Reality Check On Dream Renovation

TV shows such as The Block encourage people to renovate, but how can they avoid making costly mistakes?

Whoever came up with the term ”renovator’s delight” must have been a master of irony, because most renovation projects turn out to be anything but.

These labours of love usually take twice as long and cost twice as much as intended, not to mention the strain they put on relationships.

Yet dilapidated houses and apartments continue to hook in buyers who, at inspection time, walk starry-eyed over rotten floors and past mouldy walls and dream big.

Sometimes it’s the thought of making a quick buck that fires these desires, while others can see only home, sweet home.

Experts blame shows such as The

– which meets its climax next Saturday when the properties are auctioned (screened on Sunday) – for encouraging us to take on renovation challenges.
There’s certainly been plenty of interest. Last Sunday night The Block had 1.889 million viewers, making it the second-most watched show of the night, behind The Voice.

Predictably, many of those viewers (621,000) were in Melbourne, where the terraces are, but it also had a huge Sydney audience of 567,000.

And more than 20,000 people came along to the first open homes for the Dorcas Street, South Melbourne, terraces, which have price guides of between $1 million and $1.1 million.
In past years the show has led to a spike in renovations. An economist for the Housing Industry Association, Andrew Harvey, has been quoted as saying: ”In quarters in which The Block is aired there is, on average, a $251 million boost to quarterly renovations investment two quarters [or six months] following the airing.”

There’s also increased interest in unrenovated homes.

”I’ve been selling for 22 years and I saw a change in the market when those shows came on,” says the director of sales at McGrath Estate Agents, Matt Lahood.
There are numerous examples of buyers’ enthusiasm for such property, but the June 3 sale of an unliveable house in Chatswood for $2.2 million – $850,000 above the reserve – takes the cake.

”I see that quite regularly – people paying 5 to 15 per cent more than they should [for unrenovated houses], but not to that extreme,” a buyers’ agent for the Chatswood sale, Patrick Bright, says. He has also spent the past decade buying and renovating properties for clients and has published a book, The Insider’s Guide to Renovating for Profit.

On The Block, each pair starts with $125,000 and then wins extra money throughout the series (ranging between almost $76,000 and more than $90,000). An architect, structural engineers and builders are there to help the contestants’ ideas become reality.
Phil Barker at his Surry Hills terrace.

Phil Barker at his Surry Hills terrace.

In the real world, it’s much easier for costs to blow out.

”If you want to buy a property, renovate it and sell it and walk away with a decent amount of money in your pocket, it’s very challenging to do,” Bright says. ”You have to buy really, really well and have to renovate appropriately.”

So is there a way of turning a dump into a dream house without breaking the bank?

Don’t pay too much

The first thing to do, Bright says, is research what the unrenovated house would be worth already done up. Then buyers can calculate how much it will cost to get to that standard – he does this by adding up all the costs involved, but having a builder look at the house before purchase would give a rough estimate. By subtracting those renovation costs from the finished price, you arrive at a price for the property.

If you want to make a quick profit then that purchase price has to be even lower, Bright says. ”The only way you will not overspend is to do your research and work backwards,” he says. ”Look at the end value, do your numbers and have a cool head, otherwise you are not going to be able to do it.”

Profit and loss

Doing a thorough costing of a renovation is essential before starting work.

Builder Chris Pearce, the director of JCP Construction, is about to finish renovating his second terrace in Chippendale with his brother, Jonathan. They say they’ve learnt from past mistakes, managing to cut costs by about 30 per cent simply by shopping around.

They purchased a lot of the materials by hunting on the internet. ”Trying to save $100 here and there all adds up,” he says, ”because there are so many elements to your building job”.

Similarly, Bright uses a spreadsheet to tally the cost of every tap, toilet and downlight in a renovation and sticks to it. He also factors in holding costs – rent, storage and other expenses, such as rates and mortgage – during the renovation and how long building work should take. ”Keeping costs down is doing your research before you start and knowing the costs and buying at those prices,” he says.

Shop for tradies

The cost of labour is one of the biggest in any renovation – typically more than 30 per cent of the total, Bright says.

And while this makes it tempting to do some of the work yourself, he recommends against it. ”People can tell,” he says. ”You don’t need to do it yourself. I don’t and I make a profit and I’m doing a quality job.”

Pearce, on the other hand, says it’s possible to do some work yourself, ”depending on what sort of product you’re looking at getting at the end”.

Those without much experience or skill should hire professionals. ”But make sure you get three quotes and really shop around,” Bright says, as you need to have a good relationship with them.

A builder or an architect can also manage tradespeople for you.

Sometimes less is more

Interior designer Rikki Stubbs believes a slow housing market should be a catalyst for people to reassess the types of renovations they undertake.

She’s not a fan of large, costly architectural renovations that can remove the charm and character of old houses.

Stubbs advocates taking time to do up a house so owners can get a feel for what is needed and so changes are in keeping with the style of the house.

”People fall in love with houses because of their charm and age and history, they don’t really fall in love with bland renovations that all look the same,” says Stubbs, who writes the House Whisperer column in The Sun-Herald.

A fixed price

One way of containing the costs is to get a fixed-price quote from a builder. But Pearce says even this doesn’t always guarantee against nasty surprises as there are unknowns in every old house. He recommends having a buffer of 10 per cent to 15 per cent on top of the fixed price.

Bright believes cost overruns are common, even for experts. First-timers should be prepared to add 20 per cent to their costs, while others might get away with a buffer of 5 per cent to 10 per cent, he says.

One way to ward off these budget blowouts is to cut down on holding costs at the beginning of the project, Lahood says, especially if you mean to resell quickly. Negotiating a longer settlement with the vendor can sometimes buy time, especially if during that period you are able to lodge a DA on the house. This means when you pick up the keys you can begin work straight away, he says.

Mid-range finishes

Doing a renovation cheaply doesn’t mean it has to look cheap. Pearce and his brother combed high and low for bargains on the internet and would always look at them in person to make sure they were up to standard before they handed over the cash. ”I went to see our kitchen three times before I bought it,” he says. ”But we got it for nearly half the price of what we paid for the kitchen we put in next door.”

If you plan to sell soon afterwards, Bright says renovations should be done to the standard of the other houses in that market. If you undercapitalise, buyers will know and will adjust what they are prepared to pay, he says.
Build in a buffer

Phil Barker has lived happily in his Surry Hills terrace for a decade without needing to do any work to it. But the software engineer had been feeling the limitations of the two-bedroom house. So he tossed up whether to move to a bigger place or to stay put and renovate; he decided on the latter.

Working with a budget of about $270,000, he had architect Angus Mackenzie draw up plans for a two-storey back extension. This moves the bathroom upstairs between the bedrooms and gets rid of an impractical upstairs deck. Downstairs, the kitchen moves to the centre of the house and a living area at the back opens to a deck.

Barker suspects he will not get much profit if he decides to sell as soon as the renovation is finished, in about four to five months. ”From a financial point of view I wondered how much I would be adding to it, but it’s more that I really want to live there for the next 10 to 15 years,” he says.

Nevertheless, he has been careful. His builder, Brett Dodd of Dodd Renovations, quoted him a fixed price on the building work and he has factored in every extra expense – such as rent, storage costs and architect fees – and left a 10 per cent buffer for any unforeseen problems. By doing this, he hopes the process will be relatively painless.

 

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