01 Feb When you are on a winner – stick to it! – Cherie Barber
We are joined by the queen of renovation – Cherie Barber – who last year predicted that the inner ring cap city markets would be more subdued and her recommendation was to take a ‘cookie cutter’ approach to renovation.
She expands on that this year and tells us why we should be the last ones to get bored with a uniform approach to property renos.
Kevin: We’re going to check in with another one of our experts who we spoke to at this time last year about the property market and what they expected to have happen, and that is Cherie Barber.
Hi, Cherie. Nice to have you back in the show again, and happy New Year to you.
Cherie: You, too, Kevin.
Kevin: Cherie, let’s have a listen to what you said this time last year.
Cherie: Moving forward, I think that for the next 12 months that property prices are probably going to come back in the order of 5%, particularly in the inner city rings. We just have to be mindful that the property market is not one market, Kevin. Moving forward, I think the outer metro ring, a little bit farther – 50 K’s onward – are going to get really good capital growth opportunities for anybody looking to renovate.
Once somebody makes the decision to do renovating as their property strategy, generally your strategy remains the same. Typically you would just focus on a small cluster of suburbs. 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’d be renovating that property in the 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 renovations, to work with a template that works. 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. All you do is just replicate that project after project so that your renovation projects become a production line, a cookie-cutter mentality. If it’s cookie-cutter mentality, while it may not win you any design awards, what it will do is make you money, so people don’t need to reinvent their strategy property after property.
Kevin: We’re back live now with Cherie Barber. Cherie, you made some very good points in there. The opportunities for people to make money – which is what we focused on there in that last little segment – were there some good opportunities did you see last year?
Cherie: There were. There’s definitely very strong interest in renovating still right across the country because the premise of renovating is all about adding value regardless of what the market is doing. Some states have suffered. Obviously, the Perth market has taken substantial losses in 2016. However, most of the other states from a renovation perspective really held their own. Most people in 2016 flipped from the buy, renovate, and sell strategy to the buy, renovate, and rent strategy, which is very lucrative right now.
Kevin: Yes, we’ll talk about that more in just a moment. I’d love to get your insight into that. You made a very good point I thought – and you and I talked off-air about whether we should make this a national focus or a local focus. I think there is a danger for people to become too broad. In other words, I think you made the point in that segment about making sure that you work within the small cluster of suburbs and get to know them quite well. Is that still your premise?
Cherie: Absolutely. That’s a problem. People chase renovation deals. They might be in one suburb one weekend and a couple months later, they’ll be chasing a deal 20 K’s away. I’ve personally always adopted this theory of becoming a master of one, not a jack of all trades. I’ve always applied that rule to my property investing, and I’ve done very well.
Certainly for my students across the country, I say focus generally on a cluster of suburbs – five suburbs or less. Become an absolute expert at them, because then you know what’s happening in those suburbs. You know what prices you should be buying at as a renovator. You know the likely demographics of who’s either going to buy or rent that house when you finish your reno project.
And obviously, once you become a suburb expert it means that you can forecast your expected resale or revalue price before you even buy. When you become too broad, your ability to do that really gets hindered.
Kevin: You also mentioned in that segment about the cookie-cutter concept. I imagine if you had a formula that worked and you’d done it once or twice, would that make it easier to shop around and find the type of property in the area that you want, Cherie?
Cherie: It does. I do preach the merits of the cookie-cutter template to my students nationally. Yes, that makes us a little bit more boring. We’re not going out an installing all the latest mod cons and all that sort of stuff. I am a big, firm believer of a cookie-cutter template for your renovation projects.
For example, for my personal projects, all of my projects are the same color – the same internal wall color, the same external wall color. You never have two houses that are side by side, so it’s not an issue.
When you adopt a cookie-cutter mentality, your renovation projects become nothing more than a production line where it’s a different day, a different address. That’s how you get time, cost, and process efficiency. Your tradies come on site. If you do the same thing, the same signature look, project after project, then your tradies automatically know what to do, so you’re not reinventing the wheel, and that does save you a lot of money.
Also, cosmetic renovations work best at a certain price point, and at the price point that cosmetic works financially, you don’t need all the bells and whistles. You need to get in there, make the property look better than before – obviously to a good quality standard but it doesn’t need to be a slick, modern, designer premise. That will cost you more money, which will erode your profits. In large part, it’s about getting back to basics.
Kevin: You call it a cookie-cutter concept; I call it a winning formula. If you know it’s going to work you have to recreate it. You said there about being boring. The only person who would get bored with that would be us ourselves because we’re seeing it all the time, but bearing in mind that we’re going to be selling these properties to different people, we’re the only ones who are going to get bored with it, I would think, Cherie.
Cherie: That’s true. For example, I’m about to do my 100th renovation in the next couple of weeks, and for a large part of those, I have adopted the same cookie-cutter template for all of my projects. When you do that it just saves yourself a lot of headache. You don’t have to go to Bunnings and buy new fixtures and fittings. You don’t have to go to the paint store and look at 300 new paint swatches. Your life becomes very easy when you adopt a cookie-cutter production-like mentality for your renovation projects.
For example, I obviously do Channel 10’s The Living Room and renovation shows overseas, and for those shows, I have to reinvent the wheel every single project. I can’t use my cookie-cutter template on those projects because then they’d say, “You’re boring, Cherie. You’re doing the same thing.” So I have to reinvent the wheel. I tell you what. It causes me so much frustration in getting paint colors wrong, in choosing a kitchen laminate that doesn’t look as good as my normal cookie-cutter template, so there is a lot of merit for sticking with a winning formula.
Once you get a winning color scheme, a color scheme that is timeless that won’t date, that will still look great in 10 years, and fixtures and fittings that appeal to the majority of people – once you have that template, just roll it out project after project so that you do maximize your renovation returns.
It’s a very, very, simple concept, but people try and over-engineer things or they try and win design awards. At the end of the day, I don’t need a trophy on my mantelpiece to say I’m the best designer; my renovation projects need to make money.
Kevin: Okay. Fast forward to this time next year, will you still be saying that buy, renovate, and hold is the strategy for 2017?
Cherie: Absolutely. It’s getting very difficult. It doesn’t matter what state of Australia you’re in, it’s very difficult to buy, renovate, and sell if you’re doing a cosmetic renovation. With the high entry and exit costs of a renovation project these days, it’s very hard to get the numbers to stack up.
I do believe that the buy, renovate, and rent strategy has a lot less cost involved. It also means that if people are not selling their property on completion of their renovation, they’re going to be renting it out to a tenant. A tenant technically should pay all of the mortgage. If not, and they’re still in a situation where they’re forking out a bit of cash, most of that they’re going to claim back. The owner of the property will claim that back on negative gearing benefits anyway, whereas structural renovations are still very strong for buy, renovate, and sell.
Obviously, we have the two types of renos – structural renos and cosmetics. The structurals are buy, renovate, and sell – no problem there in most states of Australia. But for cosmetics, it’s definitely buy, renovate, and rent.
Kevin: Well done, Cherie. You can catch Cherie, of course, at her website RenovatingForProfit.com.au or catch her on Channel 10’s The Living Room Friday nights. A great show, too.
Cherie, thank you so much for your time, and all the best for this year.
Cherie: Thank you so much, Kevin. It’s a pleasure always.