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March 28, 2011

Is purchasing the ‘worst house in the best street’ always the road to success?

It’s long been thought that buying the worst house in the best street is a wise plan for investment. After all it’s location that’s the most important aspect of any real estate acquisition right?


Well not necessarily so – many ‘would be’ property developers enter into an acquisition only to find themselves with a plethora of problems they hadn’t expected to encounter. Whether it’s purchasing a renovation project that puts you on the fast track to bankruptcy, or simply mismatching the suburb’s buyer profile, it’s important to get the equation right if you really want to win the game. Here are a few tips to get you started:

  • Firstly, don’t imagine that purchasing and renovating for a profit is an easy exercise. It’ll more than likely involve significant holding costs and a number of years growth before you reap a harvest. The oft marketed ‘flipping’ technique made to look easy by numerous renovation television shows, is not for the inexperienced and can result in costly mistakes. Before you start see a financial advisor and be realistic about what you’re hoping to achieve.
  • Learn the area profile and understand the type of buyer that purchases in your suburb of choice. If you’re purchasing in a family orientated suburb, concentrate on larger blocks of land with the potential to build a family sized home. If purchasing in a street full of single fronted period terraces, don’t buy the townhouse that sticks out like a sore thumb on the horizon. Chances are the reason buyers migrate to the area is due to the attraction of the architectural landscape.
  • Subdivision is a marvellous idea, however again it’s important to pick your area of choice carefully. If you’re in a school zone, purchasing land that once subdivided only has the ability to fit two small two-bedroom units is not going to attract punters when it’s time to rent or sell. Make sure the land size is large enough to accommodate any future plans. The local council website can be a fountain of knowledge when it comes to gathering essential information of what is and isn’t allowed when developing. Also make use of your local government land data website to assess other important criteria such as zoning, heritage overlays or areas in threat of flood inundation.
  • Watch out for outstanding issues such as large trees or sites with steep gradients that will blow the budget. Moving trees not only requires council approval, it can also be a very costly exercise. If they’re on the block’s periphery it may not affect your plans, however all due diligence must be assessed prior to signing the contract. Don’t consider embarking on a purchase until a solicitor has thoroughly checked the paperwork for items such as easements and covenants.
  • Underestimating the cost of renovation is a classic error many would-be developers make. Even if you’re planning on demolition your plans may require the property to be liveable for a period of time (one or two years) before you begin your project. Get a building inspector to assess the property and inform whether there are any issues that will render the house dangerous for immediate occupation. If the roof is going to cave in as soon as there’s a storm, you need to take this into account before you make any long-term plans.
  • Overpaying for property is the most common error investors make.

    It’s not unknown for an unrenovated property to get a higher price than its renovated neighbour simply because people rock up to the auction thinking they’re going to ‘bag a bargain’. Old houses are often advertised as ‘executors’ auctions, quoted low, and therefore generate lots of interest and activity. If you don’t do your homework, or have doubts about a property’s value, it pays to invest in good independent advice. Sales campaigns are designed to create the impression that you’re purchasing a ‘one-off’ opportunity. However employing a buyer advocate not only opens you up to off market listings, you’re prevented from overpaying and have someone with strong negotiation skills to secure the ‘bargain’ you’re looking for.

Catherine Cashmore is a senior property adviser and buyer advocate for JPP Buyer Advocates – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiates over $100m worth of property each year for clients. http://www.jpp.com.au


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