Renovating an investment property can lead to a tidy profit when done strategically, and has become more popular as property investors seek to create their own opportunities to add value to their portfolio and create capital growth regardless of the market conditions.
These six tips can help you enjoy more success with your next renovation project. Hope they help...
1. Target the right kind of property
Search for investment property opportunities at least 20% below the suburb median price, which is also poorly presented and cosmetically distressed. For example investment property with:
• Poor street appeal
• Tired paintwork
• Dated interiors but with fundamentally good bones
The key is targeting properties with potential that you can make improvements and add value to, for the type of buyer or tenant looking to reside in that area.
Whilst it is hard to generalise, be wary of these warning signs when looking for properties suitable for a renovation.
Roof and Foundations - If the property doesn't look to be in bad shape but has been vacated for a long time, there could be an issue.
Have the roof and foundations checked by a professional to make sure there aren't any structural issues. Not everything can be seen from the outside. Look inside for cracks on the roof or walls which can have been caused by the property shifting due to foundation problems.
Electrical or Plumbing issues can be expensive to fix and can ruin any chance of getting a return on investment from the property. Make sure to have both checked thoroughly by professional building inspectors.
Rotten Boards are another major issue which are hard to spot as paint can be covering them. Check around windows and doors to see if any boards are rotting
2. Understand key suburb and property facts
When considering where to look for properties suitable for a renovation, consider:
• Population demographics
• Inward migration trends
• Median price trends
• Local culture
Before you start on any project, research;
• Current demand for real estate in the area. How long properties are taking to sell and the auction clearance rates.
• The median sales price for similar properties in the area and historical capital growth rates of the location.
• How much similar properties currently rent for in the area.
• The history of the property: on-the-market and sales history, ownership details, recent comparable sales and an estimated market value for the property in its current condition and then after renovations.
3. Plan your renovation and put a budget in place
Once you have targeted the right kind of property in a suburb that matches your buying criteria, put a budget in place to cover the initial cost of the property and the improvements you are planning on making.
You can download a free renovation budget calculator brought to you from Real Estate Investar, to help you keep your budget under control.
Expenses to consider:
• Deposit
• Stamp duty
• Other related costs - solicitors fees, pest and building inspection
• Renovation costs
• Interest repayments during the renovation
• Contingency fund
When you are planning your budget and the profit you hope to achieve you must also be wary of over-capitalising. This is where the cost of your renovation outweighs the market value it will add to your investment property.
Knowing the property's current estimated market value, where opportunities exist to increase its value, and an estimation of the work involved will help keep you on track.
4. First impressions count
Determine who your target market is before you begin renovations and if you decide to sell at the completion of the project, ensure the property still appeals to the market you had in mind.
Don't fall into the trap of trying to do everything yourself. Hire professional contractors where needed.
Renovations do not always have to work towards the goal of immediate selling. You may wish to renovate, revalue and then rent out the property at an increased level of rent.
5. Never put a property on the market that isn't in a finished state
Potential buyers will not look favourably upon a half-finished bathroom, unfinished decks and kitchens without appliances.
6. Selling and gaining and profit
Potential buyers may have looked at the property before you purchased and renovated it. Ensure the changes you have made are noticeable, value adding benefits so you can add value to the property.
• Consider what else needs to be done if you have changed the property's use or functionality. Do you need to advertise the sale to a different market? How will you underline its new features?
• Cover costs - even if the market has slumped since you paid for the property pre-renovations, ensure you cover costs when asking for a sales price and consider the need to take away a real estate agent's commission and other sales costs.
• Consider your new target market. A property that would have originally only appealed to renovators like yourself may now be a great business premises, family home, rental property or holiday home.
• Determine who your target market will be before you begin renovations, and when it comes time to sell, ensure the property still appeals to the market you had in mind, and that your sales pitch makes this evident.
This powerful and simple to use real estate software can help you find, analyse and research investment property opportunities more successfully.
Happy renovating!