Sep 3, 2018
An insider’s guide to renovating properties for
profit
In today’s show, we’re going to
give you a dose of renovating reality.
Renovation can make your
property more attractive to tenants, reduce your vacancies, and
minimise lost rent.
But it’s important to approach
renovation strategically, so that you maximize the value of your
property, without spending more than you need to.
Today, we’re going to talk about
what works and what doesn’t, and about the common mistakes that
property renovators make.
Things to Keep In Mind When Renovating:
- Avoid
over-capitalising.
Start with establishing a post renovation
market appraisal on the property. Allow for purchase price and any
associated costs, interest, marketing or selling fees and a healthy
buffer and deduct that from the post Reno market appraisal. What's
left is the budget, inclusive of profit for the renovation. As a
rule, keeping the renovation budget to 10% of the market value of
the home is about
- Allow a contingency
amount.
Once a budget is established, allow
a contingency based on your experience level and extent of the
renovation works. Allow a little more if structural works or
there's planning/building approvals required and a little less if
the works are purely cosmetic. Remember, renovating is full of
variables that not allowed for could quickly make your project
unfeasible.
- Tailor the renovation for the
target market.
Becoming an expert in the area by attending
property inspections of similar properties, discussing the
expectations of the tenants with local real estate agents will help
determine the scope of works for your renovation. By knowing what
the market expects, you can tailor the works to suit that market
and therefore not spend on things that may not bring a return on
your dollars.
- First impressions
matter.
Natural light, fresh paint, new floor coverings
and window furnishings go a long way towards transforming a tired
old property into something that will be sort after. Often, it's
the little things that can make or break a successful renovation.
Neutral colours allow tenants to create their own identity with
their belongings. Dominant colours and textures tend to close in
the wall and makes spaces feel smaller than they are.
- Kitchens and bathrooms sell
properties.
Beware diluting your dollar by doing half the
job. When assessing the scope of works for your renovation, keep in
mind that the two big ticket items, the kitchen and bathroom
generally come a package deal. If you renovate the kitchen but
leave the original tired and rundown bathroom, it will devalue the
kitchen, and vice versa. If the budget doesn't allow for both them,
it may be worth deferring renovation works until the budget is
healthier or consider undertaking a smaller refurbishment to
include repainting, floor coverings and window furniture or
air-conditioning to improve the first impression and the feel of
the property.
- Avoid DIY.
Unless you’re a skilled tradesperson, don't get
lured into to misconception that you'll save money by doing the
work yourself. TV shows like the block glamorise and simplify the
renovation process. In most cases, it will cost you the same or
more but always take you longer if you’re doing the work yourself,
therefore resulting in poor finishes, delayed completion dates and
unnecessary holding costs due to the extended completion
times.
- Remove the emotion.
Adding value to an investment property or a
flipper should be run like a business. There's no room for latest
fad in design and you shouldn't be trying to make the cover of
Belle magazine, that's for your own home. The purpose of renovating
investment properties should always be about maximising both the
rental return and capital value of that property.
- Get a good team around
you.
Renovation involves coordinating various
tradespeople all of which are managing a whole lot of other 'jobs'
at the same time. Discuss your schedule and plan for the renovation
and seek their assistance and advice. Remember, they're the
experts. They've done it before and probably seem the mistakes
others have made. By getting close to your trades, you'll avoid
falling into the same trap.
- Stretch.
You normally
get only one chance per property – do it right and don’t
skimp
Links and Resources:
Michael Yardney
Metropole
Greg Hankinson - Director Metropole Constructions
Some renovation case
studies
2018 Property Renovations and Development
Workshop
Some of our favourite quotes from the show:
“Over the years I’ve found that
renovating is full of variables. Things crop up that you didn’t
foresee, and it suddenly makes what looked like it was going to be
a great project not profitable.” – Michael Yardney
“It’s not what you like; it’s
actually what the target market would like.” – Michael
Yardney
“You’re not going to get two
dollars back for every dollar you spend, despite what some of the
magazines and some of the seminars will tell you.” –
Michael Yardney
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