26 Jan Cherie Barber – Australian Property Market 2016
Our guest today: Cherie Barber from Renovating for Profit.
Kevin: This time, Cherie Barber joins us. Cherie Barber, of course, is from Renovating for Profit.
Good day, Cherie.
Kevin: We’ve got you in one of your breaks, I think, of one of your seminars. Is that right? Your workshops?
Cherie: I am, yes. Day one. Big day.
Kevin: How many days in this workshop?
Cherie: Three days. About 12 hours a day.
Kevin: Oh, goodness. We’re privileged to have you on the show, so thanks for your time. Cherie, I wanted to talk to you about the 2015 market, your views on that, how you saw that. Was it an interesting year?
Cherie: Yes, definitely. 2015, at the beginning of the year, generally, most property markets – I think, Perth being the exception – were still appreciating in value. Definitely, what I’ve witnessed out in the field is the hysteria has gone out of the marketplace. I think that’s good because prices are stabilizing and probably getting back to where they should be.
When the market softens, moving forward, I think, for the next 12 months, property prices are probably going to come back in the order of 5%, particularly in the inner city ring. We just have to mindful that the property market is not one market, Kevin.
Kevin: Yes, that’s right. What about the people you’re working with around Australia? What markets are responding better? Are there any responding better to renovations than others?
Cherie: Definitely. What I’ve seen, particularly in markets like Sydney and Melbourne, there’s been so much hysteria in the property market over the last year and a half to two years where people were just paying ridiculous prices for renovated properties. What’s happened is because of the inflating property prices generally across the country, a lot of people have been pushed into the outer metropolitan ring in most states, and so we’ve seen a big boom in the outer metro ring, particularly from renovated properties. That is where it tends to work quite well.
The problem is people have gone out into those outer metro rings, the prices have been rapidly going up in a lot of those outer metro rings, so what most people are finding out is they’re completely priced out of the Sydney and the Melbourne property markets.
For example, in Sydney, the central coast is now booming and the south coast of Sydney is now booming because everybody’s been pushed out of the outer metro ring western-wise. It’s caused a domino effect.
I think moving forward, I think the outer metro ring, a little bit further – 50 Ks onwards – are going to get really good capital growth opportunities for anybody looking to renovate.
Kevin: Cherie, we’ve heard a lot of talk about how more and more people are moving to units, the unit explosion particularly in developments around Australia. Are units still a good proposition – some of those older style units – for renovation and turning over?
Cherie: Yes and no. I think they’re a good proposition if you’re an owner-occupier and you’re not really trying to build a property portfolio. Historically, apartments do get lower capital growth than a freestanding house, so you will always… Obviously, there’s some exceptions to the rule, but generally, you do get lower capital growth.
I think for people who want a nice apartment to live in as an owner-occupier, not too interested in building a property portfolio, that would be a fine strategy, but for anybody looking to be more aggressive, my advice to them would be not to buy an apartment, but to try to buy a low-budget freestanding house in those outer metro regional areas, not too regional, to get a higher capital growth than what you will on an apartment. That would be my advice to them.
Kevin: Cherie, is it still overcapitalizing – or the potential of overcapitalizing – the biggest mistake that renovators make, even in this market?
Cherie: They do. This is the thing. Generally what happens when the market is going well and property prices are increasing rapidly – like they have over the last year and a half to two years – the “buy, renovate, and sell” strategy becomes less viable, because with rising property prices, if you’re paying a higher price, it gets extremely hard for the numbers to stack up when you’re renovating to sell.
But when the market softens and it comes back to more normal levels, that’s when you’ll find renovating to sell, the numbers will start to stack up. What I’ve seen over the last year and a half to two years is that the “renovating to sell” strategy has become less doable and more people are transitioning into the buy, renovate, and rent strategy because that has a lot lower cost associated versus selling. That’s what I’ve seen.
Literally, you adopt a strategy, renovate to rent or renovate to sell, according to what cycle the property market is in. Either way, the best strategy of all is to buy, renovate, and rent. Even if the market is booming, you always want to try and hold onto a property because it’s compound capital growth that ultimately makes you wealthy, not just the renovation.
Kevin: What are your tips to anyone who wants to do that, Cherie, right now?
Cherie: In terms of renovating?
Kevin: Yes. You mentioned there about the buy, renovate, and rent. What are your tips on making sure that that is a successful venture for you?
Cherie: I think buying in the right suburbs, first of all, and I’ve already given you some clues as to where quick cosmetic renovations tend to work better. They definitely don’t work that well in the inner city rings, regardless of which state you’re in, because of the high property values. I think paying the right price, buying them in the most lucrative price range that you can for cosmetic renos.
Then, I think just knowing how to manage the renovation, I think that’s what most Australians struggle with. They don’t know whether to renovate one room at a time, the whole house at a time. They don’t know how to manage tradespeople. It’s trying to learn the whole process from start to finish, and that is the reason why I am in the middle of a workshop.
Kevin: That’s what it’s all about, of course. It’s learning what those skills are. That obviously varies property to property, or is it more of the investor profile, Cherie?
Cherie: It’s more your strategy. I think once somebody makes the decision to do renovating as their property strategy, generally your strategy remains the same. Typically, you will just focus on a small cluster of suburbs, so instead of being a jack of all trades, you become a master of one. You focus on a small cluster of suburbs, so you’re not spreading your wings too fine.
You’d be looking for the same sort of property deal after deal. In an ideal world, you do renovating that property in same manner, so almost adopting a cookie-cutter approach to how you renovate.
What I teach my students is not to get fancy on any cosmetic renovation, to work with a template that works, and that comes down to color schemes, the type of kitchen cabinet you put in, the type of floorboards, what color you sand them, all that sort of stuff, and all you do is replicate that project after project so that your renovation projects become a production line, a cookie-cutter mentality.
This cookie-cutter mentality, while it may not win you any design awards, what it will do is make you money. People don’t need to reinvent their strategies property after property.
Kevin: My guest has been Cherie Barber.
Cherie, thanks once again for your time.
Cherie: Awesome. Thanks so much, Kevin.