Postmortem of 2019. What Worked and What I Would Do Differently
On today’s episode,
Bernadette is going to talk about the value in reflecting over the year they had, particularly coming to the end of a decade and start to look at the results and adjust their plan accordingly.
Listen to Episode 53: Postmortem of 2019. What Worked and What I Would Do Differently
Podcast: Download (Duration: 32:24 — 31.50 MB)
- The Game Changer Mastermind event
- The Rennie Street project
- The struggles of the JV team
- A full structural reno to a cosmetic reno
- A major shift in the market that helped sell our Rennie Street project
- Having hindsight is a wonderful thing
- The Bondi project
- An Avocado Smash Strategy with son David
- The strata report
- Engaging the right buyers agent
- The right auctioneer
- The highest sale record result
- The Wynnum splitter project
- A very lovely 80-year-old property
- The building report
- Doing a project remotely
- Airbnb saved the day
- The key takeaways of 2019
01:23 - A postmortem of 2019
03:51 - A fact of life
05:55 - A major shift in the market
07:57 - The Bondi apartment
11:00 - A serious buyer objection
13:11 - Engaging the right auctioneer
15:03 - The Wynnum project
18:12 - An open plan
21:00 - Three totally different reports
24:11 - The Factory Floor
26:50 - Planning for 2020
28:18 - Key takeaways of 2019
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"That if you do stay cool, stay calm, assess the situation, and if your plan is solid, things will come right. What goes down must come up."
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Hello, it's Bernadette. And today's episode is entitled "A Postmortem of 2019. What Worked and What I Would Do Differently". Now before I get into this, I have to let you know that Stephen and I are on our way to Prague and we are currently killing time at Heathrow Airport. So I have to apologize if the quality of the recording is not great. But unfortunately, I've done my best to find somewhere quiet enough to do it. And so we'll see how it goes. Plato said that an unexamined life is not worth living. Now I'm not sure. I think he was being a bit dramatic, but I definitely see a lot of value in reflecting over the year that has been particularly when we coming to the end of a decade and you start to look at what your results and adjust the plan accordingly. So that's what I'm going to be doing in this episode. And the other thing that I will be doing is sharing, I guess, some of the struggles that I've had this year. It hasn't been plain sailing. It's been probably one of the toughest years we've had in a while. And so I'm going to give you the insider's view of that as well.
It started off with a thud. The beginning of the year, we completed our Rennie Street project and the Sydney market had taken a complete nosedive. We'd noticed the decline happening for a while and adjusted our plan from a full structural reno to a cosmetic reno to reduce our exposure. However, that wasn't until after we'd completed the development application, so we'd already incurred a significant cost. But we just decided the way the market was going we're better to cut back the plan and reduce our risk. We did go to market and quickly discovered the full extent of the situation. After three weeks, we took the decision to cancel the auction. Going to auction when there's not enough interest can damage your future sales potential. What we didn't want to have happen was end up putting one vendor bid in and that bid going down in the records as the best price that the property could achieve. So we were better to not have a record. And so after a couple more weeks. We took it off the market completely.
If you're going to be flipping, you're going to come up against this situation at some point in your career. It's just a fact of life. The market's fickle and it changes. And if you're continually buying, renovating and selling, this is what happens. Now this project was one that I had done with 3 of our students. It was a bit like a class project. The best offer we received is $1.25M when it was completed, which represented a significant loss. While our agent was telling us it was a strong offer, there was a bit of panic amongst the JV team.
I should mention that in that JV contract, Stephen and I had written into the contract that the profit was shared, but the loss was purely ours, and that's really as a result of our duty of care. So our team was never at any risk of ever losing money on this project, but they were impatient as we all are wanting to move on to the next project. When our kids were doing their HSC, I used to always say to them, if they came across a curly question, something that they won't, couldn't, didn't know the answer to. To stay calm because the presence of mind is a powerful tool and will give them the best result.
I gave this same advice to our JV team. When things don't go to plan you need to stay calm and patient. Having been in the game for over 3 decades, Stephen and I had been there before. In those days, interest rates were in double digits, but the principle was the same. This time, the interest industry was reeling for the bank royal commission and was quivering in its shoes about the election. I felt we needed to get the election results out of the way first. Thankfully, the results worked in our favor. We had record low-interest rates and I knew banks couldn't go on forever with such restrictive lending practices. One thing you can count on is the banking sector's greed and we knew they'll loosen up eventually. We just had to wait.
Fortunately, we didn't have to wait too long. And just before Christmas, I noticed while talking to the local agents, there was definitely a major shift in the market and it seemed like it was going up as quickly as it fell. And so we took that property to market and had it sold in four days for almost $200K more than the best offer we got when we first went to market. So it was sold for $1.407M so what we got right with this project is we definitely got the reno right. Given the conditions, it was absolutely the right decision to cut it back to a cosmetic renovation and the quality of the renovation and the appeal made selling it easy in the right market. So everyone loved it and that made it easier.
What would we have done differently? Hindsight is a wonderful thing. And have we taken that decision to cosmetically renovate upfront? Then we wouldn't have had all this pain. We would have had it off the book quickly before the market decided to do its nosedive. However, I really feel that the exercise actually was worth the pain because it really demonstrated you don't get that education when things are going really well. So it really demonstrated that if you do stay cool, stay calm, assess the situation, and if your plan is solid, things will come right. What goes down must come up. And I think that's universally been the case with property, with the exception, I guess to Perth, it's taken a long time for that market to come up. But I would hasten to add that any areas that were affected by the mining downturn were probably overly reliant on one industry. That's one of the biggest risks when you are purchasing property.
Okay. So the second project was the Bondi apartment. This was an avocado smash strategy that we had done with our son, David. And it was pretty much the same scenario. The market had done the nosedive. If we had taken it to market at that point, it probably would have lost money. And so we decided to hang onto it until the market picked up. Thankfully, once again, that happened within 12 months. And we went to market around it in November. And I guess the things that we got very right in this project is that it was the reno.
So this is a two bedroom, one bathroom apartment on the 5th floor of an eighth-floor building with spectacular views from every window in the apartment. What we did was convert it from a two-bed one-bath to two-bed two-baths. We converted the laundry into a full on-suite and added a walk-in wardrobe. It became a master suite. And we also opened up the kitchen living area. So it was more open plan. In terms of the reno, it was on point. David is our second child and he is an architect now. This is the result of living on building sites since you are 3. He made what I felt was some brave decisions.
One of the things that he did was he chose a really beautiful bathroom tile. It was a hand pressed tile and sage green. I was reluctant to be too out there with it, not while I loved the tile. I would have maybe used it in a feature wall. Actually, it was the same tile that we used in Rennie Street. We loved it so much we decided to use it again. However, David chose to tile all the walls in this tile, which I was a tiny bit concerned about but decided to go with it, see how the market responded to it.
And in actual fact, they loved it. I suspect that the buyers are a little bit tired of the gray and white uniform most bathrooms are wearing and found this a refreshing change. So that was a good result in as far as that was concerned.
Now, one of the things that happened during the renovation of this property is that quite a few large apartment buildings in Sydney and in other capital cities were found to have serious building defects or structural faults. The Bondi apartment building was in the process of having concrete cancer repaired. This is a common repair on properties of this type close to the sea in the eastern suburbs. And of course, required a serious levy, special levy to be raised. We were aware that this may happen prior to buying the property. I guess it was a case of if we don't have to pay it. Great. But if that does happen in our ownership of the property, then we're prepared for it and it did happen. So we paid that levy in advance so it didn't become a buyer objection. What we weren't prepared for was the huge amount of concern around the building on the part of the buyers. That became quite a serious buyer objection. People were really worried about they didn't understand the strata report and they were really worried about what might come up in the future in terms of the maintenance of the building.
How we manage that is we engaged the right agent. We engaged an agent who had the patience to work with our potential buyers and allay their anxieties. And that took a lot of relationship building and also of just patience, really. And so right up until the morning of the auction, he was fielding questions from potential buyers around the maintenance of the building. So it wasn't enough just to hand them the strata report, they buy a strata report. He actually had to go further because the strata report in their eyes was inconclusive in terms of what could potentially crop up in the future. And so he had to go that extra mile. He had to get David to interpret the findings of the strata report to allay their anxieties. And we had confidence in being able to deliver that information because we had made sure that all bases were covered and we were not selling a bunch of nasty surprises to a new buyer.
The other thing we did correctly to ensure a good outcome was we engaged the right auctioneer. So we engaged Damien Cooley up to this point. He is part of our winning recipe. And right up to the day of the auction, we really didn't know how this auction was going to go. But I'm happy to say that everything fell into place. The property achieved a record result. So we bought it for $985K and we sold it for $1.32M. It was the highest price ever achieved in that building to the tune of over $300K. And as a result, we more than delivered on our commitment for David to secure a minimum of $100K in profit. And so that was an awesome outcome.
I'm talking about the lessons we've learned in hindsight. We have made a couple of changes to our modus operandi when we are renovating apartments and they are around the I guess the size of the building that we purchased in up until the Opal building fiasco in Sydney. I felt quite confident about buying in a property of this size. It has 8 floors, it has I think it has 24 apartments in it. But now the new template doesn't go over 3 stories. So we've altered our process as a result of the outcome of that sale campaign, not because we had a bad result, but just because we had a fantastic result. But because I don't want to be dealing with that type of buyer objection again.
Before I get into the third project, you will have noticed that the audio quality has improved. I'm just letting you know that we've now reached our destination in Prague and conditions are much more favourable for recording. So let's get into this. The Wynnum project was our third project and that was a splitter block, which for me was an experimental project. I wanted to, I guess, see what the outcome was of doing a splitter project and also doing it remotely.
So this project had its share of issues. Nothing that we couldn't overcome. But if you're going into this business, expecting it to go perfectly, that's just not going to happen. There are always things that crop up. And I guess the skill is in overcoming them and doing it in such a way that it doesn't entirely trash your budget and impact on the quality of the result. Thankfully, we have been able to produce another renovation that has met our market. So we divided off the land and put that on the market and that sold very quickly. The reno took slightly longer, but still only about 3 weeks to sell.
In terms of the strategy for this renovation, we had a tiny budget. We only had $50K to spend on this house. And it's quite a substantial double brick house. The great thing about this house is its original features is very beautiful, has original ornate ceilings, picture rails, lovely solid timber floors, just a really lovely property. It also had a couple of not so lovely things about it. A rather ugly sunroom additions that had been done to the front of the house. But we decided to spend our money where we could get the biggest impact. Now we didn't have the budget to make serious changes to the exterior of the house, so we decided just to tidy it up and spend our money on the kitchen and bathroom and general cosmetic improvements internally.
Now, one of the big issues with the floor plan was that the kitchen had 5 doors opening into it. So it was really disjointed and had no sense of being the heart of the home. And so we did two things. One, we opened the the wall up between the kitchen and the living room and we also extended the hallway. It seems a bit odd when you describe it into the kitchen. So two of the doors came off the hallway, in fact, three because there was a hallway door, a bathroom door and a bedroom door opening into the kitchen. So they then opened into the hallway and we ended up with a sort of a wide galley style kitchen, which was really nicely integrated into the rest of the home.
And so what that did was, firstly, it created more of an open plan between the kitchen and the living. And it also zoned off the living area on one side from the sleeping areas or the bedroom areas on the other. So all the bedrooms were off that one main hallway, which just gave it. It made it flow much better.
As a result, that property sold well. We did have a couple of issues with, in fact, we had a contract on the property and it was subject to due diligence and the buyer actually terminated the contract based on the building report. Now, there was nothing really unusual in the building report that you wouldn't find in any building report from an 80-year-old property. So it was double brick and structurally sound. However, sometimes you'll get a building inspector who will, I guess, be trying to prove his worth and commenting on just every single thing he found, which, as I say, in an 80-year-old building, this was in the structure. So our changes to the structure were minimal. And his comments were not about the changes to the structure, they were about the existing structure. And I think that, we're selling to first-time buyers and I think that they just got nervous. And so they terminated the contract. But within 2 days, we had a second contract on the building and the building report this time came back totally different.
So all the issues that the first building inspector commented on did not exist in the second building report. It, of course, had different things that they were querying. One of them was the electrical upgrade. So whether we had done that adequately and in actual fact, we had gone over and above what was required. There were changes in the wind around the requirements for smoke detectors. So we took the decision to spend the money and put it a totally new smoke detector system in, that would meet the new code when it came in. Even though we weren't required to do it, we did that. They also were requiring that we do a pest treatment, a white ant treatment to the property, which we did not do. I do think that sometimes they tried on. So we pushed back on that and the buyer accepted regardless. But I guess the thing I got from that was so there were 3 building and pest inspections done on that property. The one that we did when we purchased it, then the 2 that potential buyers did, and there were 3 totally different reports. And one of them was quite damning, damning about items that that have been in existence for almost 80 years. So, yes, you can be derailed through no fault of your own.
Generally we do have a building report done when we are selling the home. But what we do is we have an arrangement where we commissioned the report and potential buyers can buy the report at a reduced cost. And so what that means is that if they have some cause for recourse against that building report after buying the property, they are in a position to be able to challenge the company.
However, if I was to supply the report and just handed over to them and there was something that they wanted to challenge the company on, they would not have the right to do that because they didn't purchase the building report. Now, that's not something that the agent we work with in Queensland does. It's not the way they operate. They actually leave buying the building report to the actual buyer. However, in future, I probably would supply the building report or building and pest to avoid these sorts of issues.
So keep in mind, we make sure that when we take something to market, that we are not selling nasty surprises. That's just something like an integrity thing as far as being renovators is concerned. So it's like certainly wouldn't be doing it to avoid providing or selling property that is not structurally sound, but I'd be doing it to avoid the misinterpretation of the building inspectors and also of the potential buyers actually reading the report. Other than that, I feel that we executed the project well. The reno definitely met the requirements of our potential buyers.
I think with the benefit of hindsight, to do a project remotely, I would make sure that I cleared the deck for a month or so to get the core of the work done, or I would do it with someone who had the capacity to actually be on site. It took too long because I was just too busy. And I guess that's really caused me to really reflect on my workload and how I am. My focus in terms of my projects, I don't regret for one minute. Anything that's happened in the last 12 months. I actually think that challenging times create the most growth. And so from that point of view, I don't regret that at all. But I am looking at my own, I guess, workload. And is this meeting. I guess my goals, my personal goals.
So the saving of the day really was Airbnb. Airbnb allowed us to be able to hold properties that we didn't intend to hold for an extra year. Airbnb provided us with additional income in the form of The Factory Floor, got set up and added in excess of $1000 dollars a week to our cash flow. So once again, that certainly assisted in the decisions that we made. For the course of the year. I've had between 6 and 7 Airbnb listings and I've reviewed that as well. So in my personal review at the end of the year, I've really looked at where my focus is and what I'm putting my time into. And it's important to do that when you are working towards a specific outcome, because otherwise life passes you by.
And one of the things that I know about Airbnb is if you're going to build listings, you need to be prepared to devote a lot of bandwidth to that business, and that's bandwidth that I don't have.
And so another sort of outcome of the 12 months is that I've decided to reduce my current Airbnb listings and then I in the new year, I'll be building them up again, but I'm only going to take my maximum up to 4 other than projects that we're holding for various reasons. But in terms of permanent Airbnb listings, I only want to have four. If I have any more more than that, then I need to outsource the management of them. I know there's a lot of talk about being able to run an Airbnb company off of the beach, you know, off your laptop, which absolutely you can.
But the thing is that that business does need to have your focus. And if you're someone like me that has one, I have you know, I already have a business to run. Plus, I am someone who tends to want to do too much. And I'm really working hard. On paring that back, because if you allow that part of your personality to take over, then it really impacts on your quality of life. And I've certainly at times during this year have really struggled with that. And so I've already done my planning for 2020 and I'll be talking about that in the next episode. So what we are intending what our plans are for 2020 for a new decade.
In terms of our projects is a switch of focus. So I really want to, I guess, put in place some measures for not taking on too much. I can acknowledge that that's a personality trait, one that I'm not in love with and one that I really want to seriously impact in the coming year.
Bernadette's Key Takeaways of 2019
1. TIMING IS EVERYTHING
Like none of this is news, by the way, but I think it's always good to review. And the first one is that timing is everything. And so if you're at a point in your project where the timing's not working, then just be patient. And that's often a difficult pill to swallow for renovators, we're creators, we're impatient. We want to get there yesterday, but just cool your heels.
2. OUR PROCESS & STRATEGIES WORK
Our process works, our strategies work. It's really nice to have that confirmation. So in terms of the avocado smash strategy, in terms of the apartment strategy, I absolutely love doing houses. I haven't done them for a while and the splitter strategy.
3. TAKE CARE NOT TO OVER COMMIT
Managing personal commitment. That's one thing that I haven't done well this year. And it's mainly out of a sense of like just wanting to do so much. But I really need to manage that better. And in the next episode where we're talking about 2020, I'll share a bit about how I'm going about that.
4. INTEGRATE REMOTE PROJECTS WITH OTHER AREAS OF YOUR LIFE
If I'm going to do remote projects, I at least want them to be in the same direction that I usually travel. So you would know I do a lot of trips to Victoria to spend time with my daughter and my mother actually, and doing a remote project when I'm quite time poor and going the opposite direction. I just felt really torn. So that's definitely on the table for review.
5. LIMIT APARTMENT RENOS TO BUILDINGS 3 STORY AND UNDER
In terms of apartment buildings. No reno's in apartment buildings over 3 stories. Of course, that will seriously impact the type of project we renovate, because if you go into a lower building one, you're probably not going to get the views that we had in Bondi and two we're probably looking at a different price point. But I think in the face of the climate, certainly in capital cities around multistory buildings, regardless of their age, I think that's something that I do want to implement in our strategies moving forward.
6. SELECTING THE RIGHT AGENT IS CRITICAL
I haven't talked about this much is getting the right agent for the right project is critical. Now on these 3 projects, we've had 3 different agents and each of those agents. I think was perfect for that particular project. So just making sure that you do that due diligence process and I've spoken about that back in an episode, can't remember the number but will include it in the show notes. Basically how to choose the right agent for your project.
Okay. I guess the other thing that I haven't said is that even though the year has been challenging and some parts of it, I probably wouldn't want to repeat. On the whole, I have loved the ride and I guess I have to pinch myself to know that I am living my dream life and I can't lose sight of that because I think that is such a privilege. And so I want to thank you for taking the time to listen to my ramblings here. I've tried to keep it coherent and I hope that I've achieved that.
Now, if you haven't already left us a review, can I ask that you do that, that you leave a rating and a comment on how you found the podcast so that we can share the reno love. And also, if you've not joined our free Facebook group, She Renovates, please come over. And say hello and I look forward to seeing you there. Okay, so see you next week when we talk about what's going to be happening in 2020.