The Block has finished for another year and we will again be inundated with requests to purchase homes that can be purchased, renovated and flipped for hundreds of thousands of dollars of profit. And can this all be done in 8 weeks?
NO! The block cost the production company $6.71M and with stamp duty and 12 months interest on holding costs of 5% the overall cost of purchase before any architectural work, planning work, or renovation work would be $7.433M. I cannot even begin to estimate the actual renovation costs done whilst The Block was actually happening but suffice to say it is safe to assume that it was over $170,000. This is the difference between the cost of The Block and the results last night which totalled $7.603M. In fact if the reserves were only met and no more there would have been a total loss from purchase price of $6.71M to total reserve prices of $6.32M of $390,000.
There is no need to feel sorry for Channel Nine and there production company. I believe the revenues of the show would mean this franchise is one that makes plenty of money for the producers. And I am sure they would be writing off any capital losses against their tax.
What this really does show is that making money in property is not always that obvious. The clearance rates for this year according to the REIV have averaged around 70% and this weekend remained slightly over at 71%. This will probably be reduced to 70 or 69% through the week as the 42 auctions with no result are found. Turnover, whilst up on last year is still quite subdued compared to 2010 and the halcyon days of 2007. Median statistical data for the past few quarters from APM, RP Data and REIV are all beginning to point in the same direction: UP.
So what does all this mean for investors? Most people who purchase property make the majority of their capital growth by buying at the correct time, making smart improvements in the property then renting it out with as little vacancy as possible, so that over time as the entire market rises their properties value is dramatically improved.
Not all investment properties make sense to all investors. If you are retiring shortly and considering having the rent from an investment property help fund your day to day living, then purchasing a property with high growth, high value add potential and low yield is not a good idea. Further, the young tradesman, who has time and the requisite skills to improve a dwelling, could look at a “renovators delight” in a gentrifying suburb.
If you are considering an investment property purchase then you should seek competent counsel. You should have a licensed buyer’s agent working for you. This is a licensed real estate agent that you pay for advice. If you do not have someone acting for you then the chances are you will end up making a more emotional purchase than you need to. This in turn means you will usually lose a good chunk of your first couple of years of capital growth. Worst case scenario, you will purchase a property that doesn’t suit your needs and have to sell in a very short period of time, thus losing quite a substantial amount.
Any buyer’s advocate, or buyer’s agent you see should sit down and listen to your needs and wishes. There are many property spruikers who will tell you that what they always purchase is right for you. I hope this is the case, but many times it is not. There are many “buyer advocates” who will sell you something they already have purchased. This is not buyer advocacy; this is selling real estate! And the selling agent always works for the vendor.
If you are considering purchasing an investment property this year, please feel free to call for a no obligation appointment, or come and see us at the Home Buyers Show August 23 – 25 at the Melbourne Exhibition Centre.
Everyone purchasing property should get some assistance. The vendor does, you should too.
Ian James
Director
JPP Buyer Advocates