property brothers house prices so high

ryan: choosing the right house to renovateis a really difficult decision. there's a lot that goes into that decision includingresearch into a suburb, finding the right street, finding the right house within thatstreet. it's not always as easy as buying the worst house in the best street. today,i talk to jane slack-smith from the ultimate guide to renovation about how to choose theright house to renovate. so renovation is a strategy that you want to pursue. it's veryimportant that you choose the right property in order to maximize your profit from therenovation. so here's my interview with james slack-smith. hi guys ryan here from onproperty.com.au,your daily dose of property education and

inspiration. and today i'm grateful to havewith me jane slack-smith from the ultimate guide to renovation. and we're going to betalking about how to choose the right house to renovate. thanks for your time today, jane. jane: it's a pleasure, thanks ryan. ryan: okay. so you run the ultimate guideto renovation, you're somewhat a renovation expert, you might go to person for renovation.when we're looking at how to choose the right house to renovate, where do you think peopleshould start? jane: the thing is, i think that the biggestmistake that people make is that they actually choose to renovate and often they alreadyrenovate that property they already have or

they go, "okay, this property needs to revampso there's going to be money to be made and to me and that's why i spend so much timeand effort in teaching people how to you buy in the right location first and then findthe right property. so it always has to go back to where's the right location. therefore,i spend so much time and evidently actually finding where that location is before i eventhink about finding the house and then doing the renovation. ryan: okay. i think that's a good place tostart as well because if you invest in the wrong area, buying any house in that areawouldn't necessarily be the best idea. so when we're looking at a renovation strategyand we want to research areas for the potential

to renovate, what should we be looking for? jane: that's a great question because it reallycomes down to strategy and it goes back even a step early which is you need to know whatyour goal is and then you need to know what that time frame is, and then you need to havea strategy that works. so if your strategy is to make a million bucks in five years time,you're going to have a riskier strategy than you are going to be for someone who has beentrying to put a million bucks in the bank in 15 years' time. so one might be doing developing,subdividing, maybe flipping properties and the other one might be buy, renovate and hold.so if we take just the renovation parts of those strategies out and we have a look atthem, we've got it a flipping strategy and

we have a buy and a hold strategy. so flippingstrategy first and foremost is we buy a property, usually within three to six months, you'verenovated it structurally to add a lot of value and then you resell it. so you're talkingabout reselling to the owner occupied market place. you're not selling to an investor,you're selling to an owner occupiers. so you need to have a suburb that has a higher percentageof owner occupants. so understanding this [inaudible 3:14] by now gives you that informationand gives you where you might target your suburb. and then always say you're going tobuy, renovate and hold. you want to be able to have tenants in your property, so you wanta high percentage of renters in the area. and then we can start looking at those suburbsand i actually teach --, i've got a tutorial

on how to use the census data to get downto the suburb and it highlights for you: here's the streets where the owner occupiers areand here's the streets where the renters are. so you don't then have to go, "okay i knowthere are a higher percentage of owner occupiers, but am i in the right street that they wantto live?" so you naturally target then the streets and then you can get down to the houselevel. ryan: okay. so let's just tackle one of thoseso we aren't confusing people. because obviously there are two very different strategies buyingto hold and buying to flip it, so let's just go the buy to hold strategy. so we are renovatinga property in order to lease this property out. therefore we want to start looking foran area that has a higher percentage of renters.

what do you define as a higher percentageof renters? and what are the things should we be looking for? jane: i would like to say 30% to 40% kindof is the base of the percentage of renters in the area. now, you have to be careful aswell. i'm not looking for an area that has maybe 80% renters because that could indicatethat it's a new high-rise development that's going up all the time and you don't have alot of capacity then to buy into a new high-rise building and add value obviously. or you havecompetition where people aren't as loyal to staying in your property. so now, when mosttenancies last over the one year period, if you've got a market place that's full of brandnew apartments that are going up all the time,

well, these tenants are going to upgrade tothe newest apartments the next time their lease is up. ryan: yes, all the apartments in the complexare generally very similar, so tenants don't usually care if they live in one apartmentversus another because they've decided, "i want to live in this complex and if one isthe same as the other then i'll just go for the cheaper one or the best one". jane: exactly. and then they kind of fallvictim of the fact that if there's someone more desperate than you in renting your property,you know, i want $450 a week, you want $430 because you've got to put braces on the kidsor something and you're willing to take something

less then my tenant is going to move out andgo to your property, because it's just next door and it's the same. ryan: yes. so if people shouldn't be targetingthose high rises where everything's the same, what sort of thing should people be lookingfor? jane: okay. so obviously, renovation, youneed to have a capacity to add value to the property, therefore brand new stuff is prettymuch off the table. you need to be able to assess the property and you have for checklistsof inspections that i go through, but assess the property and make sure that there is capacityto add value. and then most importantly, that in that suburb there is actually the pricingdisparity so that you can make money. so let's

just say, you know, you're buying at $300,000and a renovated property is $340,000. now, on average with what you're talking abouta cosmetic renovation, you know, you're spending about 10% of the value of the property. solet's say you buy the property, you pay 15 grand stamp duty and you pay 30,000 in doinga renovation. you know, you're all set to make money and your property value is nowworth $350,000 and the renovated properties start at $340,000. you know, there is no realbenefit, there's no profit there. so that pricing disparity is so importantand that's why if we just jump back to the other strategy of flipping, so many people--, i think it's something similar to fishermen. you always hear about the one they caughtrather than the fifteen hours they sat there

catching nothing, you know. it's so hard tomake money in flipping because the numbers have to be so right. and i interviewed johnedwards of residex, the founder of residex, last week, and he was saying for flippinghe really thinks that you need to start at $600,000 price point minimum. so, you know,if we're talking about, and that's mainly structure renovation, but if we're talkingabout the three, there is capacity to add value but there is no capacity to add a profit.that's something you need to know. and you can find that information out when you'reresearching your suburb. there is the residex renovation report and you can find those.i think they are $200.00 and for a suburb or for a state, these suburbs have a lot ofstreets in them that have capacity to be able

to renovate with the 10% renovation cost andto make money. so they kind of done a bit of the work for you which is good becausei'm always looking for shortcuts. ryan: so the residex report actually goesout and looks at the different prices of houses and works out whether there is disparity inan area which means that renovated properties are selling for a much higher price than unrenovatedproperties. is that right? jane: absolutely, so what they have is, johnwas telling me, i think they've got the sale data from back to 1865 of most of the sales ryan: that would be useful for us. jane: it is kind of handy, most important,but from all the sales or most of the sales

in australia. so they can look at repeat salesdata, so they're saying your house first sold for $70,000 in 1980, it's now sold in 2010for $500,000, that's the growth that is being experienced in that street. but they havethat data for every house in that street. so what they do is they have a house countof how many houses there are in every street, and let's say there is a hundred for easymaths, they then break them up into zero to ten in ranking, so ten houses go to 0-1; tenhouse are in 1-2; ten houses are in 2-3, up to ten. and if you're looking at what i'mlooking at when i'm renovating is i'm trying to keep the property around the median, soif we're to five, we know that fifty houses in that street are below five and fifty above.and i want to renovate just above the median

so that my house rents or sells if i haveto, quicker. so i'm looking at buying at approximately around that 2-3 range in the street and beingable to revalue it at the 6-7. i know this sounds [inaudible 09:48] but all i'm sayingis in these reports, if the report said the price point for ten of the houses betweenthis 2-3 price point is $300,000 and six the price point is $310,000, there is no moneyin the renovation. if it's 500 there's a lot of money in the renovation. ryan: so with a street of a hundred housesif you've got like the worst fifty are very close in price to the top 30% percent or somethinglike that then you can start to say well even if i can jump from being maybe right in themiddle like the 50th best house in the street

and if i can jump up to being the 30th besthouse in the street, if that's only a 30 grand difference between those two houses then it'swell not really worth doing that renovation. jane: it's exactly what you're saying. andyou know, talking to jane summers and she said her model over the last 40 years of buyinghas always being to buy the bottom quarter of the market, but the top part of the bottomcorner. and you're like, "what's the top part of the bottom quarter?" but having that kindof breakdown, it tells you what it is. and you know, she's cheapy with valuing good capitalgrowth areas with renovation and it's her strategy and it works for her. so the keyin my mind in making money out of renovation is understand the strategy that you have,understand the suburb that makes that strategy

based on the percentage of renters that arethere, find a property and in a street that has the capacity to add value. we're not talkingnew, off the plan or a house and land packages. and then find if there's profit to be made,so is there the pricing disparity? and before you've done that, you know, once you've donethat you can make it on to the renovation and start thinking ,you know, doing up littlepink tiles. ryan: okay. so we've looked at the suburb,we found the suburb that we want to invest in and we found potentially like the streetthat has the disparity there. what other things should people be thinking about when they'rechoosing the right house to renovate? like, should it be a three bedroom house or shouldit be should be [inaudible 12:00] brick? there

are things like that, that people need toconsider? jane: yes. once again, sensational question,and the answer is it has to be fit for the market. so one of the things that i have mystudents do is, you know, we have what i call the dot map, we try to find the suburb tofind the ripple effect to find the potential hot spots and then we're defining more andmore renovation potential, then we get down to the point where we have to look at theproperty itself and we have to know what the market wants. so i spend a lot of time lookingat the census of the demographics or another word is the typical person who lives in thearea. and if either the demographics and they say the most significant age group is 20-25and the most significant tenure type is renting

and the most significant asset type is a houseand 50% of people who drive to work or 70% people who drive or 40% of people who getpublic transport, you know, i can define very quickly what that person needs. they are probablysomeone at university, so i would be thinking, "oh, is this place near to the university?"because i can also find out the percentage of going to the university. they catch publictransport so i want to be within 300 meters of public transport. they are mainly rentersand this is what i'm after. that demographic information gives me a viewof the typical person that will be renting from me. and then what's the median houseprice? so rather than buying a fancy report i get in the back of my australian propertyinvestor magazine or smart property investor

magazine or your investment property magazineand then the data at the back it tells you the median house price for whatever it is- flemington is $650,000. so you go, "okay so the median house price is $650,000". ipull up realestate.com.au, i pull up domain and i put in flemington $650,000 and get ridof the surrounding suburbs and up comes the first page of all the houses that are forsale for $650,000, so i'm going "fibro, fibro, fibro, fibro, fibro". i'm getting a feel forthe fact for the fibro house - three bedroom fibro houses are typical. if i'm getting,you know, and i think this is problem, often people going, "oh, you're in median for thearea. it was 450 and i got this place for 400." and you're like, "yes, but the medianis a three bedroom brick house and you bought

a fibro two bedroom." ryan: okay. so when investing to renovatethat strategy of choosing a house that is very typical for the area that most peoplewant to live in so by looking at the median price and then looking at properties in thatprice range we can get a feel for what those types the houses are. is that the type ofhouse that we want to be looking for and why do we want to look for a house that is typical? jane: typical --, for me, you know, i wasa mining engineer and an explosive expert before i ever put on my mortgage broking orproperty education hat and for me it was all about risk. so i needed to minimize risk sowhen i started i only had $45,000 and i had

worked really long and hard and literallyin the mines, you know, digging coal, to get that money i wasn't going to throw it away.so i wanted to minimize my risk so i wanted to have a property that would rent the fastestbecause 80% of the people in the area wanted it or i wanted a property that if somethingwent really wrong and i had to sell, my emergency exit plan was not having the ten bedroom mansionin the suburb that you want to aspire to have but could not afford or you know the dinkyone bedroom unit, it was the [inaudible 15:48] house and property that i could get in suburbthat i can get on the market and sell if i really needed to get that money. so i wantedto have exit strategies. ryan: so the goal of buying a typical houseand one that is in that median is so --, but

hey you can rent it easier because there isa larger portion of people to rent it, but being it's kind of like a risk-adverse strategyin the fact that if you needed to sell or need to get out there's a larger pool of peoplewho'd be interested in that house. is that right? jane: absolutely. and i mean if my strategyis a property investor who didn't want to renovate i'd be targeting that median valuemedian house, median value median states but as a renovator i want to target a propertythat can look like this median house but hasn't worked on yet. so i'm actually looking potentiallyyou know 20% lower than the median house price when i'm doing my searches to find a propertythat i can buy at this point and move up to

that point. ryan: okay. so we do our research first orwe found our area, we do our research, we find out what's around that median and themiddle of the market, what does a typical house look like and then we go and do somemore research and we find okay well what's actually, maybe 20% below that, that couldpotentially look like the houses that we've been looking at in the median range if wedo the renovations to it? jane: yes. ryan: okay, awesome. just checking that iunderstood that. it does make a lot of sense and then it's a good way to go into it tosay well okay well i know now i need to find

out what the area wants and now all i needto look for is specifically a property that could be what the area wants and could bein that middle of the market. so do you then just try and bring like something that's maybe20% below up to the median or do you try and go above the median? jane: yes, i try to get a bit above the medianbut again my strategy is i want to rent quicker and i want a property that people walk into and go, you know i've looked at three other properties that are renting for 250 bucksa week. gee, at 250 bucks a week, i can get you know, some buyers on my window, isn'tthat great? it's something maybe that's a little bit better but clean, nice, low maintenance,no emotional kaleidoscope going on here. you

know, you're not designing for the block,you're decorators here, you're designing for the median kind of taste and you're not puttingyour own kind of [inaudible 18:15] on it. ryan: okay. so let's say that we found a coupleof properties that we are kind of interested in, what would we do in terms of due diligencewhen we're looking specifically to renovate this property? jane: yes. so basically you know you haveyour list of properties within the suburbs, you go out and you have a look at them. that'sthe format, you're looking for that capacity to add value. you pretty much determine thatbefore you start finding your property so i think that you can do 80% of the work beforeyou even blame your computer so you're only

looking at the --, unlike you know, runningaround all weekend looking at 10 to 15 properties and trying to get it all in on a saturdaymorning or whatever. you're being very targeted, because, you know you're buying [inaudible19:00] area. you've looked at these properties and see that you think they have capacityto add value and then you're kind of verifying it. so, i'm taking my initial inspection checklistand i go through and i'm actually now looking for problems. i'm not looking for opportunitiesbecause i've validated that by my research. i know that there is capital growth. i knowthere's the ability to add value. so i'm looking to what's going to cost memoney. so, you know, things that are going to --, you walked into a property and yousmell fresh paint. not a lot of people paint

the property before they sell it. so you may,okay, are they trying to cover something up? so you know, i've seen examples where peoplehave gone about a property there is a crack this wide is opened up in the lounge roombefore the open for inspection each week up to six weeks, all the guys were doing --, theowners were doing covering up with plaster and paint. and this is going to cost $100,000to put the house back together. so if i smell fresh paint i'm like, well maybe they didtidy the house up but if it's only a one bedroom or one room i'm kind of doing some knocksand trying to find maybe you know water damage or something that's also associated with it,so i'm looking for those problems. ryan: i like that because traditionally peoplegoing to an open for inspection and just go,

"ohh, ahh, look at this," and are very excitedand we're looking for the opportunities, or we could change the kitchen here, or put thisin here. but i like the fact that you've actually kind of already determine before you're evenlooking at the houses the types of properties you want and what kind of level you want tobring it up to so you can be more, i guess diplomatic or more intense when you're doingyour inspection to look for problems. are there any particular problems that you suggestpeople look for apart from water damage? jane: yes, the biggest things are the lowor no return items, so if you're fixing electrical, you're fixing water, plumbing issues, youhave to move the plumbing, if you're having to fix the roof, if you're having to fix - maybepointing and problems with the brickwork,

maybe there're some issues with the spectus,maybe when you're walking across the floorboards you're starting to feel that kind of movement,there could be a stumping issue here. those issues they can, oh my gosh, they can eatup your renovation budget and there's absolutely no value in return. all you've really justdone is maintains the house or maintains -- ryan: is there no value in return in thosebecause people don't actually see it so when you're then selling it or renting it peopledon't know that you've replaced the roof or they don't know that you've replaced the stumpingbecause when they go in, they don't say "ooh, ahh, i see you have replaced the stumping?" jane: and i think, you know, they can go andbuy a $300,00 property, i'm going to spend,

let's just say the rule of thumbs is 10% andi'm going to spend 30 grand on this and you walk in and straight away the carpenter said,"it's five grand for the stumps". and you're like, "okay, there goes my landscaping budget".no one's going to spend $5,000 on landscaping, but there goes some of my painting. and thenyou're going to turn around and he's going to go, "ah, you know, the roof, there is anotherthree and a half thousand". you're like, "there goes the floor sanding". so all of this onyour budget - ryan: so, i'm going to cut in there, do yousuggest that people do the inspection with lucky chippie or with someone that will behelping them with the renovation? because most people i would suggest or not suggestbut i would expect would do the inspection

by themselves. jane: absolutely. and see, that's one of thethings that i mean if i'm really then keen, if i've gone through my checklist and thingslike filling up the bath and making sure there's no sluggish flow and letting the water outand listening to the knocking in the plumbing and things like, you know, you can like notcross ventilation, can i get on into the house, is there a musty smell. these kind of thingsi'm thinking of. i'm not taking some -, i don't have a builder on staff that followsme around and gives me tips, you know, two houses i'm looking at on this saturday. idon't know many people who have. but you know we just talk about every day people turningup going, "well, this kind of looks good,

is there any problems?" and so i have a kindof a checklist to go through and actually i'm going to share it with people on the webinari've got coming up, so they can download it and use the checklist themselves. you know,just simple things, do the light switches work and you know, power points, let's justsay that there is one power point in the bedroom and i mean you need at least two, let's faceit. and so you thinking, "oh yes, this is next to power point." but to get an extrapower point, you got to pay the electrician $150, you're going to rip off the skirtingboard, you have to replaced the ripping, put it back on, it's a $500 exercise. and if youknow, i don't want to spend that $500 on maybe having a benchtop, that's a little bit nicer,than the typical laminate, then there goes

my budget. and a valuer or tenants not goingto walk in and go, "oh, second power point. ryan: i'm going add $500 to the value of thathouse because there's the second power point there. jane: so for me as i said i started reallysmall. i had $45,000. i did a renovation and pull that money out, put the rent up, pullthe money out and bought the next property. so i was so focused on that value of the valuethat property at. so i'm like if i spend money on this, is as if i'm going to go yes or it'sgoing to go yes whatever. so every single decision that you made, for me, it was aroundi need to create as much equity and so you know, i bought a property $425,000, i dida $50,000 renovation and had it revalue at

$700,000. yes, there is money there, i putit up and did it again, you know. and that's all it was. and i had the borrow capacityto be able to do that. some people can't do it as quickly as thatand so, you know, in my book i would talk about, you know, two properties, one renovationa million dollars in the bank in 15 years. so buy a house, you probably can't affordto do the renovation. wait until you're three when you have some growth in the propertybecause you've got it in the right location, pull the money up to do the renovation, waitanother two years - you're five you've got enough cash and equity as well, pull somemore money up, buy your second property and then you [inaudible 25:22] for the next tenyears while the properties go up in value

and obviously if you wanted to have the capacityto do it faster or you could do more and get further, but that just gets the everyday australiana million dollars in the bank earning 5%, 50 grand, passive income in 15 years. ryan: yes. and we've got a webinar comingup on the 4th of march and we're going to be talking about that in more detail. aren'twe? jane: yes. absolutely, yes. ryan: we're going to be going into more detailon that strategy which is "2 properties 1 renovation a million dollars in the bank".so, i'm excited about that webinar which is on the 4th of march. so if anyone wants toget access to that free webinar, they can

go to www.onproperty.com.au/reno to get freeaccess to that. that's going to be fun. i'm looking forward to that. so just to finishthis off, after we've done - jane: i just want to say, nothing to sellon that webinar, so no one has to feel that at the end we're going to be telling themto buy something. it's full content. ryan: it's a pitch free webinar so we're notgoing to try and sell you something at the end. so it's just to have you guys out andto get the word out there. so after we do our personal inspection, just finally on duediligence, so are there any other things that we would be wanting to do? like do we wantto do building inspection, pest inspection anything else like?

jane: yes, all those things. so if i'm reallykeen on the property i'm going to make an appointment to see it by myself, because let'sface it, you're doing these inspections in 10 minutes, so this is ticking the boxes forme. i'm going to make a time with the agent to go back for maybe an hour with my inspectionchecklist and in the meantime i have a building --, and i'll put in an offer in this periodof time because i'm not going to waste my time if my offer is not going to be accepted.so i mean test for building inspection and then i'm going go back with my full checklistand i'm going to go back with quick code calculator, so i've got this calculator that is like 25years of basically intellectual property in it and so every property i ever think of renovationcomes in so i might say i need four tops and

i need a high quality tops and it'll top theprice so it gives me an idea of what the cost might be. because i know a lot of people strugglewith how much things cost, you know, i need 20 square meters of painting and 20 squaremeters pop up price. so for me i need to quickly have a calculator that i can calculate howmuch it's going to cost and if i know that the median price property at the standardon renovating up to a little bit better from is at this point and my buy price is here,then it's really easy then to go, "okay i know that i'm going to make some money onthis". and that's when i get into more due diligence so comparable sales and i get anotherchecklist like and i talk to the council and i get some more details.

ryan: okay, cool. so there's a lot more todo after we have chosen our house and doing that due diligence. but i think that's beenreally helpful. i think we should finish it off there. we've learn about that we shouldlook into the suburb to find areas that have price disparity so we can use residex datato do that or we can use our own legwork i guess to do that and then finding those streetsand finding the median price of the property in what those houses are like and then lookingfor something that's below that median price that we can bring up to that median price.so thank you so much for your insight, i have learned a lot in this lesson and i'm surethat the listeners have learnt a lot as well. is there anything that you think that we missedthat we should let people know about?

jane: no, absolutely not. i think you're exactlyright, start with your goal, understand what you want to achieve and understand how thatproperty can help you do it and just get on and do the work because if you're going tobe spending hundreds of thousands dollars you got to do the work upfront and then youget on with your life, once you've got it right. ryan: yes. and if you guys want more information,we'll be talking more about this in our upcoming webinar, which again you can check out atwww.onproperty.com.au/reno. thank you so much jane for coming on today. i'm just so stokedto have you and so stoked to have your insight and i'll see you on the webinar.

jane: okay, we'll speak soon. ryan: well, i hope you guys enjoyed that interviewwith jane slack-smith from the ultimate guide to renovation. i mean i certainly did. i tryand always ask questions that i want to know the answers to, so i can learn a lot fromthe interview and i hope that you learned a lot as well. we talked a lot about how toresearch a suburb, how to find pricing disparity, how to find the right property and we talkedabout looking at the median price range and then looking at properties 20% below that,and we talked a lot of things about buying the right property. and i thought that wasa really great interview and i'm really looking forward to my webinar with jane which is comingup on the 4th of march.

you can check out that webinar at www.onproperty.com.au/renoif you're before the 4th of march. if you're after the 4th of march then there are someother great stuff at that link for you, so go ahead and check it out. i've got anotherinterview with jane coming up in just a couple of days when we talk about the biggest mistakesthat investors make. i was really lucky to get jane to do actually three interviews withme. so we've got coming up, the biggest mistakes renovators make and how to maximize your returnon renovation as well which is really cool. we walk through the different room of thehouse and some of the things that you can do to save money and to maximize the returnon the renovation that you do. so until next time stay positive.