Real estate experts reveal secrets to making bank on ugly duckling homes

Experts have revealed how a tired, daggy home could be your way to maximise profits in a year when property prices are tipped to slump.

Nathan Mawby

@mrmawby

4 min read

February 20, 2023 - 5:00AM

News Corp Australia Network

Finding an ugle duckling house could be your ticket to getting ahead in real estate.

Property

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Tired, daggy and dated “ugly duckling” homes have struggled to win over buyers in the past 18 months, but could be set for a renaissance in 2023.

PropTrack economist Anne Flaherty said historically many buyers, particularly market entrants, wanted a fixer upper where they could add some value.

“But now we are seeing people wanting a property where not much needs to be done, one where they can just move in and they are good to go,” Ms Flaherty said.

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In part, this has been driven by the surge in material and tradesperson costs last year. But with demand for both likely to taper this year, fixer uppers could soon be back in vogue.

“And for those people who perhaps purchased in 2020 or 2021 who have seen the value of the property decline, they might be looking at other ways to reap back some of the value they have lost,” Ms Flaherty said.

But it is important to focus on what will actually make a home worth more, without overcapitalising

FOCUS ON THE EASY WINS

The gold standard for a home you can add value to is one that won’t take much to improve.

Ms Flaherty said some home improvements would provide a “bigger boost” than others.

“A really good example is the bathroom,” she said.

“If it looks a bit dirty, that can have a big impact on someone’s willingness to purchase.”

Advantage Property Consulting boss Frank Valentic agreed and advised honing in on wet rooms and kitchens for renovations, and where possible — adding an extra bedroom, bathroom or living room to floorplans – without going to the trouble of an extension.

“An extra bedroom will generally get you an extra $100,000 in price,” Mr Valentic said.

“Look for the ugly duckling, rather than something where it’s a finished product where someone else is profiting from the work already done.”

He said that if you intended to live in a home, but not long term, putting in an application for a subdivision or even arranging plans and permits to redevelop the block could often deliver a six-figure bonus for a relatively small outlay.

In this scenario you might pay about $20,000-$30,000 for architect and town planning fees, but developers would pay a premium for the time you were saving them.

HOW TO SPOT A WINNER

Finding a home with the best prospects to add value to is important.

MaC Consultants managing director Matt Richardson said over 10 years of general building project management he had learned to appreciate a 1960s or ’70s-built house with daggy carpet, as well as apartments of the same era.

“They are very good from the point of view of having a sturdy build,” Mr Richardson said.

Beyond this, he advised buyers to “steer clear” of balconies of any vintage.

“They are renowned for water leaks ... and to get one repaired, you are probably starting at $15,000,” he said.

A tired facade could also easily be refreshed with a “lick of paint” and a dud garden renewed for an instant impact.

Mr Valentic advised seeking “functional floorplans”, with an open-plan kitchen and living zone – or easy scope to create one.

“If you can open up a wall for an open-plan living space, you will probably make more money straight away,” he said.

A building inspection should reveal if walls are load bearing or not.

But buyers looking to flip, or even for a family home they could add value to, should avoid those that need restumping, rewiring, replumbing or reroofing. “You won’t get your money back on these, because people won’t see what you have done,” Mr Valentic said.

DO THE MATH

Making sure the numbers stack up before you buy is a smart move for any home purchase.

Mr Valentic said the goal should be to find a “rough diamond” that only needed polishing, and to get it cheap.

He warned against bidding at auctions for such homes if you planned to flip them, as buyers hoping to do this typically needed to get the property for at least 20 per cent less than it might have made with more time to “drum up interest”.

That usually meant buying off someone who needed to sell fast – something a good buyer’s advocate could help with.

Before you bought, he suggested hiring a feasibility consultant to run the numbers for you. At a cost of about $500 they could save you paying for a home that could not deliver the profits you were hoping for.

Speaking with local agents about how much value could be added to a home in the area was also a good way to avoid overcapitalising, he said.

“You might spend up to $80,000 on a smart renovation quite easily,” Mr Valentic said. “But you should at least double what you put in.”

After that the goal should be to minimise costs. He suggested DIY and co-ordinating tradespeople yourself rather than hiring a builder to manage them.

Mr Matthews recommended bringing in some handy mates for simpler parts of a renovation where possible.

A group of mates helping out with a working bee could be a cheap way to add big value to your next home purchase.

“A barbecue and a case of beer is a lot cheaper than paying labourers or tradies,” he said.

With interest rates rising, budgeting your time is also important.

While it will vary from region to region, Mr Richardson said a bathroom or kitchen update would usually take about six weeks – after four or six weeks spent arranging things. More in-depth renovations could require permits – adding time and expense.