How to make a quick profit through renovations

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Half a decade ago, renovating property for quick returns was popular with investors and speculators alike, as it virtually always generated a profit.

Rising house prices and a buoyant economy supported the strategy, so it was suitable for all types of investors. Whether you were cosmetically enhancing an inner-city Sydney apartment, or carrying out an extensive overhaul of an old Queenslander in Townsville, renovating was almost always a wise choice.

Now, the heady days of the property price boom are over – for the short-term, at least – but bricks and mortar remain one of the safest investments you can make. And renovating and flipping for fast profits is making a comeback, as sluggish growth in the national real estate market is prompting investors to create their own opportunities to add value.

Where to begin
The key to the ‘renovate and flip’ strategy lies in knowing what improvements to make, in order to generate the highest possible profits.

“What every seller wants is to get back $2 for every $1 spent on fixing up the property,” explains Rob Irwin, author of Fix it, Stage it, Sell it – Quick!.

“One way to make this happen is to do the cosmetic work first – and the best example of this is painting.”

Paint is inexpensive and can instantly refresh a tired, shabby looking property, both inside and out. It’s also something you can do yourself to save on costs, and it doesn’t take too long to execute.

“Even if you hire a painter, chances are you’ll get back much more than you spend here than anywhere else,” Irwin says. “Paint is the ultimate cosmetic fixer.”

Before you even think about dipping a brush into a can of paint, however, you need a plan. Rushing into renovations is the quickest way to fail as there are plenty of issues that can derail your project, blowing out your budget and your renovation timeline, says Luke Woollard, director of Pacific Lifestyle Property.
“You need to plan your project thoroughly before rushing into it,” he says. Thus, your first step is research – and lots of it.

“Begin by researching renovated properties like the one you’re planning to buy, so you can estimate a fair final selling price,” Woollard says.

Next, you need to map out a clear budget, and be realistic about what you can expect to gain. It’s a good idea to research what is happening in the neighbourhood, to make sure your renovation is in line with the market so you don’t overcapitalise.

“I often get three quotes when renovating, and I stick with sub-contractors that I’ve used before and I’m happy with. They usually provide a 'loyalty discount' if I ask, too,” says Woollard.
 
What to buy
The exact type of dwelling you buy, whether it’s a freestanding house, townhouse, unit or duplex, isn’t as important as the individual property’s potential.

You need to assess each property on a case-by-case basis, starting with “problem properties”.

 Problem real estate is usually discounted because the seller usually just wants to get rid of it and move on with their life. Estate liquidations and mortgagee auctions also present strong buying opportunities, as the vendors are often looking for a quick and hassle-free transaction, even if they have to accept a lower price.

If you choose to renovate any type of strata-titled property, be it an apartment, villa or townhouse, you’ll usually need to obtain approval from your strata manager. It can be worth the effort, as there are a number of ways to create value in a strata unit.

“People miss the mark when they fail to see the special opportunities offered by apartment blocks – particularly old ones,” says Peter Cerexhe, author of Smarter Property Improvement.

Cerezhe suggests that investors consider the following with a strata renovation:

  • Enclosing a balcony to create a home office, study or sunroom
  • Making room in the kitchen or bathroom for a washer and dryer, thus creating an internal laundry
  • Adding split system air conditioning
  • Changing the door or windows to improve access to views
  • Adding decorative skirting boards
  • Plastering over ugly ceiling finishes
  • Installing timber floating floors over concrete

Assessing the risks
There are plenty of risks associated with the ‘renovate and flip’ strategy, so remember that your goal is to make money: you can’t afford to get swayed by emotions during the project, as a budget blow out is the quickest way to demolish your profits.

The main risk you face is that you could buy a property, renovate, and then be unable to sell it for a profit – or worse still, unable to sell it at all.

To mitigate the risk of overcapitalising, be realistic about profit margins before you begin. You won’t have much luck selling a home for $1m if it’s situated in a moderately priced neighbourhood, where homes usually sell for around $350,000, and the most expensive house is valued at half a million.

As such you need to properly plan your renovation and its likely costs before you commit to the purchase. If your renovation is complex – as in, it’s more than a dash of paint – then you should consider seeking the assistance of an expert builder. It will save you from committing to a renovation that might cost you thousands more than you expected, which could be the difference between success and failure.

You also need to make sure you get a building and pest inspection built in to your purchase contract as a special condition. The building inspection will pull out any major defects which can become a price negotiation point if you decide to proceed, as often even the sellers don't know about the problems with their property.
 
Finally, make sure you have sought relevant council approval before you begin your renovation, as it can be very expensive to perform rectification work after the fact.

 

Top Suburbs : willoughby east , willliamstown , darlington , st peters , queens park

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1 Responses to "How to make a quick profit through renovations"

  • Macro Building says on 31/10/2013

    I already read your article. I learned a lot from this. People who wants to renovation their house should read this article. Most people just buy some expensive furniture just to make their house look good. There are also times that they buy cheap products to save money. Thanks for sharing.

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