Renovating for profit: 5 tips to minimise your risks and maximise your gains.
Property investment is usually considered a long-term investment strategy, however many investors today are much more ambitious and look for ways to maximise their returns in the shorter-term. One popular way to go about it is to use a ‘renovation strategy’ to instantly increase the value of the property. But whilst it’s certainly true that renovating for profit can bring big rewards when it’s done right, it’s not as easy as it sounds and can carry greater risks. If you’ve been thinking about renovating for profit, here’s 5 tips on how to minimise those risks and maximise your gains.
1. Make your profit when you buy.According to renovate for profit investors, this is the golden rule. In order to profit from a renovation project, you need to make sure that you buy the right property at the right price. It is very important that you do not pay too much for the property in the first place, as over capitalising a property is your biggest risk.
Do your research and find out what the property is likely to sell for once it is renovated. Subtract the costs of buying and selling, the costs of your renovations, any taxes you may have to pay, and your profit margin. That will give you a budget for the initial purchase price of the property.
If you can find a property that is at least 20% below market value, then you may be on a winner and it may be worth further investigation.
2. Look for a property that is structurally sound.
In order to maximise your return on your renovation dollar, you should look for a property that only requires cosmetic improvements, like painting, interior layout reorganisation, new kitchens and bathrooms, new carpets and a garden makeover. Such renovations are inexpensive and quick to complete, but they generate maximum buyer appeal and that will help to maximise your profit.
Buyers can’t see structural improvements like a new roof, re-wiring or re-stumping, but these necessary repairs can cost a lot of money and take up a lot of time. You also want to avoid having to deal with expensive problems like termites and subsidence, so make sure you get a building and pest inspection before you buy.
3. Get professional advice about renovation costs.
This is particularly important if you are not a DIY renovator and need to use tradesmen to complete the required work on a project. Making your own “guesstimate” will not make you wealthy! If you plan to add rooms, move walls, put in a new bathroom, and paint the entire place inside and out – you’ll need professional help to get it all done in a reasonable time frame. And if you want to make a profit, you’ll need to know exactly how much this will all cost. While you’re still deciding if the property is a good renovate for profit investment prospect, get the builders in to give you a quote so you can be realistic about how much it will cost to make the improvements you want and find out if that will leave you any room for profit.
4. Make a budget and stick to it.
Over capitalisation is one of the biggest risks in a renovating for profit strategy. Many people don’t operate to a tight budget and it is very easy to overspend if you don’t plan your budget carefully before you start. If things get out of control and you spend an extra $30,000 more than you intended, it is very unlikely that the end value of the property will increase accordingly to pay you back and you may find yourself making a loss.
Getting carried away with your renovations is a common mistake, particularly in the décor department. People often make the mistake of going for expensive fixtures and fittings when a more modestly priced version would do just as well. Buyers will seldom turn away from a property if it does not have a top of the range European cooker, but they will walk away if the asking price for the property is $30,000 more than comparable homes in the area.
5. Get your finance in place for the whole project.
A mistake people often make is to rush in to buy the property without considering where they will get the money required to make the necessary renovations. That’s why you should talk to us – your professional mortgage brokers – before you do anything. We can help you to organise finance suitable for your entire project from the outset, which can help you to avoid a lot of hassle and expense. Finding the right loan for your needs could help you to save money on interest and avoid expensive exit costs when you sell.
If you’re looking to buy a property to renovate for profit, give us a call today. We’ll be more than happy to help you work out your budget and make your plans so you can get started sooner. And we’ll help you to get pre-approval on finance that’s tailored to your budget, project, personal financial circumstances and end goals.