Should you buy a renovator in this market? - November 2024

By Rich Harvey, CEO & Founder, propertybuyer.com.au

For decades, the New South Wales Central Coast region was in a property market holding pattern. It was flying under the radar of homebuyers and investors alike. But COVID’s significant upheaval brought the region into the limelight. Now, a raft of drivers across the political and economic spectrum will deliver exciting times to the Central Coast – and those who own property will be among the biggest beneficiaries.
Anthony Knight, Principal buyers’ advocate for Propertybuyer on the Central Coast, has lived in the region for decades. We recently chatted about the region and why he’s excited about what’s to come.

Get rich from renovating. That’s been a mantra of many in the real estate game for a long while. With the new season of The Block in full swing and warmer DIY-friendly months upon us, that enticing promise is booming once more.

On paper, it may often seem like a proven strategy that can’t fail – buy any old dump for a bargain basement price, breathe new life into it with an affordable reno, and flip it for a handsome profit.

There was a time not too long ago where that was probably the case more often than not. The first two decades of the 2000s certainly saw plenty of that, with many investors keen to get their hands dirty raking in the big bucks.

But in many ways, those days are behind us.

Put simply, the high cost of buying a property – dumps included – plus the eye-watering and ever-rising cost of materials and trades, coupled with cooling markets in some parts of the country, make the numbers hard to stack up.

I’m not saying it’s impossible - just that it’s much harder, and more than ever, it’s a case of buyer beware. Savvy investors who know what to look for can unearth prime opportunities to buy well. And those in the know can still find a fixer-upper at a good price. I have done several renovations myself and made significant equity in the process.

The current challenges

Covid might be in the rearview mirror when it comes to most aspects of life, but one part of the economy still hurting is the construction sector. It’s facing a whole host of challenges.

High materials costs. A crippling skills shortage. Small and medium-sized builders going bust in record numbers. Low levels of consumer confidence thanks to highly publicised building defects.

You name it, home-building is facing it at the moment. All of those things contribute to soaring costs and a lack of availability, whether you’re building a high-rise apartment building in a CBD or renovating a cottage in a middle-ring suburb.

Where once a renovator could’ve managed a project on their own, bringing together the different trades and materials required, getting timelines to match up is a struggle. In many parts of the country, finding an electrician or a plumber to do the job is tough. In some cases, you can’t even get someone out to quote. There simply aren’t enough tradies around.

What once might’ve been a pretty reasonable quote for a bathroom and kitchen is now astronomical because labour is costly, materials are scarce, and demand for services far outweighs supply, meaning it all comes at quite a premium.

In the broader market, it’s now clear that a slowdown in growth is underway in many cities too. The latest CoreLogic Home Value Index shows property prices in Sydney slipped in October for the first time in almost two years. It was a tiny 0.1 per cent fall, but still, it’s a possible sign of things to come.

Also in the month, home values fell in Melbourne (-0.2 per cent) and Canberra (-0.3 per cent), although they rose fairly strongly in Brisbane (0.7 per cent), Adelaide (1.1 per cent), and Perth (1.4 per cent). And prices at a national level edged upwards by 0.3 per cent in October.

There are two ways for a renovator to look at these numbers. The first is to see it as a positive – momentum in some parts of the country and not others is an indication that we’re not seeing broad buyer jitters. If we were, there wouldn’t be price growth evident in other capital cities.

The second is to recognise that an easing of growth in major markets like Sydney and Melbourne means there are places selling for less than they were earlier in the year, meaning there’s more supply and less competition. That means more to choose from, fewer buyers to haggle with, and the potential for discounting.

But even in cities where growth has slowed, stalled or reversed, overall prices are still at record highs, so buying a renovator won’t often come cheap.

So, in summary, high buy in prices and high renovation costs mean the margin you’re looking at for a project is slimmer than ever. And given how hard it is to find tradies and source materials, your timeline is likely to blow out, meaning you’ll be stuck holding the property for longer.

How to sniff out gold

There are still opportunities out there to buy well. An experienced buyer’s agent who has a good track record in the renovator space can help unearth potential gems and help investors ensure the numbers stack up.

Given they’re on the ground in markets day in, day out, they’re also precisely attuned to what a property is actually worth. This can be tricky for investors going it alone to gauge if they’re not on top of the data as it comes in. They can’t be sure that an asking price or auction guide is reflective of where things are at - and where they’re heading.

Buyer’s agents also have vast networks of contacts, which makes negotiating an easier and more advantageous process. On top of that, those contacts can help reveal off-market opportunities that never make it to popular listings websites or the Saturday newspapers. They’re deals that renovators going it alone will never know exist.

They also have on their contacts list plenty of builders, designers, architects, projects managers and tradies. The old saying ‘it’s who you know’ is especially true in construction at the moment. Being able to potentially source particular services and trades at short notice is a massive advantage for renovators these days.

Knowing the market intimately means a buyer’s agent can help determine whether buying a particular renovator is worth it. What kind of work will be required to get it to a state that will get the sale price an investor requires? Is it a smart and strategic mostly cosmetic reno, or is it realistically a major overhaul with costly structural elements that results in even slimmer margins?

A buyer’s agent will also know what kind of eventual buyer the property will appeal to. By really understanding a local market and its demographic shifts, sales trends and future projected changes, they can help assess a potential reno project’s viability. A pokey cottage with no parking and minimal outdoor space in a market that’s increasingly beloved by young families? There might not be much of a profit there.

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