By Rich Harvey, CEO & Founder, propertybuyer.com.au
Reality television has a lot to answer for – and I’m not just talking about ‘romance’ shows that only serve as a breeding ground for Instagram influencers.
Long-running renovation competitions have given aspiring property investors the wrong impression about what it takes to successfully flip a property. Those contestants might create some truly beautiful homes – mostly – but savvy investments they aren’t.
Case in point, a home from last year’s instalment of The Block, snapped up at a frenzied auction by a flashy entrepreneur who’s come to be known as ‘Lambo Guy’. He paid $4.3 million for the Hampton East pad, which boasts five bedrooms, four bathrooms and a range of whizbang features.
He just resold it – for $3.24 million. No small chunk of change, but a loss of more than $1 million in less than 12 months, and in a market where prices across Melbourne continue to edge upwards.
Lambo Guy didn’t mind, but that’s not the point. It’s a perfect illustration of the dangers involved with taking any kind of inspiration or advice from reality reno shows.
Worst house, best street?
The old saying goes that you should buy the worst house on the best street because with a bit of elbow grease, you can make a fortune.
There’s merit in that philosophy. A dump in a decent part of a popular suburb like Newtown or Brunswick or New Farm might be worth taking a closer look at. There’s a chance you could breathe new life into the place and find a buyer in a motivated market.
But nothing in life – or investing – is as black-and-white as that.
How dumpy is it? Are we talking about a cosmetic renovation or a major building project? What’s that going to cost and is the profit margin big enough to justify the works? Is there even a profit to be made?
Going in with eyes wide open
I’ve been a buyer’s agent for a long time, and I can’t tell you how many times over the years I’ve met someone with a horror story about a house of horrors they’ve bought.
There’s rising damp. The floor is collapsing. There’s major termite damage in the roof. You name it, I’ve heard about. And in far too many instances, the buyer who found themselves in a world of hurt hadn’t bothered getting a building and pest inspection done.
Madness! You can never be confident that a house is fault-free, no matter how good it looks, how well it’s presented or what the slick selling agent implies. You must always get a building and pest report done to ensure there are no issues lurking beneath the surface.
That’s especially true with a place you’re hoping to renovate. Once you start to peel back that wallpaper, knock through those walls or rip up that musty carpet, you could find all kinds of things that are costly and stressful to address.
Cosmetic versus structural
It can sometimes be confusing to determine the difference between a cosmetic renovation and a structural renovation. Here’s a metaphor that might be helpful.
A cosmetic renovation is like someone getting Botox and fillers to address wrinkles, lines and sagging. I’m told it’s time-consuming, there might be a bit of fuss and discomfort during the procedure, but it’s not really that invasive and you can achieve great results.
A structural reno is like a complete face lift involving all kinds of specialist and probably gory stuff overseen by a surgeon and an anaesthetist. You will not be wandering around the shops the next day – or week, and possibly month.
When doing a cosmetic reno, you’re repainting, doing the floors, maybe refreshing the bathroom and perhaps even putting in a new kitchen. It gives the place a fresh and new look.
It might sound simple, like relaxing in a beautician’s chair to have your crows’ feet jabbed, but it’s not. And if it feels easy while you’re doing it, it’s probably a waste of time. A sloppily applied coat of paint does not a reno make.
A structural reno probably includes revising floorplans by ripping down walls and putting new ones in. It could be moving the kitchen from a pokey room at one end of the property to a bigger and more aesthetically pleasing spot at the other. There could be an extension involved to add more space at the rear or on top.
They’re very different things, not just in terms of the work and expertise required, but when it comes to the budget you’ll require.
Make sure it stacks up
When you’re keen to take on a renovation project, whether a small cosmetic one or a major structural endeavour, you must be all over the numbers.
Before you buy, think very carefully about what the property needs to get a good price from the current market. What would buyers expect to find in the property? It might be the number of bedrooms or bathrooms, the quality of fixtures and fittings or outdoor amenities. What level of finish will they want?
And how much is all of that going to cost? Will the expense needed to get the job done, combined what the purchase price, make it worthwhile?
The last thing you want to do is overcapitalise. This is where you spend way more on improvements than they add in value to the property. You’ll find all your hard work was for nothing, and the bank won’t be thrilled either. It’ll definitely show in their revaluation of the home.
It’s also important to consider the market. Does a house in a popular suburb favoured by cool people need a six-figure kitchen with imported marble, four ovens, a built-in wine cellar, and a subzero fridge like those from The Block? Probably not. But does a diamond-in-the-rough in a super posh pocket beloved by the well-heeled? Quite possibly.
As well as your budget, consider your expertise too. Trades are expensive and your labour cost will probably be the biggest components of the entire project budget.
But specialist trades are highly paid for a reason. They’re experts in their crafts and it’s hard, if not impossible, to replicate what they do to the same standard. Don’t believe the YouTube tutorials that make tiling a bathroom look super simply to do yourself.
Why go it alone?
When it comes to a makeover project you should enlist the help and knowledge of experts. Perhaps a builder or tradesperson and definitely a mortgage broker if finance is involved.
You should also have an experienced, independent buyers’ agent heading up the team. They’re
Worth their weight in gold (paint). A great buyers’ agent can sniff out suburbs with reno potential. They can drill down to a street level analysis of parts of a great area that are still on their way to good, allowing you to get in at the ground floor.
A buyers’ agent can source individual properties that fit your needs, wants and ambitions. They can help you determine whether a renovation will deliver the kind of profit you’re chasing – and help you determine the best type of reno to tackle.
And best of all, they can take care of the entire process from start to finish, including negotiating with the vendor or their selling agent to get you the best price possible.
Use an experienced buyers’ agent and you can spend more time on the fun stuff, like thinking about colour schemes, kitchen designs and backyard landscaping.
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