Unrealised Value – Why You Need To Understand it When Buying A House

UNREALISED VALUE

 

If you are looking to buy a house with the intention of renovating or even improving it in any way, either now or in the future then you need to understand whether it has hidden potential and unlock its unrealised value.

Imagine this, you’ve narrowed the search down to two properties, both tick most of your boxes, they are a similar price, similar locations… exploring or understanding the properties potential as opposed to what it is now is crucial to making a great long term decision and as a result a smarter buy. 

Not understanding this can leave  the potential buyer wide open to possible risk – the risk of buying the wrong house or buying a house that can’t be what you need it to be – there are many hidden things that can impact the renovation/improvement potential of a property and affect its unrealised value.

What is Unrealised Value?

A property’s hidden potential and subsequently its unrealised value lies in its capacity be improved to meet a buyer’s current and future needs. 

These needs will differ from buyer to buyer, but as a general rule, the more scope for change a property has the greater its unrealised value. 

Many find it difficult to see past the peeling paint and outdated fixtures and finishes to imagine the possible hidden gem underneath.

Because, let’s face it not everyone can easily visualise the possibilities a property offers when looking at the house in all its un-renovated glory.

"A property’s hidden potential and subsequently it unrealised value lies in its capacity be improved to meet a buyer's current and future needs."

Missed Opportunities

 

When house hunting, people typically spend most of their time considering the property’s looks, price & location, but more often than not overlook a critical piece of the equation.

They don’t look, or know to look deeper, beyond what they can easily see. ( and usually don’t know that they even need to) 

Without understanding this critical piece however, buyers (and renovators) can be faced with unexpected issues and barriers that could leave them open to shattered or severely compromised dreams, and not to mention, a battered hip pocket.

Many potential home buyers people are missing prime opportunities and sometimes even buying the wrong house because they simply don’t know what to look for. And it’s the things you can’t see that can make the difference.

What You Can’t See Can Make A Difference

They don’t know to look under the covers to see the big picture of the property as a whole  and in many cases only look at the house itself.

But the property as a whole plays a big role, because let’s face it we live indoor /outdoor lives,  land size, orientation, views, neighbours all impact our lives so they need to be considered as part of the equation. 

"It's the things you can't see that can make the difference."

Good solid research and good advice are non-negotiable if you are doing this for the first time and you want it to be successful endeavour.

The Benefit Of Understanding Unrealised Value

Good solid research and good advice are non-negotiable if you are doing this for the first time and you want it to be successful endeavour.

Going back to our earlier example about two similar properties, To understand the difference you need to first explore whether either property has improvement potential (what you can actually do to the property and house) and therefore unrealised value and what each might be.  

In simple terms,  its likely one property will have more potential and less restrictions than the other, so there is the ability to expand or change that house and property in the future to suit your or others (think future owners if you choose to sell) needs. 

 

Unrealised Value Equation Unrealised Value Equation

 

Things You Can’t See But Need To

It’s important to consider the  property and the house as a whole, and explore what it can actually become in the future. 

You need to understand:

  • there are rules and regulations that apply on each and every property, some more restrictive than others, 
  •  that there are site specific factors also that can impact a property, both positively and negatively that can enhance or limit any opportunity for improvement, now or in the future…

And 

  • don’t just look at the house as it is now, it’s important to visualise how these opportunities can impact your current and future lifestyle goals.

Understand that 

The cover is not the book Quote

 

STEP #1 CHECK THE RULES & REGULATIONS

You can’t do what you want on your property and to your house – there are rules and regulations that apply – and some are more restrictive than others.

So Step 1 is to check out your Local Council’s rules.

It’s not hard to find out this information – most councils have it on their websites but the difficulty lies in how it applies to what you want to do and to your property in particular.

 

An important fact to remember is that two properties side by side may have different requirements. And what you could do only months ago may no longer be options.

Step # 2      EACH SITE IS DIFFERENT 

Understand what makes this site unique – look at the pros and the cons.

The house is only part of the picture.  There are other site specific factors (many often hidden) that can impact your renovation dreams. Things like underground pipes, drainage issues, slope to name but a few. We talk about what to look for in our Post. What is Renovation Potential?

Look at the overall property not just at the house.  Block size, slope, orientation, neighbouring land use,  even the neighbours all play a critical role in a homes unrealised value. These are all things that can’t easily be or even be changed.

 

Improvement Possibilities Equation Improvement Opportunities Equation

 

Knowing (Not Assuming) What You Can Do

Knowing for a fact what is possible on the land opens up opportunities to further explore what your options are for improvement allowing you to assess whether the property can actually meet your unique current and future needs. 

Times are a changing and what you or your neighbour, friend, who ever did years or even a year ago may not be possible any more. Each property is unique and has its own unique site specific challenges and issues. It’s important to understand and assess each site individually.

 

Value Will Differ For Everyone

Even so knowing a property’s current and future value, isn’t enough, you also need to take into account your needs and priorities tastes etc… because at the end of the day everybody s ideal house will be different, and so therefore will be the ‘value’ of unrealised potential.

Is it more living space, a swimming pool, open plan living, a home theatre so you can then relate the properties potential directly to your needs.

For example, if your #1 non-negotiable need is room for a large swimming pool in the backyard, the home with less land and hidden underground pipes but the opportunity to easily  raise and build under for extra living space probably has less value to you versus someone whose priority is to easily gain extra living space.

 

Conclusion

With inner city property prices on the rise, and available vacant land on the decline, and increasing protections on inner city houses, buying a house with the intention to renovate or improve it now or in the future is fast becoming one of the few ways to get the home you want in the location of your choice.

Confirming that the house is the right one to meet your future needs before you sign is non-negotiable. Buying and selling a house in Australia is a very costly endeavour. It is a huge outlay, timing is critical and there’s little room for error  – so its critical to make timely. informed decisions. 

Having this information in your arsenal will, early, before you buy a house and certainly before you commit to a renovation or improvement project.

 

Disclaimer
While every effort has been made to provide accurate information, The Zen Reno does not guarantee that this blog article is free from errors or omissions or is suitable for your intended use. It is for information purposes only and expert advice should be sought regarding how this issue might affect your particular project.

Leave a Comment

Your email address will not be published. Required fields are marked *