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Tips on maximising your renovation profits

A well-calculated renovation can be one of the surest and fastest ways to make money from property, but the trick is often picking the right property to buy. Unfortunately there is no happy “one size fits all” approach to buying and renovating property for profit; instead what is required is an understanding of what style of renovation works for any given property, the correct budget to allocate, and the appropriate purchase and sale price you need to clinch in order to make money on the venture.

Fortunately it is somewhat less of a lottery than it sounds, so here are a few basic pointers to steer you in the right direction.

Location, location, location

You hear it all the time, so ignore it at your peril. Purchase in the wrong suburb or in a bad location, such as right on a busy main road, and you’re risking your profit potential before you’ve even started. Your aim is always to appeal to the majority of buyers, and a major thoroughfare is always going to be a major turn-off, no matter how stunning your renovation. Research suburbs and locations that you know will be popular with buyers and/or renters. Real estate sites and property research services such as RP Data can help with the ground work. Think good amenities and infrastructure, close proximity to public transport and preferably quiet locations.

Buy at the right price

In an overheated market, where prices are steadily escalating and competition is fierce, it’s easy to overpay on a property. Do your research and know what properties are worth in the suburbs you’re looking in. Don’t let emotion or desperation get the better of you. It might take a couple of months to get a handle on what real estate is selling for, and the difference in price between the un-renovated and renovated versions of similar properties. The larger the gap, the greater your potential to make a profit on the renovation. If there’s little difference in price between the two, then you’re looking in the wrong suburb.

Tailor your renovation to the target market

A style of renovation that works for one suburb could be completely wrong for another. And a quality benchmark required for one property would be money down the drain if you broadly applied it to every property you renovated. For example, it would be silly to splurge on expensive stone bench tops for a rental property unless perhaps you were renovating a penthouse overlooking Sydney harbour. Research who your target market is and then tailor your renovation to that market, whether it’s young families (think safety and practical play areas), singles (security) or busy couples who want a low-maintenance property (no expansive lawns or gardens to maintain).

Cosmetic vs structural renovations

 A structural renovation is a big investment of time and money, and will require council approval. It’s not for the faint-hearted. However, it generally offers the biggest potential for profit because the overall investment is higher. Popular options are adding a second storey, extending and opening up the back of the house, or extending out to the side boundary. The aim is to increase the footprint and hence the value of the property.

A cosmetic renovation is much more straightforward and in most cases requires no council approval. It typically includes improvements like painting throughout, new flooring, updated lighting, new window dressings… basically modernising everything so the property looks fresh and new again, inside and out. It can be done very cost-effectively if you shop around for materials, fixtures and fittings to get the best bargains, and negotiate good “tradie” rates.

Kitchens and bathrooms

These are the two areas where you can add huge value. Products like White Knight Tile paint and Laminate paint can transform tiles and cabinetry that are still in good nick but need a serious update. Otherwise, if you’re fully renovating your kitchen and bathroom, carefully budget the two so you don’t overcapitalise, as they can be expensive projects.

Set a budget and stick to it

Talking of budget, this is the most critical part of the process. There are three figures that will ultimately dictate your success or failure: your purchase price, the total cost of the renovation and the price you sell the property for. These are the figures that any seasoned developer or professional renovator will quickly tot up in their head when they are sizing up any piece of real estate. They have done enough property deals and renovations to have a realistic idea of what things cost and the maximum they can spend to still make a decent profit. A large component of my workshops is dedicated to teaching this “financial due diligence”. Novices can clearly go horribly wrong if they underestimate their costs, overcapitalise (ie, spend more than the property warrants) or blow the budget they’ve set. So get several quotes for everything, use the internet to research prices, and carefully cost up every aspect of the renovation.

That’s clearly just the tip of the iceberg, but hopefully a window into the professional world of renovating for profit. Getting it right is no coincidence. It’s a regimented, highly disciplined process that rewards those who put in the research and stick to the game plan!

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