Be aware of the hidden costs when buying a fixer-upper

AUSSIES have fallen in love with the idea of a ‘fixer-upper’, but the pull of putting a personalised stamp on the great Australian dream is causing some first-time buyers and uninitiated renovators more financial pain than gain.

In order to better prepare first-time renovators for the true cost of a ‘blank canvas’, a new industry calculator is helping buyers crunch the numbers.

True cost of a renovator’s delight

Statistics from the Housing Industry Association shows the Australian renovation market represents around $33 billion, and the momentum to makeover our homes is only gathering speed, thanks to reality TV and social media.

But it’s not all pretty Instagram posts and profit according to Cate Bakos, buyer’s advocate and president of the Real Estate Buyer’s Agent Association (REBAA), who said many purchasers wrongly assume all renovations add value.

“What they might not be factoring in are all the hidden costs like the project overruns, or expensive quotes when tradies don’t need the work so put a margin on it,” she said.

“A lot of buyers get romanced by the idea of renovating and assume they’ll transform a house and get a great equity position, or future sales result.

But the information they sometimes get isn’t reliable. People listen to friends who simplify it or tell them how successful their project was – let’s be honest people sprinkle fairy dust on the numbers to make themselves look good because no one wants to admit they’ve overcapitalised or lost money on a project,” she explained.

Help building a renovation plan

Anyone wanting to renovate their home or buy a ‘fixer-upper’ can now jump onto the new ING renovation calculator to get a tailor-made estimate.

On the calculator, each renovation project has a question string that generates an individualised cost depending on the respondent’s answers, calculating all facets of the build including labour and materials.

Costs are varied according to postcode, using regional cost factors that allow for different wage rates and material costs across Australia.

ING Mortgages Lead Julie-Anne Bosich said the new tool, which draws on Cordell construction cost and location data, simplifies the planning process by helping reduce budget blowouts.

“The calculator allows users to quickly and more accurately determine the estimated costs of various home renovations in any particular suburb, with an extensive range of renovation types.

It could also be helpful for Australians looking to enter the property market and seeking to understand the total costs of buying a home that needs work,” she added. How first home buyers become unstuck

A critical issue for many first home buyers looking at a renovation project is that they can’t usually fund any works with borrowed funds, according to Ms Bakos.

“You actually have to have the cash at hand, or you need to have held onto a property over a period of growth in order to have enough equity to do a renovation project with borrowed funds.

“A lot of first-home buyers make that mistake because they assume that they can borrow enough to do the renovation straight away. A tool like this will allow them to scope it in stages and see whether it’s feasible or not,” she said.

Ms Bakos said the new calculator is a “really good starting point” as it forces people to be very specific about the potential project.

“When buyers have got access to a tool that is a bit more detailed than Uncle Bob’s, the guy at Bunnings or the tradie who quotes over the phone then they have the opportunity to plan and think ‘is this what I want to do? Or can I afford it?’” Unique challenge of a first-time fixer-upper ING research from early 2019 found that a third of Millennials would consider buying a home that needs a renovation in order to get on the property ladder.

James Vaughan, senior leader of industry solutions at Core Logic, said the new calculator would assist first timers weigh up their options.

“We know that affordability is a big challenge, particularly in inner-city locations, so this gives people a way to understand the true cost of a purchase and evaluate ‘Do I want an apartment, or could I find a fixer-upper and what the real cost of that would be?’”

Mr Vaughan said that buyers can also calculate whether upgrades in a certain location would change the value of a home significantly.

“People also want to be able to selfservice some of the information that’s out there on property and we’d like to empower our customers with that kind of insight. “Australians are absolutely mesmerised by any information they can get on property and now they can do the research themselves.”