GOLDEN RULES FOR RENOVATING FOR PROFIT
What are the rules you follow to make sure you get the maximum profit for every renovation you do? How do you adjust this to suit a different property or cycle in the market?
As you might know, I run workshops that teach people my eight-step guide to renovating for profit. It’s the road map I’ve developed based on 25 years of renovating, and they’re the rules that apply in any market.
Obviously, I can’t divulge them all here, but I can outline some of the basic principles that will ensure you extract maximum profit from the renovation game.
- Start with loads of research, narrowing down the right suburb to buy in, where there is sufficient pricing disparity to make a renovation feasible.
- You need to know up front that buyers are willing to pay up at the upper price end for renovated properties in that suburb. Otherwise, why bother?
- You need to find the right kind of property to buy and secure it for a price that leaves you plenty of margin to sell or rent it for a profit once it’s renovated (I address this in more detail in the following Q&A).
The process of locating and buying your fixer-upper could take weeks or months, depending on where you’re looking. The renovation itself is about an appropriate spend for maximum impact.
Look for the attention-grabbing strategic changes that will really create an uplift in value – painting and a new kitchen and bathroom are no-brainers, for example. You need to be highly disciplined with your budget, keeping material and labour costs to the absolute minimum required.
I have software I’ve specifically developed for my students which sets the budget appropriate to any given property, itemises all costs and estimates the profit. It’s this level of research and detail that you need in order to take the chance and guesswork out of renovating properties for profit.
These days I tend to focus more on cosmetic renovations, as there’s less risk involved than tackling complex and expensive structural renovations, and the timeframes are obviously much shorter. But whether you’re buying and renovating a fibro house in the outer suburbs or a ’70s unit in the inner city, the basic rules stay the same. Absolutely, there’s a science to it.
WORST TIME TO DO A RENOVATION?
What instance would you consider a bad time to do a renovation? For example, in Sydney, is it still worth renovating when properties are selling so fast anyway?
There’s no ‘bad time’ to renovate. There are just ‘bad choices’. I’ve made money through every property cycle. It all comes down to how smart you are about the suburb and the property you ultimately choose, your strategy, and then how clever you are with the renovation.
And that’s where your intensive research will pay off. In a hot market, people are prepared to pay stupid money for properties, fearing they might miss out. You definitely do not want to be one of those emotional buyers. If you overpay for a property, you’ve broken the number one rule of renovating for profit. You’ve shot yourself in the foot before you’ve even begun renovating.
Every cent you overpay is profit you’ve thrown away, and trying to claw it back during the renovation will be difficult. Some states and markets in Australia are going gangbusters at the moment; others are clearly flattening out.
When the market is flat, it’s a lot easier to buy at the price you need to. You can contol all your other costs as a renovator, which gives you more profit predictability. When the market is hot, this is more difficult – but not impossible. You need to act decisively, make swift decisions, get in early and make offers that are market priced.
Targeting properties that are for sale, as opposed to auction, gives you the ability to negotiate and buy at the price you need to. Sometimes switching strategy from flipping to renting can be very lucrative in turbulent market conditions. It all comes back to your property strategy and where the short- or long-term numbers stack up.
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