Don’t be afraid of the ugly duckling

An ugly duckling could mean a dated property with brick Italian-style arches, or a 1960s peach-coloured kitchen with worn laminate benchtops and linoleum floor. It could also mean a rundown property with peeling exterior paint and falling down fence. Or it could just be plain ugly, with uncoordinated colour scheme, design and fixtures. It’s all a matter of taste of course.

Often investors overlook ugly ducklings because they try to imagine living there – in the house or unit in its existing condition. What they forget though is they won’t actually be living at the property, rather, a tenant will. And most tenants aren’t as fussy as homebuyers, and different level of expectation.
However many investors adopt the attitude that if they wouldn’t live in a place then why would a tenant? These investors need to get inside the heads of tenants a little more to find out what they look for in a rental property. Let’s go there.

Imagine tenants jumping online, onto one of the major rental websites. By this stage they’ve already decided on the location where they’d like to live. In most cases they know if the area is close to a university, in easy commuting distance to the CBD or major employment hub, cafes and shops, and if a train or reliable bus regularly services the area.
Then the property selection is filtered down based on price – the number of bedrooms followed by the property’s condition and appearance. This latter part can be modified but the location cannot.

So if investors can buy a property in a strong location in high demand by renters then the rest can follow. There’s no point in buying in an area with ugly ducklings galore, rather, in an area where properties are renovated already. It’s also important to select a property that suits the landscape and rental demographic of the area.
In the current property market and for loan servicing purposes it’s important to find a property that’s rentable now, with potential for renovation later when the risk of overcapitalising is reduced.

So it shouldn’t really matter if the property is an ugly duckling, it’s actually a huge advantage from a buy-in and value-add perspective. Though it is important to know if the ‘ugly’ features are easily, realistically and affordably changeable. This part isn’t as easy to identify as it appears. It might be good to seek advice from an experienced buyers’ agent on this one.

Recently I purchased for an investor an ex-government three-bedroom one-bathroom ugly duckling house in a suburb eight kilometres north of the Brisbane CBD.
My client’s brief was to buy something with value-adding potential in five to 10 years but that was also clean and rentable, with low maintenance and affordable minor cosmetic improvements from day one.

I like to look in areas with good land values, so in the future as the market moves and my client can renovate the property and see some great gains.
At first glance the house needed an external repaint. It was certainly an ugly duckling. My client and I were prepared for approximately $15,000 in beautification work post settlement.

To instantly increase rentability and rental yield, I obtained and negotiated a number of quotes including the external repaint, supply and installation of a split system Air-con, dishwasher and fan light combos, new blinds, new vanity and a general handyman tidy up.
The property was purchased for around $420k. It’s now being advertised for rent in the coming weeks for $420 per week. This is the fourth property this client has purchased via our buyers’ agent team.

The moral of the story: Ugly ducklings can turn into beautiful opportunities for investors, particularly as there is often less competition for them, the buy-in price is lower and they have plenty of room to add value. But it’s important to do the research and get the right advice.

 About Zoran Solano

Zoran Solano is the office manager and senior buyers’ agent at Hot Property Specialists Buyers Agency. With five years under his belt as buyers’ agent, this young gun is recognised as one of Brisbane's leading agents in buyer representation.
Known for his independence and keen eye Zoran is the competitive edge buyers need when purchasing homes or investment properties.
Zoran is also an active member of the Real Estate Buyers Agent Association (REBAA), an organisation that upholds legal and ethical buyers’ agent practice.
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