What TV Shows Such as The Block Can Teach You About Being an Investor
There are some property investment tips you can learn
Just about everyone in Australia knows what The Block or House Rules is. They are reality TV series based on property. The Block is a reality TV series on the Nine Network that follows four couples competing against one another to renovate and auction off properties. If there's anything that property buyers and property investors can get from the TV series, it’s an insight to the reality of what goes on in renovating and developing properties.
By analysing the sales results of the properties featured in the show, it certainly gives you an idea of what's truly involved in the process. It provides evidence of the investment, costs, work required and potential increased value of a property in the associated location. Of course this will always vary, however it’s a helpful insight.
The sales results seen on the TV show are a great indication of how important it is to fully understand what should be considered when renovating a property. Knowledge of the location's importance, competition, and target market should never be underestimated. It is also important to not overcapitalise the development.
Having said that, the sales results these properties generate have a lot to do with the hundreds of thousands of dollars’ worth of ‘free air time’ and publicity they get during the filming of the show. The results are often an anomaly that no sworn valuer would use as a direct comparable property for a valuation report.
As a buyer, you have to understand what risks you are exposing yourself to. By definition, risk is the extent wherein you are prepared to expose yourself to loss, in exchange for a payoff. The risk depends on your own tolerance along with the risks involved in how you renovate or develop a property for profit. Since TV programs such as The Block are ultimately designed to generate ratings, the decisions of the contestants are greatly affected by what the producers have to say. In each series, it is the producers who identify the location and type of property to purchase and renovate.
The producers, in a way, take a risk in their decisions as they hope to recover the money spent in purchasing the property and developing it. They plan to then offset any loss with high audience ratings and receipt of associated advertising and sponsorship dollars for the network. Meanwhile, the participants have to prove their capabilities through each challenge presented to them throughout the series. In return, they get to have a shot at winning a cash prize along with any profit they have made.
The competitors in each series do however take a risk in joining the game. Since they will be spending their own time developing and renovating a property, they cede their ability to earn an income for their services. They enter the competition without any expectations but a desperate hope to win the final prize and the profit share gained from the sales of the property they were able to sell.
As the contestants have given their full trust in the producers, they have to rely on them as to how marketable their properties could potentially be. The producers have the authority to make decisions on the property type and location to develop and potentially sell to an interested homeowner. Therefore, the contestants need to make sure they don't overcapitalise on their expenses for renovation. This way, they are able to make a profit from the excess budget.
Knowing these things, there is always a question on how marketable a property can be. Throughout the TV series, it has sometimes been the case that one of the perceived ‘worst properties’ was able to earn more profit compared to the three other properties, that appeared to be far better.
There could be a multitude of reasons. Here are some:
Demand: If at least two buyers are willing to pay a large amount of money for a property at auction, and have the available budget, the price can soar rapidly. This can be based on the property type, location, size and other things. On the contrary, if prospective property buyers have a limited budget or are not as determined to overpay for a property, the price will remain low.
Design: Design plays a vital role in a property’s value. The layout, colours, materials, quality of finish and practicality are all contributing factors to how well a property is received in the eyes of a prospective buyer. Design can also influence an individual’s emotional attachment which can impact the amount they are willing to pay. However, no matter how beautiful a home is, buyers should always make sure that the property they purchase may potentially yield a strong capital growth for them.
Property Type: Location is a one of the most important factors to evaluate when assessing the value of a property, however the property type is also a major contributor. Detached houses are generally regarded as more valuable than for example townhouses or apartments. This is because land values often increase in the long-term, whilst the building value decreases via deprecation. So buy for land value, not land size. Factors such as the age of the building, its size and whether or not it’s on a single level all contribute to the value and impact a selling agent’s ability to attract buyers.
The Auctioneer: The auctioneer's stature plays a key role in the result of the sale. Where they start the bidding, the bidding increments and the way they interact and engage with the buyers can influence the final value. An auction can produce extravagant outcomes if a property's demand is far higher than its supply.
The common theory of buying below 'replacement value' is important however it becomes redundant once the renovator overspends on the property's renovation. Often, this is a result of the renovator's poor decisions and can be costly if the property's actual market value doesn’t increase sufficiently.
In the end, the lesson to learn from programs such as The Block is that property prices can never be guaranteed and the market is often unpredictable. Renovating a property can add value however it should be carefully considered. There is always a risk involved in renovating or developing a property for profit. As such, those who have a medium to high risk profile should make sure they are aware of the potential pitfalls and are up for the challenge to secure a positive and profitable outcome.