5 Ways To Find The Best Renovator Suburbs In Australia
Written by Leading Australian Property Market Analyst, John Lindeman.
How can you identify ‘renovator suburbs?’
For starters, renovator suburbs are areas that possess the favourable conditions conducive to profiting from renovation. And because anybody can become a property renovator, what you should be excelling at is spotting the hidden gems amongst the numerous suburbs in Australia.
Knowing which suburbs will provide you with the best opportunities to achieve your goals is important. This is because every suburb is different in some way. Interestingly, each also has its own potential and pitfalls.
So first, let’s look at some of the challenging factors that await unsuspecting renovators and how you can get past them.
RESULTS ARE OFTEN COMPLETELY DIFFERENT TO EXPECTATIONS
As a renovator, you won’t know whether or not the resulting sale price will be higher or lower as you’ve projected. That’s at least until it gets actually sold.
One of the reasons is suburb price changes. Suburb price changes happen all the time and sometimes quite significantly. These fluctuations take place in accordance to the supply and demand of properties in a suburb. Such market movements can decide the fate of a renovation project. Figures 1 and 2 provide two examples of how this can happen.
To illustrate, let’s say that the renovator in Figure 1 is Zaheer and in Figure 2 is Jodie.
At the start of 2015, Zaheer bought a unit in Peakhurst. He planned to renovate and sell the unit in one year. At the same time, his good friend Jodie bought a unit in Greenacre with the same aim in mind. Both paid $500,000 each for their property and spent $100,000 on buying, holding, selling and renovation costs. Both also expected the same profit of $150,000 from their efforts.
Figure 1 shows that Zaheer’s sale resulted in a net loss of $122,500. Jodie, on the other hand, walked away with $462,000 profit from the sale of her Greenacre unit. It was three times more than she expected. They did everything by the book but their results were different.
The answer is that according to Australian Property Monitors figures, the median price of units in Greenacre rose by 55% during 2015, while in nearby Peakhurst unit prices fell by 23%. In fact, these were two of the best and worst performers in Sydney during 2015.
No renovator would want to be in Zaheer’s shoes. So what can you do?
START BY ELIMINATING UNSUITABLE SUBURBS
Making up a short list of suburbs is a process of elimination. You can cross out suburbs beyond your comfortable traveling distance. Too much unproductive time spent in the car soon becomes tiresome. That’s unless you employ a project manager to oversee the renovation.
Then you should eliminate suburbs outside your buy price range. The general rule is to buy a property well below the median price for the suburb with the aim of renovating to around or just over the median.
The next step is to remove suburbs where there’s little variation in the type of buyers, the type of housing and the buy price range. You can easily do this by viewing the listings of properties for sale in any suburb. Then, go and have a look for yourself to confirm your findings.
AVOID SUBURBS WITH LARGE NUMBERS OF NEW OR INFERIOR STOCK
If your potential renovation is located near a new development or anywhere where properties are listed for sale, your finished project will be competing against them. This may make it more difficult for you to sell the property at the price you need to make the profit you want.
To identify suburbs with high numbers of new or off-the-plan properties, look up the number of houses or units currently on the market using any well-known listing site. After checking the total number of houses or units listed for sale, refine your search by including only ‘new construction.’ You can now see what percentage of the houses or units listed are claimed to be new.
In other suburbs such as university precincts and retiree destinations, it isn’t just the volume of new stock but also the type of stock on the market that matters.
In suburbs near tertiary education institutions, there may be loft or studio apartments designed for students. In regional areas, there may be low priced duplexes and townhouses targeted at retirees. These tend to have smaller floor areas and fewer bedrooms than older stock in the area, and your renovated property will be competing for a buyer against them.
Even if there’s price growth potential in such suburbs, your chances of achieving a profitable renovation deal are greatly diminished by the nature and volume of the competition. To identify suburbs with high numbers of such low priced stock, look up the number of houses or units currently on the market using any well-known listing site and rank them by price from lowest to highest. You can then see what types of dwellings make up the lowest priced listings.
HOW TO NARROW YOUR SEARCH DOWN TO THE BEST SUBURBS
Suburbs that offer the greatest potential are usually older, well-established suburbs with a mix of housing types. This includes ex-Housing Commission areas and suburbs with ex-holiday homes.
Our capital cities and regional centres contain many suburbs with substantial stocks of current and former ex-Housing Commission estates. Many of which are now well-established locations such as Sydney’s beachside suburbs, Melbourne’s outer bayside and Mornington Peninsula suburbs and Hobart’s Eastern Shore. Most of the houses are now privately owned, having been refurbished and renovated.
Pockets of the original homes remain. They’re well-located but are tucked away between much grander homes. It’s here that the opportunities for renovators lie.
Figure 3 shows the opportunities that these homes offer renovators, as they’re mostly well constructed and although of modest nature, often situated on large blocks of land.
OPPORTUNITIES IN REGIONAL AREAS AND INNER URBAN PRECINCTS
The most promising ex-holiday home localities are where the process of refurbishment and gentrification is obviously underway, but not yet complete. You can still find ex-holiday homes scattered along the coastal, bayside, riverside and mountain fringes of our major cities and regional areas.
Once spurned as second rate accommodation for battlers, these homes are often located in the best parts of desirable suburbs, usually on large blocks of land. Your improvement of them will be welcomed both by the neighbours and the local council. Although they’re a limited and rapidly diminishing housing renovation opportunity, numbers of them still exist in areas surprisingly close to our urban
Although they’re a limited and rapidly diminishing housing renovation opportunity, numbers of them still exist in areas surprisingly close to our urban centres. Figure 4 demonstrates the potential that such properties have for renovators.
Other opportunities can be found in the surviving inner suburban ring of houses that constituted the entire metropolitan areas of our cities a century or so ago. Not only are these houses located in highly desirable areas, some have not been improved for a generation or longer and their seemingly endless variation of styles and sizes offer great opportunities for renovators.
The suburbs shown in Figure 5 are located in inner suburban areas with a huge variety of housing styles and prices.
In the post-war years, houses in such inner suburbs were looked down on by the locals as colonial or Federation relics. This enabled migrant families, particularly in Sydney and Melbourne, to buy them relatively cheaply and set up the ethnic communities for which they are now famous.
These suburbs have become, or are in the process of becoming rejuvenated precincts sought by professional couples who enjoy the vibrant sidewalk café lifestyle and their cosmopolitan atmosphere. The type of demand dictates the type of houses that can best be renovated, their location and the way in which they should be renovated. There’s a great variety of housing styles in older inner suburbs. But unless a house can be easily renovated to this living style, it will not achieve the desired result.
HOW TO CHECK FOR POSSIBLE SHORT TERM MARKET MOVEMENTS
Once you’ve selected a few suburbs which tick all the boxes, you need to check which way the local market is likely to move during your hold period. This is assuming that you’ll be selling once the renovation is complete.
Remember what happened to Greenacre and Peakhurst unit prices during 2015? They demonstrate the importance of gaining the benefit of positive market movements during your hold period and avoiding suburbs where prices are likely to drop. The easiest way to get a handle on which way prices are likely to move is by watching how the number of houses or units listed for sale changes over time. There’s a three to six-month time lag before prices respond to the changes in the number of properties for sale. The correlation is very close.
Figure 6 shows that the number of units listed for sale in Peakhurst rose steadily from the middle of 2014. It also shows how the median price started falling six months later. The graph also shows that the number of listings stopped increasing from the middle of 2015 and how the median unit price stabilised as a result.
You can obtain the median price for houses or units in any suburb from the Databank in the back of your API Magazine, placing the median price against the month that the data was collected. You can check the number of houses or units for sale from any well-known on-line listing site. Do this once a month and keep a record of the results. If you notice that the number of houses or units is rising over time, it’s highly likely that price falls will follow. Figure 7 shows what took place in Greenacre during 2015 and explains why unit prices rose.
During the first half of 2015, the number of units listed for sale in Greenacre fell. This led to unit prices rising during the second half of that year. It was the exact opposite of what took place in Peakhurst.
Figure 7 also shows that the number of units for sale in Greenacre climbed sharply in the second half of 2015 and why prices are highly likely to adjust as a result.
This method is a simple guide. There are other factors you could take into account, such as days on market and the number of sales. And while the opportunities presented by renovating are largely dependent on your own skills, the equally important task of finding the best suburb should never be neglected.
API Databank best and worst performers in 2015 House price data provided by APM Property Power Database, Property Power Partners