On the popular TV reality show “The Block”, contestants in 2017 are seen transforming 5 relocated rundown weatherboard cottages into homes that sell under the hammer for $2.615 – $3.067 million and with each couple walking away with a “profit”. As someone not foreign to renovating old weatherboard cottages around Newcastle for investors prior to becoming a real estate agent, I set out in this article to de-bunk the myth of such quick “12 week” massive profit turn around stories as this…. instead wanting to show that, based on the estimated land purchase price, holding costs, construction costs, selling fees and selling prices alone, these homes ran at significant loss as many previous seasons have! Instead, based purely on realistic estimates, and recognising the significant purchase price for each residence, my conclusion is that (possibly for the first time ever), once the contestants’ winnings were accounted for, that this project actually may have broken even, or run at only a few hundred thousand dollar loss at worst!
One does need to keep in mind that this television show makes it’s money predominately through advertising, ratings and its commercial value, and NOT through property development! In actual fact, the marketing and advertising arm of the business have in previous years clearly needed to compensate the property development side sizeably on some occasions. “Profit” on The Block (in at least my mind) has never been:
end money in – all costs = what is left over as surplus at the end,
but instead the amount of money that the property sells for above reserve (which is what the contestants get to keep, and with the couple receiving the highest amount over reserve also taking away an extra $100,000).
Now, we don’t have all the figures, like what sort of budget the contestants have for each property (although looking at some of the purchases it would be substantial), but we do have some figures… and an intelligent “guess-timate, so let’s look at some numbers:
Purchase price of 46 Regent St, Elsternwick in Dec 2016 (which was then subdivided into 5 lots):
Stamp duty on the purchase above:
Interest re-paid based on $12 million at 4.5%
Estimate for subdivision, development applications (DA) and construction certificates (CC)
Preparation of land for relocation of houses (including preparing piers, driveway lips etc)
Estimate of relocation for 5 weatherboard houses (due to good deal estimated @ $20,000 per property)
Estimate of total construction budget for 5 weatherboard houses (estimated @ $300,000 per property)
Agent commission at an estimated 2.5% of total sale price of 5 houses totalling $14,120,000
Auctioneers (5 x $600)
Marketing budgets for 5 houses (estimated at $10,000 each)
Estimated Total outgoings (ie. the cost of the project):
Total sale price of the five houses at auction ($14,120,000) minus estimated costs ($12,998,490) =
Total contestant prize money purely based from “over reserve” sales prices $1,220,000
Additional $100,000 bonus for winning couple
Once all prize money is accounted for:
Thus, my best guess is that in this season of The Block 2017, there was a total of approximately $1.1 million profit from the complete project based purely on above numbers (translating to be roughly a profit of $225,000 per property), and that once the “over reserve” prize money was given to contestants that the Channel 9 network would have come out roughly neutral or at worst a couple hundred thousand dollars in the red, which is really an exceptional effort considering their profits would be sought through advertising, marketing and sponsorships.
Reality TV providing a win-win for all parties… including, one could also add, Dave Hughes (the comedian), who had a buyers advocate bid at auction for him to secure the highest sale at $3,067,000!!!