Puzzle Finance Blog

Run down properties put buyers at risk of overcapitalising

RENOVATORS are being warned not to get carried away after several dilapidated properties have sold for well above expectation in Sydney, putting the buyers at extreme risk of overcapitalisation.

Among the inflated sales was a dump featured in the Sunday Telegraph last week. The two-bedroom house at 137 Simmons St, Enmore sold for $735,000, despite expectations of no more than $600,000.

Completely uninhabitable in its present state, the house attracted attention only from builders interested in adding value. Even with the small buyer pool, more than 100 groups inspected the property during the open house campaign and 17 people registered to bid at auction.

"There is no question the position is great, but they have definitely overpaid for what the property offers," said real estate author and buyer's agent Patrick Bright. "The end value for a two-bed, one-bath terrace with no parking in that location would be around $850,000, depending on the quality of finishes.

"They will easily sink $200,000; and perhaps a lot more, into that property, so they are going to be in negative equity upon completion."

Selling agent Aisling Brady from LJ Hooker said most of the interest from builders had centred on adding a third bedroom, which may make the property profitable.

"A renovated three bedroom house in this area would be worth up to $1.2 million," Ms Brady said.

Agents say shabby terrace houses are the most popular with renovators, due to programs like The Block, which mostly feature similar properties.

Other rundown houses to beat expectations recently included a terrace at 43 Park St, Erskineville, which sold for $140,000 above reserve through Nuri Shik of Laing + Simmons Potts Point; and a fire damaged shack at Mount Pritchard, which sold for $31,000 higher than a private offer, thanks to the 638 sqm block of land it was situated on.

Mr Bright said the chances of a successful renovation were greater when the property remained structurally sound.

"You're searching for something rundown but not totally derelict," Mr Bright said. "I advise people to avoid the 'problem child' properties that need structural work. You want to spend your renovation budget on improvements that buyers can see because that's how you add value. Spending money on fixing defects that nobody can see doesn't add value, but eats into your renovation budgets and profits."

Read more: http://www.news.com.au/realestate/news/rundown-properties-put-buyers-at-risk-of-overcapitalising/story-fnd91nhy-1226715862666#ixzz2eSuIV6I8

Posted by Tim McIntyre - Daliy Telegraph on 9th September, 2013 | Comments | Trackbacks

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