it as a rental. like You don't need to develop it, but in five years, like once you've got the money, once you get the savings, you can choose to do that. so You find these opportunities where you can make better use of properties. which is That's why I really love some of the strategies you've got there because they're much more creative and much more um there's a lot more you can do, more upside.
00:10:15
Speaker
compared to just yeah like some of these people might just go like well look at the data by an investment in king of roy with the six percent yield like you can't make better use of that like there's there's nothing else you can do that just printed well yeah it's interesting to say that as well like you know we did this ah little exercise in the office it was about it was happening a few weeks ago.
00:10:33
Speaker
and And what we did was we said, for me and the two analysts there, we sort of said, whenever a Facebook ad comes to us that's claiming to have the hotspot secret, um all of that, download it and then make a list of what the hotspot was and make the end result of that project was that you could pretty much just throw a dartboard at Australia. Like there was no consensus whatsoever about where these hotspots really were, which to me,
00:11:02
Speaker
I don't know. It just, yeah, that's, that's working. It is. And, and that's why I think I like you with some of your strategies too. Like you become a bit of a, you're an area expert. Like you're not going all around Australia. Like you, you sort of focusing in around Brisbane, right? Like around, yeah, specifically Brisbane, you know, the zoning, you know, what you can do more with. Like it's, yeah, it's pretty interesting.
Rooming Accommodation: Boosting Yield
00:11:24
Speaker
and And that's what's given us the opportunity to be good at this and actually get the results because we only focus on these value up with type strategies. um We've got very good at it. There's only really five or six strategies that we look at at one time. We've got acquisition systems. so Really our business is ah is a research and analysis machine that we just happen to buy property out of the results of that research and analysis.
00:11:51
Speaker
And because we're so hyper focused on the strategies, we've got that ability to look at a property instantly and just go ah within a minute or two, we know what that's worth. And again, because we're so hyper focused, we're looking at everything. We know all the agents, we see every single property that's there. And so we're able to sort of cherry pick the best ones.
00:12:13
Speaker
and And so on that, so um I think we through yeah the first strategy, obviously the the geo occupancy, the second, the split up, what was the third strategy there that you sort of look at? ah So it was the roaming accommodation and that's no secret um out there that everyone's doing roaming accommodation. And not to be fair, the first two strategies aren't exactly a secret either.
00:12:32
Speaker
Like that property at Victoria Point I explained, like there was no secret you could do the subdivision. It was sitting there in the ad. It was one of the first things about subdivision opportunity. So it's not like I'm knowing that these properties are subdivision opportunities when others don't. um Almost all the properties we're buying, everybody knows that that's... the use. It's just the way that we're looking at it and our understanding of the numbers that changes it. And so rooming accommodation is is another really interesting strategy. I'm not sure if you've if you've spoken about it on the on the channel before, but and rooming accommodation is essentially a house that has five separate
00:13:11
Speaker
studios that are somewhere between 30 and 40 square meters each, that people live in a single occupancy sort of stuff. And it's designed to be a step above a share house. But what's great about it is because there' there's five rooms in these houses, you can get much greater rent. So we're talking sort of $400 a week for each each house each in creating income of over $100,000 gross per house.
00:13:39
Speaker
that nets out to be, once you take away costs, probably somewhere in that 70s, maybe 75,000, 80,000, depending on where the rents are at. And to create that, you know you want to go buying a block of land, say $650,000, building a house on it for $550,000, you've got costs there direct of $1.2 million. dollars And so from those $1.2 million dollars of costs,
00:14:04
Speaker
The value at the end of that um is when we're seeing prices at the very low end being one point three million dollars and then we're saying one point four million dollars in the up and so there's this value add opportunity where you complete the project. And the property is worth two hundred thousand dollars more than what you've done and you know that's in contrast to.
00:14:26
Speaker
A strategy that's somewhat similar is I look at like the dual key thing and there's a lot of those out in in Logan and whatever and it's like, yeah, they break really good rent. You can build one of those for probably $800,000 or so, um maybe $85900, I don't know, because I don't look at them. I don't think they're particularly good investments. I don't have the numbers that clear. um and You might get $1000 a week, but the trick with those that that I think limits the potential is the end value on completion is still only 85900 what you've paid for it. And so yeah, you're getting better rent, but you haven't actually created any value. And I guess that probably brings us to like some of the mistakes you've probably seen people make over the areas. Like I see it where people sometimes just buy because of a price point. Like I can only afford to buy something for $300,000. So you go really far in regional, not looking at the fundamentals, you know, possibly overpaying. Like what are some of the mistakes you've seen people do in these strategies or or just generally like, you know, when they're investing?
00:15:26
Speaker
Definitely, I think the you don't know what you don't know principle is the number one I see especially in development style, prop well, you know I call them development style properties, but properties that have got some sort of development potential. I see a lot of people, and I say industry professionals as well, look at these properties and see that development potential, and they look at it in a way that so is suggestive that it's a feature of the property, that it's like, oh, this property is great because it's got a pool, it's got a view, and it's got future.
00:16:02
Speaker
development potential, like there's there's this some zoning in Morton Bay called, what is it, Next Generation Urban. And I see that a lot. People are just, oh yeah, we bought it and it's got this future development potential. But it's like, okay, but is that relevant? you know like you could Technically, you could knock over a $500 million dollars office building and rebuild it and it's technically a development site. Obviously, you wouldn't do that.
00:16:29
Speaker
um And I guess an example of that is you think about, i may imagine this fictitious house at Everton Park. It's a half-decent house. It's on 800 metres of land. um It's $1.5 million. dollars The blocks of land, once completed, are going to be worth say 700, probably a bit more than that. But for argument's sake, we'll say 700 grand. So you've got $1.4 million dollars is what the end value of that would be. Then you've got to do a subdivision that's another 150. You're down to $1.25 million dollars on a property that you've paid $1.5 million for and you go, is that developer is that actually worth anything at all?
Challenges in Wholesale Strategy
00:17:06
Speaker
And the answer is no, not really. And so that's why I say 95% of the properties that we look at are like that. And that's why i just I want to caution so much that
00:17:17
Speaker
that This wholesale strategy is not a magic trick. It's not, ah oh great, I'll just buy one of these um wholesale properties that Chris spoke about and we'll be golden. it's No, it's it's not at all like that. um And yeah, I'll give another example if we've um if you're interested, um that I think will really explain it well. And this is actually a real life example. I i had a client, um by a property for $650,000 at the the dead of COVID. um It was yeah a time when you could really pick up sites for good value. He then um got his approval to do a two lot subdivision on it. And he was planning to go and do that subdivision and sell it. um that it's Some blocks next door at that time, such as the property growth in that time, three years later, was selling for about $650,000.
00:18:10
Speaker
And so if you go, all right, those blocks at $650,000 each, $1.3 million, dollars because he'd had the approval, let's say it's Be Kind and say it's 100 grand through the project. So you're down to $1.2 million. dollars And so if he was to sell that for $1.2 million, dollars it would have been an amazing return on the 650.
00:18:29
Speaker
However, he got a phone call from an agent saying, oh, we've got this buyer that's looking for a subdivision property is yours for sale. And, you know, he and I spoke about it and I was like, well, you know, see what they say. Came back through some negotiation. They ended up offering him one point two five million dollars for the site, which he obviously took. And you go, right. So somebody just paid one point two five million dollars for that site, then paid another hundred brand.
00:18:58
Speaker
to essentially create blocks worth 6.75 and had to do the work to do it, the extra holding costs, whatever. And they could have just gone next door and bought blocks for 6.50. And you go, hmm, those are the mistakes they see. It happens all the time. um And it comes from a ah mix of simply just not understanding how property works. um But then secondly as well, just miss valuations and misunderstanding of costs. Someone might say, how much does it cost to do a subdivision?
00:19:27
Speaker
ah infrastructure charges a 35 brand and you know, what do you to do got to connect some services might be 60 K. Yeah, those are the mistakes that I see people make. And that's what I like, I guess, where you add value is that a you're an area expert, like you know, in the Morton Bay Council, what you can do in Redland in Brisbane City Council, like, I think that's a big mistake people make as well as not being clear on their strategy.
00:19:52
Speaker
so and That's one thing I know you've helped clients of ours and people in the process is you'll sit down and be like, well, here's all the strategies. like What are you wanting to achieve? but like What do you want to
Opportunities in Complex Properties
00:20:02
Speaker
do? Do you want the cash flow? yeah It's where the rooming thing might make sense. Do you want capital growth? Do you want that value? Straight away, the splitter might make sense. You want something you can hold and extract value. so i guess like yeah know one thing you say and like there's so much going on but you say like you know complexity makes opportunity potentially like it's it's one of your big sort of core principles I guess like what do you but what do you mean by that like how does it help yeah it's why it's my it's my it's the core thing with what I do and complexity equals opportunity and I'll try to explain it without taking too long but so the complexity equals opportunity thing is
00:20:43
Speaker
Essentially, that if you imagine, say you go into a new land estate, right ah you're in a new land estate, all the blocks of land more or less are similar. There might be some with views, there might be a slightly bigger land area, whatever, the width might be a little more, but In short, there's been so many sales, so many properties for sale that the way to understand the value of that is pretty easy. like I remember when I did my property economics degree, the first valuation subject we did, they sent us out to Forest Lake when it was actually being developed, um and we had to value a block of land. And they did it because it was just so simplistic, it was so obvious, and nobody could really get that wrong.
00:21:24
Speaker
um And so that's where we started it. And and again, you can't it's difficult to to get that wrong wrong. And the potential variance in the value, because it's so simple and obvious, is really small. um you know Someone might look at that property and go, oh, that block of land's worth $510,000 at the low end. And then someone else might say it's worth $530,000 at the high end. And so based on that,
00:21:53
Speaker
There's not a lot of room to get a bargain. There's not a lot of room to get a deal because even if you do really well, you're only going to save yourself $10,000 or something. Now track to a far more complex property that's got some sort of physical development constraints. It's got multiple value drivers going on. There's no direct comparable sales whatsoever. Even the value of the of the stuff on completion is a little bit finicky and unsure. There's going to be a massive range as to what that value is going to be and how someone's going to see it. and so you know Someone might see it it at the lowest point and go, oh, that's only worth $700,000 to me. and Someone else could look at it and think,
00:22:38
Speaker
and and making incorrect assumptions could say, oh, that's worth $900,000. And so that's the core principle of my entire business is we just sit there and we are just an analysis machine. And i you know I said that earlier, and I'll run you even through us the simple three steps we do is you know step one is identifying which strategies are even possible for this stuff. The second one is Doing all the research and analyzing all the properties to determine, well, what what's the criteria that would make this a good one? And understanding the value. And then the third part, and that's why I'm even reticent to really even call myself in a buyer's agent or anything like that, because it's like, I'm really just picking the right property and going, this is the one. It's much more, I'm just a researcher.
00:23:23
Speaker
And so I'm going, okay, here's the best one. And if you're understanding the values and the research to such extent, it's just so obvious which are the ones that are at that bottom end of the of the value range that represent really good value. And then we go and buy those ones for our clients.
00:23:40
Speaker
it's Simple, the the the idea of it, the execution of it, obviously a lot more complex, but that's kind of it. And I think that makes sense, right? Well, and I think also like the bit that people miss and like, I'll have people contact us like, yeah, I found the best deal. Like just come across something, they find one deal, they're ready to pull the trigger. But like in reality, like I'm sure your team is rolling through like tens or hundreds of deals before you find the right one. Like I've met a property developer in Sydney,
00:24:08
Speaker
He said he bought one site this year, but went through 50 to get to that one site. like It just takes that much time. It's like a lot of number crunching. and and I guess that's where you can help compared to someone on the street trying to do it themselves. like you You can definitely do it yourself, but it's a lot of time. It's a lot of analysis. You're competing with me. That's the thing, yeah.
00:24:29
Speaker
Yeah, and that's it. like it's it's hard It's hard because yeah we're we're experts at it. We only do this. I've got a team of two analysts that are in there all day, every day, just crunching numbers. We've got these Google Sheets that are just full of every property that comes on. The minute that property comes along, we're analyzing it, looking at it. um off-putting offers in if we think that it's worthwhile. Same with the off-markets. it's We're in contact with all of the agents in our areas. I've actually got a guy that full-time is just pretty much sourcing off-market properties um and doing that.
00:25:04
Speaker
and so yeah that's We're only able to create these outcomes and get the best ones because the volume of properties we're looking at is so high. Like, I have a lot of my clients come and say, like, how do you even find these? And that's the kind of mistake that it goes to is when they're so hard to purchase, people look at them and they're saying, oh, I finally found a one that matches this criteria. And it's almost like this relief. And it's like, oh, great. I'll just get it for the best price I can.
00:25:35
Speaker
And it's like, well, no. and Sorry, you should have looked at 50 of these to get to the one. And we're probably not at that point of looking at 50 to buy one, but it's probably 25, 20 to decide the right one. And each of those 24 that we reject, someone else's border, most often thinking, oh, great, I've got this you know future development thing. This is going to be great.
00:25:59
Speaker
And I just ah go, oh. We often say in the office, we'll come in on a Monday and and look at the sales that have happened on the weekend and we'll go, who the hell bought that? Like, you've got to be kidding. Like, what were they thinking? Who is advising them? Scarily often it is buyer's agents um who go, oh, it looks like a good property. Yeah.
00:26:16
Speaker
Future development can't go wrong. You can. You really can. So yeah. And so I guess tell us more like I've worked with you a bit with clients and like I'm always reluctant with buyer's agents like a lot of people advertise that we can get off market and and I genuinely believe with most buyers agents like that's not True. Like if there's if there's a mum and dad trying to buy a house, like a lot of us on market at the moment, unless it's multi-million dollar properties, like it's on there, there's not that much opportunity for off market in certain segments. In your segment with developments, like I've seen it firsthand, you actually do get off market deals before they're listing
00:26:53
Speaker
to sort of run your rule over it. But yeah, guys, tell me a bit more about Lucid, like how you guys help, how it works and and how people can get in contact
Lucid Property Investments Overview
00:27:01
Speaker
as well. Yeah, look, we're um we're 100% referral based business. And that's always how I design this. Like for me, it's really important that that I have a business where people trust me enough to send clients my way. um I don't. So based on that, I have a pretty low um digital footprint. Our Instagram is pretty much just says We don't do Instagram because we're spending our time doing the deals. Our website is probably the best place to get in contact, um and that's LucidPI.com, so LucidPI for property investments. Similarly as well, if you're listening to this and wanting to understand a little bit more about the way that I look at properties and the the concepts that I use, I've written probably a dozen or so
00:27:50
Speaker
essay style short pieces on LinkedIn that you can go and look at and you know if you're an investor looking to pull the trigger on something and and wanting to get know better than market returns and start ahead, get in contact with us and we'll help you out.
00:28:08
Speaker
Yeah, we'll include all the links below. um Yeah, like Chris said, it's it's investing. So if your first time home buyer, trying to buy a house to live in, not Chris's sort of we say you know clients, it's if you're an investor looking to grow, looking to beat the market returns potentially with some of these wholesale strategies, like really powerful stuff. Definitely recommend checking out his LinkedIn. He's got a couple of recent deals he's done as well on there, which is just like crazy. And it's stuff that happened this year, 2024.
00:28:35
Speaker
It's not things from five years ago that some buyers age just advertised and they bought something in 2019 and it's tripled in value and stuff. like It's actually happened this year. So yeah, I got some value out of that. I'm going to include all the links below to Chris. Thank you so much for joining us, mate. And yeah, until next time, we'll see you guys. Thanks so much.