Channel 9 The Block 2011: Purchase, Reserve & Sale Prices, Renovation Costs, Rental Yields; Block houses expected to lose half a million dollars each. All four cottages bought by investors.
Tweet Topic Started: 22 Aug 2011, 09:43 AM (26,552 Views)
THERE'S only one question most Sydneysiders want answered about the Melbourne series of the reality show The Block: would the auction results on the night have been different if the properties had been here?
''Not necessarily,'' one of the show's judges, the Sydney agent John McGrath, says. ''Clearly they were well marketed.''
Yet he believes the Sydney market in that price range - less than $1 million - may be ''a tad better'' than Melbourne's.
Contestants looked stunned as three of the four Richmond terraces were passed in while the cameras were rolling. One declared her six-month renovation project ''a waste of time''.
Yet whether it is Melbourne or Sydney, history has demonstrated that Block properties have not been a particularly good investment. Australian Property Monitors' (APM) records show that of the seven apartment resales - three in Roscoe Street, Bondi and four in Whistler Street, Manly - none have made a profit. One Roscoe Street apartment that sold for $670,000 in August 2003 went for $560,500 two years later. Another dropped by $100,000.
Mr McGrath said he was not disappointed by this year's Melbourne properties since half sold on auction night (someone offered the reserve price on the second house when the cameras were turned off). All had sold within the week, one for $922,000, which was $72,000 more than its reserve. Another sold for $1 million.
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.
The Block properties hit rental market. All four cottages were bought by investors.
By Jonathan Chancellor
Three of the four Richmond properties on the hit Nine renovation series The Block 2011 are now available for rent as its emerges that all four cottages were bought by investors.
Katrina and Amie's furnished house at 41 Cameron Street, which sold for $860,000, is the cheapest rental – listed at $950 a week through Hocking Stuart agent Stephen Chamberlin. It would reflect a 5.74% gross yield.
The three-bedroom, two-bathroom home at 39 Cameron Street renovated by Polly and Waz, which sold under the hammer for $855,000, is for lease at $995 a week through Brant Williams, of Advantage Property Consulting. Its asking rent reflects a 6.05% gross yield.
The dearest home on The Block at 37 Cameron Street, which Josh and Jenna sold for $1 million, is for rent at $1,250 per week through Woodards Carnegie. It reflects a 6.3% gross yield.
Rod and Tania Walsh's property at 43 Cameron Street has yet to appear. It was bought at $922,000 by a Melbourne couple as an investment through Jellis Craig agent Clayton Smith.
The indicative gross rental yield for Richmond houses is 3.5%, according to RP Data.
The depreciation reports for the renovated homes heightened investor interest in the offerings.
The depreciation reports were been prepared by BMT Tax Depreciation Quantity Surveyors, which have inspected the older properties – now renovated – and estimated what a buyer could claim in deductions in his or her tax returns.
The house renovated by Polly and Waz at 39 Cameron Street could have an initial maximum $27,000 claimable depreciation in its first financial year. Its depreciation would peak in its second financial year at $29,700.
The house at 37 Cameron Street, which Jenna and Josh renovated, has an initial $25,000 claimable depreciation.
The house renovated by Katrina and Amie at 41 Cameron Street could have an initial maximum $28,000 claimable depreciation in its first financial year. Its depreciation would peak in its second financial year at $30,000.
It is estimated the renovated house at 43 Cameron Street, renovated by Rod and Tania, could have an initial maximum $29,000 claimable depreciation in its first financial year. Its depreciation would peak in its second financial year at $31,500.
Even though the buyers will not have carried out the work themselves, the ATO allows property investors to claim a deduction related to the building and plant and equipment items contained within it. It can be claimed by any owner of an income-producing property.
The asking rents for 41 Cameron Street and 39 Cameron Street are far higher than what their agents estimated for their rental potential before auction. The asking rent for 37 Cameron Street is in the rental estimation range provided by Roberts pre-auction.
That shows how the game is played! If those rents are achieved (which they may well due to the "fame" factor), and they are added to the NG and depreciation tax benefits, you have several nice little earners there straight up. Probably financed at a fixed rate of 6.x% - nice!
For Aussie property bears, "denial", is not just a long river in North Africa.....
That shows how the game is played! If those rents are achieved (which they may well due to the "fame" factor), and they are added to the NG and depreciation tax benefits, you have several nice little earners there straight up. Probably financed at a fixed rate of 6.x% - nice!
what about without the fame factor? the fame factor is only going to last a year or two.
Quote:
The indicative gross rental yield for Richmond houses is 3.5%, according to RP Data.
the higher the price the lower the yield in general. without knowing the area they seem very overprices as rentals.
THE buyers of the homes featured on Channel Nine's hit TV series The Block face falling property values and traffic chaos after the Coles supermarket group revealed plans for a $250 million, 333-dwelling apartment complex next door.
Coles has lodged plans with Yarra Council to demolish the Richmond Plaza centre between Bridge Road and Church Street and replace it with 12 storeys of apartments and shops.
The proposal includes 12,000 square metres of retail and commercial space and 530 basement car parking spots to be built opposite Cameron Street, where Channel Nine's contestants sold four properties last August for a combined total of $3,637,000.
Coles has lodged plans with Yarra Council to demolish the Richmond Plaza centre. Photo: Luis Enrique Ascui None of the Cameron Street buyers contacted by The Age were aware of Coles's plans.
A proposed 12-storey Richmond apartment block with shops is set to hurt the re-sale potential and rental income of the four homes sold recently on Channel Nine's hit TV series The Block.
The Coles supermarket group has revealed plans for a $250 million, 333-dwelling apartment complex immediately opposite the Cameron Street homes.
Coles has lodged plans with Yarra Council to demolish the Richmond Plaza centre between Bridge Road and Church Street.
The proposal, which includes 12,000 square metres of retail and commercial space, 530 basement car parking spots and 151 bicycle spaces, has yet to be put out for public consultation.
Yarra mayor Alison Clarke notes the site is in a heritage area, with low-rise residential immediately behind it, and is above the general council policy of five- to six-storey development.
Yarra councillor Steve Jolly told the Melbourne Times Weekly the proposal was a "medium-sized skyscraper in the heart of Richmond… This is not planning, this is an orgy of profit-driven development."
The Richmond cottages, bought by four investors, sold for between $855,000 and $1 million in August.
Prominent Melbourne buyers’ agent Mal James concluded after his August pre-auction inspection that “the position was a shocker.”
“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?” James noted before the auction.
“This for me was the real killer,” he said.
“As a bit of fun we rated all The Block properties,” James said, noting his firm traditionally only dealt with prestige $1 million plus houses.
“While all contestants had done some great things, we are not sure we would put any on our shopping list.
“The internals may excite but the externals of no car parking, industrial street and commercial neighbours do not,” James added.
James Home Ratings examines pieces of information about a home and matches them against established buying criteria ranking them with a score out of 1,000. His rankings for the four Cameron Street houses ranged between 502 and 615.
A rating below 550 means the property “has issues”. Between 550 and 650 is at the low end of average.
None of the Cameron Street buyers contacted by The Age property editor Simon Johanson were aware of Coles’ plans.
One buyer, who did not want to be identified, said: ''We thought Coles was going to be doing some revamping but we weren't aware there was going to be an apartment block.''
Valuer Robert Bath said such a large development would have a ''detrimental'' impact for owners in the neighbourhood.
''Anything that's high density is going to have deleterious impact,'' he told The Age.
Coles spokeswoman Alecia Batten says Coles is working in conjunction with developer Gresham Property for the project.
Jolly says developers are “trying to rip the heart out of Richmond''.
If approved, it would be the latest in a string of major developments across Richmond, including the Jaques site in Palmer Street, the former Channel 9 site in Bendigo Street, and the Dimmeys redevelopment in Swan Street.
Coles’ bid to redevelop the shopping centre was first reported by the Melbourne Leader last month.
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