Every month, leading reno expert Cherie Barber answers your questions on renovations. This month Cherie tackles questions on assessing the profit potential of a reno
RENO TO SELL
Question: I'm planning to sell my three-bedroom unit because it’s a little outdated. I’m planning to do a simple cosmetic reno that includes installing new blinds, painting the whole property, updating the carpet, etc. Do you think it’s worth doing all this in the current market? It would seem a waste of time and money when the market is this hot. I’m afraid I won’t be able to recoup my costs by doing this.
Answer: You’re right to think carefully about your renovation approach in a hot market, as the dynamics change. Fierce competition for properties combined with too little stock to satisfy buyer demand makes it trickier to predict prices, as buyers become desperate and will pay above the odds to secure a property. Property prices fluctuate a lot more wildly in a hot market than in a stable one.
However, the basic rules of renovating don’t change. Whatever suburb you’re buying or selling in, you need to establish the pricing disparity between renovated and unrenovated versions of the same type of property.
So in your case, do your research and find out what price renovated three-bedroom units are typically selling for versus unrenovated three-bedders. If there’s a sizeable price difference, then renovate away! If you’ve done your market research and crunched the numbers, you should have a good indication of what your renovation budget should be, what features buyers are looking for (renovated bathrooms and kitchens always rate highly), and a reasonable expectation of what your return on investment will be.
However, if you find the heated market has closed the price gap between renovated and unrenovated properties and there’s little in it, I’d go for a ‘lighten, brighten and freshen up’ strategy, similar to the one you’re proposing. Set yourself a DIY budget of $2,500 maximum and get a fresh coat of paint throughout; replace dowdy old curtains with smart but cheap micro venetians; steam clean or replace the carpets; replace dated light fittings if budget allows; and give the whole place a really thorough declutter and clean. Those kinds of renovation basics will always pay dividends, as first impressions are generally the lasting ones, and a light, bright, sparkling clean apartment is always a crowd-pleaser.
ANALYSING RENO POTENTIAL
Question: What are the most important factors you take into account when buying a property to renovate? How can you tell the property’s reno potential and whether you will make a profit? Can you tell immediately by looking at it?
Answer: After more than two decades of renovating experience I can spot the diamonds from the duds pretty quickly. Here are some of the things that are top of mind as I’m assessing a property:
- I know the approximate price of what things cost to fix – and that is a major advantage. It means I’m not fazed by problems that might scare other buyers off, like concrete cancer or a total rewire job, because I can estimate the cost of repair and factor that in. Having a good idea of costs means I can do a rough crunch of the numbers as I’m walking through a property and know by the end whether there’s profit potential in renovating it.
- I know the big no-noes I would never consider: buying on a main road or beside a railway line, or a house that sits below street level… these are what I call ‘major buyer objections’ and there are a heap of them. No renovation will ever fix them. Move on.
- I look at whether there is sufficient scope for improvement. If you can’t substantially improve a property and uplift its value, whether through a cosmetic facelift or significant structural changes, then it’s not worth bothering with. Older properties offer the best pickings for structurals, as there’s obviously more work to be done; whereas cosmetic renos are well suited to properties of a certain age and style. And you want to be familiar with what type of renovation works for the particular style of property you’re looking at, whether it’s a timber cottage, Federation terrace or brick semi.
- I will have done my due diligence on property prices in that suburb, so I know what price I need to get that property for to make a decent return on investment, once I’ve factored in all my other project costs, and the price of the renovation. If the price isn’t right, I walk away. There’s no better way to erode your profit than to pay too much for a property to start with.
- I’ve confined most of my property purchases to a couple of Sydney suburbs, so I’ve become a real estate expert in those areas. I know the best and worst streets, where heritage restrictions apply, where high and low price pockets are, and what style of home buyers want in my suburbs. An intimate understanding of your local suburbs is key.
These are just a few of the factors (in a long list of criteria) that come into play when I’m assessing a property for reno and profit potential. Knowledge is a powerful tool, and you only acquire it through research and experience. My advice is to become a property expert in a small handful of suburbs, so you become familiar with the things I’ve mentioned above.
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