With these returns, would you buy a Block apartment?
For those hoping to spin a profit from their properties, are The Block apartments really worth it?
Buyer's advocate and Block judge Frank Valentic has successfully bid on more Block apartments than anyone else, and is planning to do so again at next week's Triple Threat auction.
His clients are mostly investors, renting out their fully furnished Block purchases. Valentic has bid on 16 Block apartments in total over the years, securing four for his clients.
The first was in 2011. 39 Cameron Street in Richmond was the winning renovation for Polly and Waz, with Valentic's investor client paying $855,000. Valentic says it remains the Block purchase with the best value, calling it "the steal of the century".
"We bought it in a downturn market," Valentic tells Property Observer.
"The market peaked in April 2010, then went in a downward spiral for the next two and a half years."
A year and a half into that downward spiral, Polly and Waz's renovation appeared. A tenant who's been renting the property for three years pays $975 a week.
39 Cameron St, Richmond (currently managed by Advantage Property Consulting)
- Renovated by Polly and Waz
- Purchased by an investor in August 2011 for $855,000.
- Currently leased for $975 per week
- 5.9% yield
The house has been recently valued at $1.1 million, following a resales of neighboring Block properties. 37 Cameron Street, which was renovated by Josh and Jenna, was purchased for $1 million at the televised auction, and resold in 2013.
Rod and Tania's renovation at 43 Cameron Street also resold in 2013, for $1,038,000. The result was $216,000, or 23.4%, above its 2011 price of $922,000.
The next Block property Valentic secured for a client was the Sky High apartment renovated by Western Australian couple Matt and Kim. The apartment at 201/142 Park Street in South Melbourne cost the buyer $1,455,000. The downsizer originally lived in the apartment, before moving out and renting it for $1,600 a week, or a 5.7% yield.
201/142 Park St, South Melbourne
- Renovated by Matt and Kim
- Purchased in July 2013 for $1,455,000 by a downsizer
- Now used as an investment property, leased for $1,600 per week
- 5.7% yield
Valentic says his clients are attracted to the rental yields on offer at The Block apartments, with all of the Block investment properties he has secured yielding over 5%. According to SQM Research, the Melbourne implied gross rental yield for a unit is sitting under 4.5%.
"I think The Block itself has a pretty successful formula and the locations they're choosing are blue chip suburbs," says Valentic.
"They are bulletproof suburbs."
Melbourne Block series have been filmed in Prahran, Albert Park, South Yarra, South Melbourne and Richmond.
"You're up there in some of the best 10 suburbs in Melbourne in terms of price growth, demand, amenities, cafes and lifestyle," says Valentic. The tight supply of properties each season also boosts their value.
"It is a boutique block, they're only building four or five," Valentic explains.
"So each has land value – you're buying one quarter of a block of land in South Yarra or Prahran."
Perhaps the most "bulletproof" ofthe Melbourne Block properties so far has been the Dux Theatre in Albert Park, where The Block: Fans v Faves series was filmed. There, the renovators made record profits as Block property prices reached $2.47 million. That's how much Valentic bid for the winning apartment, renovated by Steve and Chantelle. Unlike some of his other Block purchases, 1/47 O'Grady St, Albert Park was bought by owner-occupiers – a young couple with a baby.
- Renovated by Steve and Chantelle
- Purchased in April 2014 for $2,470,000 by owner-occupiers
Valentic again secured the most expensive apartment on offer last season, at The Block Sky High in Prahran. Simon and Shannon's apartment at 4/125 High Street sold for $1.9 million to an investor from Kilsyth, who plans to move in when their kids are older and leave home. Tenants were secured within a week of settlement.
- Renovated by Simon and Shannon
- Purchased Oct 2014 for $1,900,000 by investor who will move in when kids older
- Rented for $1,900 per week
- Yield 5.2% (plus $69,000 in depreciation)
With the apartment renting out for $1,350 per week and depreciation reaching $69,000, Valentic says his clients are more or less positively geared.
The tax benefit that comes with purchasing newly renovated, fully furnished apartments is a major cash flow boost for investors.
And although the judges may put a big premium on the rugs and fancy furniture that litter the Block properties, Valentic says the $120,000 or so worth of furnishing aren't a priority for his clients. Instead, they're interested in capital growth, rental returns, and their costs.
"That's what my investors are looking for," says Valentic. "Buying in a bulletproof suburb where you find cash flow positive properties."
Note: This article originally incorrectly stated that Simon and Shannon's apartment was being rented for $1350 per week. This error has been corrected.