The Ultimate Guide To Renovation Course - Module 3: Price Pin Map Exercise

So let's have a look at the price pin map. While slightly less convenient than the Residex report, making a price pin map is an excellent method for identifying areas where pricing disparity is present. All you need is a map and a box of coloured pins. You obtain a list of all the sales in a suburb for a two to three year period. This length of time will depend on your current market condition. If the market has been relatively flat for the last couple of years, then three years worth of data is fine. If there's been significant price movement, then two years of data would be fine. So your results aren't skewed. So now let's take a look at using a Residex suburb renovation report in combination with a price pin map. Now remember, this is all about the search for the holy grail of renovating pricing disparity. Pricing disparity is absolutely crucial to the renovation to sell strategy. Because with this strategy we really only have two of the three Trident strategy tenants working for us. We have buying under the market and renovating to add equity, but we don't have capital growth because we're selling the property within such a short period of time. The first step is to have a map of your selected suburb enlarged. Here I've used a zoning overlay map. So this map shows all of the heritage zones, building zones and any other zones for this suburb. But you could use a regular street map or even a demographics map from census. Instead of showing zones, for instance, the census map could be showing high home ownership areas or high income areas, or even where all the couples with children are living, that is your family buyers. Now, for this exercise, I've selected the Melbourne suburb of Essendon, which has a current median value of $900,000. Essendon has some good private schools and has a healthy demand for renovated properties from family buyers, normally on their second or third home purchase. However, it does have a very low rental yield of about 3%, so it wouldn't fit the renovate to rent strategy. At the time of recording, Essendon, like a lot of Melbourne suburbs, had experienced only a small amount of capital growth over the last three years. But what about the Trident strategy? I hear you say. Well, for this example, that we're pursuing a flipping strategy with a structural renovation. And as we've said before, capital growth is not going to help us out too much because we're buying and selling within a very short period of time. Having said that, you do need to have an exit strategy in place if the property doesn't sell. So make sure you know the Numbers on exactly what your finished property will rent for if, for example, you're forced to hold it. So the next step is to get several years worth of sales data. Because of the recent flat growth, I'll be generating three years of house sales for Essendon. You can ask a friendly real estate agent to provide you with this, or buy a report from someone like Residex, Australian Property Monitors, RP data or the like. Now, to those pins, choose a colour for each price bracket. If you're in the lower market, choose a different colour for each maybe $50,000 increment. If you're in the higher market, say above a $700,000 median, then choose $100,000 increments. In our case, Essendon's median is currently $900,000, so we will use $100,000 increments. So here on the map, you see $900,000 is represented by a mustard coloured pin, 1 million is a yellow pin, 1.1 million is a red pin, 1.2 million is a blue pin, 1.3 million is a green pin, 1.4 million a black pin and 1.5 million is a white pin. Now, everything over 1.6 million is represented by a round, flat yellow pin. It's now just a matter of placing the coloured pins that represent the sold prices onto the map. But before we do that, let's take a look at our Residex renovation report for Essendon. For the sake of comparison, I'm going to highlight the top streets for renovation potential that have been listed in this report. So let's have a look at the first ones. We've got Colymna street with the $900,000 pricing disparity street, we have Lemon Street, Leslie Road with $670,000, Market Street. And jackastrate, $600,000. So they're the streets that we've taken from the Residex renovation report for Essendon. Now, past sale data. Now, it's really handy here to have your list of past sales sorted in street order, as opposed by price. This means that you can complete entire streets one at a time. Now, simply go through the past sales, then address and the amount for each street and start pinning. So here we have Primrose. Now, what have we discovered? Well, as you can see, a little treasure map has emerged. We can now clearly see where the pockets of potential exist in this suburb. See over here, for instance, the street has a large range of colors, but there's some right up to over $2 million and above. It also has some yellow pins around it, so there's potential for A purchase at a yellow and maybe sell at a green. That's over $400,000 in pricing disparity. And here's another area. There's also a good overlap with the streets the Residex report nominated as having the most renovation potential. So we looked at these streets a little bit earlier. There's an interesting comparison to have. The Residex data is a more comprehensive method than just three years worth of sales data because it uses modelling to analyse historical data to arrive at its results. What it doesn't tell us is exactly where in the street that sales data comes from. Maybe it's better to be on one side of the street or at one end of the street. This is very important information to know. So we have now established where the good renovation streets are in Essendon and you could exclusively target this. What you might do is set up a Google alert for those street names or put them on your buying criteria list when you give it to your real estate agents. But take a look at some of these streets over here. There's not much of a spread in value. In actual fact, if you look here, 1 million is a yellow pin, 1.1 million is a red pin. There's little pricing disparity and at all. And it's a higher risk of over capitalization if you were going to take on a renovation here. So you can see how we've built up a picture here. It's been a lot of hard work, but if you're considering flipping as your strategy in particular, then this is the level of suburb due diligence that you must be doing in order to minimise your risk. Now remember, you're not going to have the same capital growth safety net that the renovating to rent strategy enjoys. So for now, happy pinning.