Renovating for Profit
If you want to maximise your price when selling or your rent return when investing, renovated properties will always get more money than unrenovated ones.
Whilst the TV shows make it look easy, in reality most people know someone that has a renovation nightmare story, if not themselves, one of their friends or colleagues. Budgets get blown, time frames double and who knows how many arguments erupt between owners, tradespeople and/or neighbours.
It is still possible to renovate on time and on budget and you don’t even have to get your hands dirty, it can be all done from the comfort of your armchair if you know what you’re doing.
Here’s what you need to know:
- Choose properties that need mainly cosmetic work.Avoid properties with structural damage, as this is often when expensive problems occur. If you already own the property you definitely need to leave that part to the experts.
- Find a valuer. One of the biggest misconceptions investors have is that the more they spend renovating a property, the more profit they will make. This isn’t always the case and you need to be careful of undercapitalising as well as overcapitalising. A valuer can tell you if your $30,000 kitchen renovation will actually add $30,000 to your home’s value.
- Be realistic when doing it yourself.If you are adamant about DIY, be aware most novice renovators go under budget when estimating the costs. My tip is to double your expected cost, double the timeframe and then work out if you’re still going to make a profit.
Add up the cost of you taking time away from your main job or family and see if the potential profit outweighs the potential risk.
- Use a project manager. There are too many risks involved in managing a project alone. Some tradespeople capitalise on investors’ lack of experience – in terms of cost, timelines and attention to detail.
Handling the renovation yourself could save money initially, but hiccups along the way might turn your $40,000 renovation into a $60,000 - $80,000 job in the long run – not to mention the added time it might take. Each week you go over time is a weeks lost rent or extra mortgage repayment.
Using a project manager will often get you access to trade prices rather than retail and so it may well pay for itself straight away.
When renovations work well:
If you’ve done your research, if your investment property is purchased well, if the renovations are done correctly and with the right advice, tens of thousands of dollars in equity can be made in the first year alone. Even if the property market hasn’t moved in your local area, renovations can create artificial growth in your properties value.
Is it still possible to make a profit?
Buyers and renters predominantly make decisions based on emotions rather than facts and figures. If you want to maximise the sales price of your property or get the renters to pay you the highest rent in the street, you need to get them to fall in love with your property. If everything looks pristine and if they feel at home straight away, they’d rather pay any price now, than go through the pain of carrying on looking. Once you’ve got it looking great, you then need to ensure you have the best sales agent or property manager possible to get you that premium