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发表于 2011-8-30 19:31:35
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Eight property rules broken by The Block
By Mal James
Monday, 29 August 2011
The
Block was great entertainment – but for me it was also the best reality
TV show in a decade because it showed the harsh reality of what happens
when you break all the rules in the property investment book.
I
took the opportunity to go through each property a few weeks before the
auctions and assessed them according to our James Home Ratings criteria.
What
stood out most, apart from the fact that it was a hugely popular show,
was how many rules were broken. Breaking those rules led, almost
inevitably, to the end result, where only one of the properties sold at
auction. The three other houses have since been sold.
Sorry guys,
but this was always a disaster in the making. For us though, as
viewers, it was an invaluable lesson in how not to make money through
property.
So what did we learn from the show?
Rule No. 1: You make your money when you buy.
If
you’re buying as an investment and are hoping to make a profit on the
resale, what really matters is not the selling price but how much you
pay for the property.
OK, we understand that Channel Nine was
more interested in the show’s ratings than the profit it would make on
reselling the properties. But the price paid for the initial properties
was way too much. Sure, it was a big block, and it had four houses on
it, but at an average of about $900,000 per site, plus stamp duties of
about $50,000 each, plus holding costs of 6% (another $50,000-plus
each), plus the selling-agent fees … Well each home was priced at well
over a $1 million before the first contestant even showed up and the
first nail was hammered.
Rule No. 2: Buy the best position you can.
This
for me was the real killer – the position was a shocker. Yes, the
properties are close to all amenities but anything in Richmond is close
to all amenities. Have you been down that street at night? It’s scary.
Stand in the street or look on Google streetview and do a 360-degree
turn – what do you see? Industrial sites, multistorey car parks. And who
knows what is going there in the future? What if it’s a panel-beater’s
shop and you have the smell of paint thinner in the morning?
There’s
a vacant block of land to the west of No. 37 that has recently changed
hands for just over $1 million: who knows what will go in there?
Rule No. 3: Consider your target market – before you start!
The
properties themselves had some real positives in terms of the land. The
northern orientation will bring light and winter warmth into those back
living areas. So sure, that’s a tick. They all had good street appeal
(tick) and the block widths were above average for the area, meaning the
houses could give that feeling of space, which is very important in a
home (tick).
However, they all had another huge negative: there
was no car parking. Which means that future buyers or renters have to
park their cars on the street. So that is going to knock single women,
young
married couples, and older couples out of your target market. In fact,
just about anybody except students and local lads would have concerns
about living here.
Rule No. 4: Don’t overcapitalise.
If
you are about to spend $1 million or so even before one sod of earth is
turned or one nail is hammered and you want to make a profit, you need
to know whether you’re likely to recoup the costs of your renovation –
and hopefully more. Otherwise you’re going to end up overcapitalising.
How
can you work that out? Well, look around you. What sales evidence was
there in The Block area for $1.5 million homes? Zippo. We can tell you
this because coincidentally on the same day of The
Block auction
we bought a property at auction for a client in Richmond only a few
hundred metres away. It was on bigger land, it had car parking and good
period features – and we got it for just over $1.2 million. So if $1.5
million is the minimum amount you need to make serious money, but there
is little or no sales evidence of properties selling for that amount in
the area, don’t buy.
Rule No. 5: Amateurs don’t make money on
renos – they make money because they are lucky that the market happens
to be in an upwards phase.
Whenever someone tells me they made
money on a renovation, I think, well, no, you didn’t. You made money by
buying the right house in the first place. They would have made the
same, and maybe even more, by doing nothing. It’s the market that makes
you money. If the market is not in your favour, most amateur renovators
lose money, and The Block confirmed this. The bloke with the vacant
block at 35 Cameron Street, Richmond, made more money than all the
renovators combined by doing little.
Rule No. 6: Don’t think short term with property unless you like excessive risk.
The
Block also highlighted the risks of short-term flipping. Besides the
fundamental error in the initial choice, the market was also unkind to
the contestants. Which again highlights the short-term risks in
property. To buy this year, tart up and flip next year is a strategy
fraught with danger and can cost you a packet. Each of these houses lost
at least $200,000 if you factor in all costs – and probably lost more.
Rule
No. 7: Choose local selling agents who are experienced at your price
range – and choose ones who can deal outside the auction process.
The
four auctioneers chosen to sell properties are all very good. But it
was interesting to note that the only house that sold under the hammer
was through a local agent, Russell Cambridge. He is a good operator, as
is his partner Sam Davenport, who got the buyers there.
Glen
Coutinho is a really good auctioneer but his patch is Hawthorn, which is
a different market to Richmond; however, he sold his house at reserve
almost immediately afterwards. Well done.
Ruth Roberts is a top
auctioneer but better known in Carnegie, however post-auction she got
the best house away for $1 million, which is about the right money –
well done – $1 million in Richmond in this market with no car park is
excellent.
Clayton Smith, a strong local agent, was always up
against it having to market the weakest house in terms of floor plan.
However, to get $922,000 post-auction for a single-fronter proved two
things: he knew more than many of us; and he fought hard for (in our
opinion) the best result.
Rule No. 8: Substance v. puffery.
TVs,
colours, furniture etc come and go. If you view our online ratings you
will notice that we give one point out of 1000 for stuff such as cabling
and shower screens. The other 999 points are for land, position and
floor plan. And if you’ve learnt one thing from The Block, hopefully
it’s that it is the price, property, and positional fundamentals that
really count. On all three counts the contestants were doomed even
before they started. |
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