We asked leading reno expert Cherie Barber to answer these reader questions about choosing the right reno project, and what will make the most money: a structural renovation or a quick cosmetic flip?
Q: How do you go about picking the right property to renovate? What are the key due diligence checks you need to do? What is your absolute deal-breaker?
That may sound like a straightforward set of questions, but the answer is not so simple. In addition to the ticklist of dos and don’ts to always follow, you must adapt your strategy to the market and climate you find yourself in. For example, the real estate landscape has obviously changed dramatically over the past couple of years in cities like Melbourne and Sydney.
If you were just relying on old strategies that worked for you when the market was slow and predictable, I suspect you might have either overpaid for properties or missed out because you hadn’t adapted your approach to the demands of a hot market and fierce competition, where you need to act fast and decisively when the right property comes up.
So market conditions aside, there are definitely some key due diligence checks you always need to make. These include:
• Spending time attending open for inspections and monitoring the price of sold properties in your target suburbs so you have an accurate idea of what properties are selling for – both renovated and unrenovated. Without this knowledge, how do you know if a property’s asking price is a fair price? And how do you know what your renovated property is likely to sell for? The difference between these two prices is going to inform how much you need to spend on your renovation to come out the other end with a decent profit.
• Ensuring there is sufficient pricing disparity in those suburbs. If not, and there’s little difference in price between renovated and unrenovated versions of the same type of property, there’s going to be little value in renovating in that suburb. Buyers are not willing to pay the necessary premium to make it financially viable.
• Making sure you can actually do the renovations you have in mind. No point buying a property with potential water views, then finding you can’t put on the second storey you had in mind because planning restrictions forbid it.
As far as deal breakers, I have several what I call “buyer objections” that will rule out a property. These include being located on a busy road, too close to overhead power lines or right next door to an undesirable development. Avoid flaws you can’t fix, like a property starved of natural light or overshadowed by buildings that rule out any privacy. If you really wouldn’t want to live there, chances are most buyers and/or renters won’t either, no matter how fantastic your renovation.
Q: What are your thoughts on the best kind of renovations for making money – cosmetic quick flips or structural renovations?
That really does depend on what your current finances are, your long-term objectives, how much renovating experience you have and what time investment and level of risk you’re willing to take on. For example, I never recommend that novice renovators cut their teeth on a structural renovation.
There are too many costly mistakes that can trip up first-timers, not least of which are underestimating the cost of the works, blowing out time lines through insufficient planning, and failing to pull off a renovation that’s appropriate for that suburb.
And when it’s hundreds of thousands of dollars on the line, rather than the tens of thousand you’ll likely spend on a cosmetic renovation, that’s a lot of risk. On the flipside, there’s generally more money in a structural renovation if you do it smartly and to a disciplined budget, because you’re dealing in higher figures. Greater risk, greater reward.
These days, however, I generally stick with cosmetic renos, as they’re simpler, I can do them to my cookie-cutter template, which streamlines costs, and I get in and out quickly. And whether you’re looking to rent or sell the renovated property, you want to get the job done fast to reduce holding costs.
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