Latest NewsIn Search of Capital Ideas.... ?Sunday, 12 February 2017

How best to add value to an ugly duckling is an issue faced by many buyers interested in appreciation.

Real estate abounds with adages. A perennial is "buying the worst house in the best street".

But it's extremely difficult to do because everyone has the same idea.

The concept is essentially about potential and it's a word used often to advertise property. But what exactly does "potential" mean?

For different buyers it can mean different things, but generally it refers to the possibility for capital growth. There are three main ways that can be achieved: demolish and rebuild; renovate and extend; or refurbish and redecorate.

If you're taking the first option, then land value and location are the two main things to look for. Property is underpinned by the value of the land.

The further you get away from public transport the less the value of the land. With location it's not just the street. It's the actual area.

Architect Darren Carnell specialises in high-end residential design. He agrees that the overall environment is an important consideration and that there are many factors to consider - from the amenities (how close are parks, schools and shops) to the aesthetics (what are the trees in the street like? What does the site look like at different times of the year?) and the practical, such as what the neighbours are like and how close they are to sightlines, and privacy issues.

When building a new home, neighbours are an important consideration.

The design should fit with the existing streetscape for two reasons. Putting an "ultra modern monstrosity" up in a street full of Edwardians or Californian bungalows wouldn't be in keeping with the street.

There's also the fact that in those sorts of areas, residents often oppose inappropriate development to maintain their streetscapes so they could try to make it harder for the builder's plans to go through.

If such plans do succeed, resale could be difficult. They don't want the ugly duckling that everyone in the street is up in arms about because it never should have been built - and they'll probably hate you now because you bought it.

Major extensions and renovations can be as expensive as building a new house. However, sometimes heritage overlays leave no choice, or some buyers want to retain the character of existing facades.

In any case, "good bones" are considered important when looking for potential in a property. Good bones are the floor plan, and it's important to always look at that first.

A central bathroom is important, as are decent-sized bedrooms. You need something to work off, so houses that have been renovated 20 or so years ago can be good for this reason.

The structure is there and it can be re-renovated. Family rooms leading to outdoor entertaining areas are popular extensions these days. If the floor plan is right, and the kitchen is already at the back of the house, it's a fairly easy job to do.

The idea, is to "buy something and add value, without spending heaps of money".

To this end, Mr Carnell advises devising a master plan before any alterations are made, especially if budget restraints mean work needs to be done in stages.

"Get the plan done that transports them to their final vision and then peck away at that," he says.

"At least then if they do the bathroom and they do the kitchen, they're doing it in the locations that allow the rest of the master plan to unfold over time".

The third option involves working within the existing walls. To bring it up to speed you might need to redo the kitchens and bathrooms but there'd be no major extensions or renovations.

If you look at what's there, if you can replace it, rather than move it, that's the way to go.... Replacing a toilet costs a lot less than moving it.

Cosmetic touches can add value quickly, too. A tart up could potentially add 10 per cent to the value of the house.

A $10,000 interior paint job could add as much as $30,000 to $40,000. Whether renovating or refurbishing, the rules of thumb of real estate still apply. Orientation, which equals light, is important.

North-facing is still considered the best bet. The quality of the rest of the street counts. It's very, very important to make sure it's a nice street and the home will hold its value. Position on the street is important, too.

"Properties on the high side of the street will attract a better price than those on the lower side.Buyers and investors should try to "hug the city" because the growth goes from the city out, and the further out you get, the less growth you get.

And at the end of the day, potential is all about the capital growth.