Dump Or Delight? What You Should Know Before Purchasing A Derelict Property
Sydney’s obsession with buying a dump is becoming an epidemic. A wave of dilapidated houses have hit the market in recent times, with house-hunters dreaming of picking up a bargain property in a sought after location.
Last month alone saw Domain journalist Kate Burke’s auction research trip turn into a half submerged leg in the floorboard of a derelict Newtown terrace. The house sold for $1,051,000, after a fierce bidding war between two buyers who were not the least bit concerned by all the caution tape, the cracked walls or the broken floor boards.
Just to inspect the terrace you had to be over the age of 16, wear enclosed shoes and sign a waiver, excluding the real estate agent of any liability for any personal injury that occurred, she reported.
If you think that in and of itself might be a deterrent, think again. More than 100 groups inspected the Newtown property, a very strong number in the current market.
However, transforming an uninhabitable property into a beautiful home can be incredibly expensive, as structural problems hidden deep beneath the peeling paint, crumbling ceilings and rotten floorboards can’t be left alone once discovered. For properties protected by heritage constraints, a knock-down-rebuild is out of the question.
Yet rundown houses continue to appeal to savvy renovators and could offer the chance to create a dream home for those prepared to pay the price.
Paul Cree from Refresh Renovations said fixer-uppers often attracted buyers seeking entry into a suburb they otherwise couldn’t afford, while other buyers were drawn to a home’s period features.
Taking all risks into account though, is purchasing a dump a smart idea, and what do you need to know?
Mr Cree says that it’s important to really gauge the scope of work that needs to be done from the start.
Structural vs. Cosmetic
Sometimes a property can look very rundown but a lot of it is actually relatively cosmetic,” he said. “Other times the stumps or footings of the property need replacing and there are a lot of structural problems.”
Mr Cree said these hidden problems end up costing more than buyers realise, citing issues with plumbing and electrical systems and damp as the major culprits.
“There are often a lot of unknowns and it’s wise to have a bit of a contingency to tackle those unknown costs.”
Speak To The Local Council
Before buying a property, familiarise yourself with the development control plan of the local council and make an appointment to discuss your ideas with a duty planner.
Older homes are more likely to have heritage constraints, but Mr Cree said this usually involved a home’s facade.
“A lot of the time it’s more focused on the road-facing aspects of the property. There’s more flexibility with what they can do at the rear of the house.”
Don’t Forget The Building Inspection
A building inspection is essential, but it’s also worth hiring a builder to estimate the cost of renovations, as comparable renovated properties may prove better value. There is no point purchasing a property in this state that you simply cant do anything with.
Mortgage Choice spokesperson Graciela Gomez said it can be harder to secure a loan on a dilapidated property as the risk to lenders is higher.
“If the borrower defaults on their loan, the lender will need to repossess and resell the property,” she said. “This could be more difficult to do if the property is rundown.”
If the property is uninhabitable, most lenders require buyers to take out a construction loan to fund the project, with payments made in stages.
“Lenders will ask to see the borrower’s building contract along with payment schedule from a licensed builder. They will also request evidence of council approval.”
Securing A Mortgage
Buyers whose homes are valued less than the purchase price may struggle to get finance approved or may need to pay lender’s mortgage insurance which can add thousands of dollars to the loan amount.
Furthermore, renovating an uninhabitable home would be too challenging and expensive for first-home buyers without hands-on building experience, and not lucrative enough for developers.
Flipping a property can be trickier in a flat market, but when prices are going up, the risks of taking on a major reno are minimised, as even unimproved properties can benefit from rising land values.