Do-up costs: Our first home, or our false hope?

The Schreuder family won TVNZ's Our First Home. Photo / supplied

Renovation reality TV gives first home buyers unrealistic expectations about the ease of making a quick buck in Auckland's property market, a mortgage broker warns.

Tax, loss of income and the difficulty renovating a house often weren't considered, Loan Market mortgage broker Bruce Patten said.

In a show like TV One's Our First Home, which followed three families as they renovated and sold West Auckland properties they'd bought, he said four people had worked on each house for eight weeks.

University of Auckland taxation expert Professor Michael Littlewood said the profit would be taxed based on the individual who was keeping the money as annual income, at a maximum rate of 33 per cent. "If you buy a house with the intention of doing it up and selling it - and you do it up and sell it - then the gain you make counts as taxable income."

That meant the show's winning family, the Schreuders, could pay up to $62,832 income tax, reducing their $190,400 profit to $127,568, not to mention the potential loss of eight weeks' income for the contestants.

To test Mr Patten's theory that reality television series were far from realistic, the Herald enlisted Michael Chamberlain, director of financial service provider SuperLife, to calculate the cost of renovating and re-selling the Schreuders' Titirangi home over an eight-week period. The property was bought for $480,000 and sold for $721,000. On the surface this was a gain of $241,000, Mr Chamberlain said. But the cost of a builder, renovating the 70sq m home at an estimated cost of $2750/sq m, would be $192,500.

The Schreuder family (left) made a profit of $190,400 on the property at 245 Scenic Drive, Titirangi. Picture / Supplied

"In addition the investor would incur interest costs on the purchase price and the costs of the renovation."

Assuming interest was 7.5 per cent on the entire purchase price and renovation cost, another $15,367 could be subtracted from the profit.

"Overall therefore the investors would have made a profit of $33,133 after the renovation costs and the interest costs," Mr Chamberlain said.

"The investor might have done a cheaper renovation but the labour cost assuming $40 an hour for the four people working on the project would have consumed a significant part of the gain and this is before materials."