* The point being, when the mass public finally decide to join a trend - that's the best indicator that the trend is near an end. It's also evident in the media & the wider community (eg. The Block 2010, Under the Hammer, Hot Auctions, property investing magazines and seminars etc.)
James Glover has done the calculations for 'The Block 2010' project, here is what he wrote:
Channel 9′s high rating renovation show The Block just finished its successful second series on Wednesday night. It concluded with an auction of the four properties that the contestant couples had spent 8 weeks, and in excess of $80,000 each, renovating. The prize for the contestants was the profit of whatever they made at auction in excess of the stated reserve. The reserves were varied to reflect unique features of each apartments such as views, an outdoor living area or double garage. The idea was that the couple with the best renovation skills would see their apartment achieve the most above the reserve. In the end the couple who won, John and Neisha, achieved a price of $1,105,000 with a reserve of $900,000 and so made $205,000 (they also won first prize and an additional $100,000 which well ignore for now). Wow! $205,000! Okay that was for 8 weeks of back-breaking unpaid labour. But still. It makes you think that this renovating lark might be a pretty profitable way for making a living. A couple of apartments like that a year and youd be in gravy! Or would you?
The first thing to consider is the fact that the other couples didn't do quite so well, making $87,500 (Jake and Erin), $47,000 (Mark and Duncan) and nix (Brendan and Chezs apartment passed in below the reserve). Okay, you say, but that is still an average of $85,000 for each couple or $42,500 per person for a couple of months work. So take $42,500, divide by 8 weeks times by 52 weeks, carry the 2, take off 20% for holidays less breakages tap, tap, tap, that represents an annual profit of about $200,000 each. Still not bad. Break out the champagne!
But buried in the self-congratulatory articles, no doubt generated by Channel 9′s PR department, are some sobering facts. Put away the Kristal and maybe open a cask of Ben Ean and take a seat. The entire unrenovated apartment block was bought for $3.4m. The total amount spent on renovations (not including the couples labour) was $470,000 (including $100,000 on common areas). That makes $3.87m. The total sale price was $3.89m. So the total profit was a pretty modest $20,000. And that doesn't include stamp duty (about $200,000) or agents commission ($78,000 @ 2%) plus, lets say, legal costs of $2,000. So, in reality, the washup of The Block is a loss of $260,000. They don't mention that in the publicity.
My back of the beer coaster calculations show John and Neisha were still the winners having only lost $60,000 on their reno. Jake and Erin and Mark and Duncan each would have lost $66,000 and, still last, Brendan and Chezs reno lost $67,000. Perhaps Channel 9 should deduct John and Neishas loss from the winners prize of $100,000 and present them with a cheque for the $40,000 difference.
More revealing than the illusion that this was a profitable business from a renovators point of view is that the total reserve price was $3.55m. Now Id expect the total reserve to at least equal the break-even cost of the apartments, or $4.15m. In fact it was $600,000 below the actual cost of buying, renovating and selling The Block. If in a very public show like this, with 1.2m viewers, the agents can so blatantly quote below the break-even reserve then what hope for the tens of thousands of buyers in suburbia struggling to match house ads with reality? Its enough to do your block in.
Yes Menta, the figures do support your argument that the trend is not your friend.
