There are three reasons why you might renovate a property.
1) to sell it for profit, 2) to rent it out or 3) to live in it yourself.
All three reasons come with their own set of rules for how you should approach your renovations and they certainly come with a different set of rules for how to set your budget. Today, we will just be looking at the first one: renovating for profit.
If you have decided to purchase a property with the sole intention of renovating for profit, then the first rule is to treat it like a business. Take all emotion out of your decisions and try to be black and white. Buy the property, hire a skip bin and get cracking without getting sentimental. Here’s how:
You will need a lot of knowledge before you undertake your first reno project. You will need to have an understanding of the market, know the area that you wish to buy in, know the best priced tradies around, where to hire a skip bin and just how to go about the renovation project from start to finish. If you’ve never done a renovation before and want to get started on a property that you plan to sell for profit, it might be a good idea to seek the advice of experts first. Some places even run courses, but at the very least, sign up to their newsletters and read the information they have on their websites.
When you are purchasing a property to renovate, make sure you buy smart. You will come across a lot of ‘fix up’ properties that might look like a fun challenge, but more often than not they will cost you more money than you’ll make. Get a building inspection done and if you find any structural damage or any major issues, forget about it. You are looking for a place that you can renovate for the lowest cost possible, not one where you need to outlay thousands to fix structure or pipes before you even touch the inside.
Make a budget – and stick to it!
The general rule to creating a budget for renovation is to spend 10% of the property’s value in doing it up. So if you’ve bought a place for $200k, then you should spend no more than $20k on the renovation. It doesn’t sound like much, but renovating for profit often means using simple tricks like a fresh coat of paint and changing door handles, not tearing the place down.
Know what buyers want
The top two most important rooms for homebuyers are the kitchen and the bathroom. If you focus a lot of your energy on these two areas you should find yourself getting a good return on investment.
When you are searching for a property to buy and renovate, choose one with an outdated kitchen and bathroom so you can do some quick fixes. It can be very easy to give the kitchen and bathroom a fresh new look so they are ready for sale. For example; you can paint and retile the rooms and change the doors and handles on cabinetry. You can also swap the old shower curtains for a glass shower screen and replace taps in the bathroom.
Even simply changing the light fittings in both rooms will make a huge difference to the overall effect.
Another way to add instant value to the home is to add a bedroom within the existing structure. If there is room, putting up a gyprock wall won’t break your budget but having that extra bedroom will make a huge difference to the sale price of the property.
Finally, add some touches that will make the property feel like a home. Start from the front fence, where a property buyer will take their first step, by doing some gardening and planting some pretty flowering plants. Change the old letterbox to a new one and add a coat of paint to the front porch.
Watch the clock
If you are renovating for profit just remember: time is money. From the moment the keys are handed to you the clock is ticking. Hire a skip bin and get started immediately! Once you begin, try to be completely finished within six weeks – less if possible. You aren’t renting the property while you are working on it and if you have tradies on site you will be spending money each day instead of making it. This is necessary of course, but the less time spent renovating the faster you can get to the point of selling the property and being financially rewarded for your work.
Speaking of being financially rewarded, if you follow all of the tips above here is what you can expect to get back: 10-15% profit. Not bad for a couple of months’ work all up! Just don’t be tempted to spend your profit. Instead reinvest into your next renovation project and do it all over again.