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Why 3 out of 4 houses on The Block were passed in

August 23, 2011

The Block may have been a ratings winner for Channel Nine, but with 3 out of the 4 properties auctioned at the weekend passed in, there were tough lessons for anyone thinking of buying and renovating property. Why were the results so disappointing?

To begin with, by paying $3.6 million to secure four properties in a row in Richmond, Channel Nine almost certainly paid a substantial premium.  For some strange reason, it appears that the reserve set for each property reflected this inflated price, rather than the more realistic and lower market price.  The contestants were facing a significant handicap even before they picked up a hammer.

Second, when you renovate a property, you have to be mindful of the level of refurbishment that is appropriate for the location. The more prestigious the location the more you can spend on renovation and still be confident you will obtain a good return on that investment. Unfortunately, Cameron Street, Richmond is not a great location – opposite a car park and surrounded by apartments. That in itself need not have been an insurmountable problem. But the subsequent renovations were too sophisticated and expensive for that location. The rule about matching your renovation to what the market will bear in a particular location was broken.

Even though many buyers would have liked the finished product, they didn’t like the location – and that was The (stumbling) Block.

Image: Channel Nine