Sydney property market: how to find the perfect dump to build your dream home

The temptation of buying the worst house on the best street and doing a reno has become irresistible to buyers looking to combat rising house prices.

There has been an uplift in the number of people buying so-called fixer-uppers in recent years thanks to reality TV programs like The Block selling the great Aussie dream.

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While the idea of turning a rundown house into the suburb’s next dream home sounds tempting, experts say there are plenty of pitfalls, from buying the wrong property to underestimating the work involved. However, with the right plan and following some key steps, owner occupiers can turn their fixer-upper into a slice of paradise.

Choosing the right house

Owner occupiers should pick a house that matches their experience and renovation capability.

Renovating for Profit founder and star of Space Invaders, Cherie Barber, said it was crucial first time renovators stuck with homes needing only cosmetic updates instead of those with more complex structural issues.

“Most Aussies will have a hard time stuffing up a home needing cosmetic updates,” she said. “It is really dangerous to undertake a project with structural problems if you have no experience.”

A buyer should also look at the attributes a property offers such as the location’s capital growth opportunity, a good floorplan and potential to add value.

“You need the floorplan to be functional otherwise you are spending a lot of time and money trying to change the layout,” Ms Barber said.

Doing due diligence

Due diligence is already important when it comes to buying a home, but with a fixer-upper it is even more crucial to take the time to avoid buying a lemon.

Buyers should look over the contract to ensure there are no restrictions, such as a heritage listing, that could complicate any renovation plans. Ms Barber said that in addition to a building inspection, a buyer should also do checks for asbestos, plumbing issues, pests and a chemical lab test, which reveals whether a property was used as an illegal drug lab.

“If the property is contaminated with chemicals from the production of illegal drugs, it often has to be demolished because those chemicals can’t be removed,” she said. “Asbestos is a massive job to remove and costs often run into the hundreds of thousands of dollars.”

Creating a budget

In addition to normal budget requirements, a buyer needs to factor in the cost of a reno.

The first step is to walk through the house and write a list of everything that needs work – from the wall needing a fresh coat of paint to the floorboards requiring replacement or repair, and broken lights. It’s helpful to create a spreadsheet listing the materials required, any labour costs and an estimate on what each repair/replacement is likely to cost.

“Always add 10 to 20 per cent on top of the reno to avoid any surprises, which happens a lot,” Ms Barber said.

Buyers agent and author of The Insider’s Guide to Renovating for Profit, Patrick Bright, said buyers should consider whether their renovation would require council approval and plan accordingly.

“Council is always expensive and takes a lot of time, so if you are going to deal with them you might as well go big,” he said.

With insane prices being paid at auction, Mr Bright said it was important for buyers to keep a cool head when bidding – as FOMO could see them overextend and blow their renovation budget.

Capitalise just right

Over and undercapitalising are both common for buyers not prepared for the endeavour. Renos should add value and it is important to ensure money is spread evenly throughout the house and not just on one room.

“Just because you spend $500,000 on a renovation doesn’t mean the value of the house has gone up by that much,” Mr Bright said. “The mistake a lot of people make is they don’t think carefully about a renovation.”

A buyer who takes a long term approach to a property can afford to spend a bit more without it coming back to bite them.

“Someone staying put at a house for 20 years can push the rules of overcapitalising a bit,” Ms Barber said.

Undercapitalising was often found when owners had blown their budget buying the house, so had to renovate to a low standard.

“Since everything is done so cheap it doesn’t add any value and they lose money as a result,” Ms Barber said.