When you renovate for profit, there’s many factors involved if you hope to come out the other side with extra funds in your pocket – so how do you get it right?
By definition, to renovate is to refresh, reinvigorate or restore. As such, the spectrum is huge when it comes to applying this term to property, and can include anything and everything from a fresh coat of paint to a brand new kitchen. However, if you’re hoping to renovate for profit, there’s a whole new layer of complexities involved.
Once upon a time, home renovations were predominantly embraced by long term homeowners looking to give their abode’s quality a modern boost. These days, the process of undertaking a renovation can also be a very effective means to increase the value of their property, and to ultimately present the home in question in the best possible light to potential buyers.
Some people take it one step further, and specially buy properties that they all but know are guaranteed to make them a healthy return. The latter is usually considered an arena for seasoned veterans, but the reality is that just about anyone can renovate for profit providing that they follow a few golden rules.
The Basics Of Renovating For Profit
One of the most important aspects involved with the practice of renovating for a profit is to avoid overcapitalisation. If you have spent $200,000 on the renovation itself, but only made a $100,000 profit on the bottom line of a sale contract, then your home renovation will have effectively cost you money instead of making it. Instead, experts indicate that you should allow 10% of your property value for your renovation budgets. An example of this is if your home is valued at $700,000, your renovation budget should be $70,000.
Firstly, do your research – and a lot of it. Additions like walk-in wardrobes, wine cellars, natural stone and even swimming pools have a reputation for being renovation flops. In contrast, kitchens and bathrooms are always big hits in terms of determining what and where you choose to invest in when looking to renovate for profit. As a general rule, aim to spend 2% of the current property value on a new kitchen, and 1.5% for the bathroom.
Even then, it’s still crucial to know your audience. A style of renovation that works for one suburb could be completely wrong for another, and you’ll need to decide on who your ideal buyer is – are you renovating to attract a family, retirees looking to downsize, or even a young couple? While renovating to sell is all about removing polarising design characteristics that may eliminate large chunks of the buyers market, at one point or another you need to make choices as to whether you’ll include an office or an extra bedroom in your renovation. Have an in-depth look at the competition – what are similar properties selling for, what features do the higher value homes have, and how long are they sitting on the market for?
Like it or not, the average renovation budget blows out by 80%, and the average slippage on timeline is a whopping twenty months. To minimise your exposure to these unexpected surprises, make an in depth budget from day one, track it as you go, and above all – stick to it. If that means making a project management spreadsheet as well, then do it, because overspending on a renovation is public enemy number one if you’re doing so to turn a profit. Depending on the nature of your reno, you may be required to get a planning permit from your local council, followed by a building permit. Failure to do so can result in hefty fines and even having any amendments demolished, so be sure to do your homework first.
If you’re specifically buying a property to renovate and flip, then the type of property itself also has a huge role to play. If the property in question has no backyard space or room to expand, you’re already limiting the options. Likewise, if you’re paying top dollar for a dwelling, does it come with a glass ceiling in terms of how much you could potentially sell for? There’s often a fine line between purchasing a home that already has pretty strong bones, versus a dilapidated hovel that has all the potential in the world, but only for someone who has the time, energy and funds to do so.
Should you be looking to sell your home or purchase a new one, enlisting the services of a free property advisor like ESPA can often be a game changer, and help you to make informed and educated decisions when it comes to the prospect of renovating to sell in 2022. As an example, your advisor would likely research the property, local agents, check the zoning, evaluate market conditions, and communicate clearly with you regarding all of your options – but where do you find one?
Take The Stress Out Of Selling Property
As a completely free service, Emergency Services Property Advisors provide property advisor services to Police, Fire, Ambulance and S.E.S personnel and their families right across Victoria.
Luke and the team at ESPA are passionate about providing support to some of Australia’s most valued public servants. Along with key industry insights, ESPA also works with a broad range of service providers linked to the real estate industry such as conveyancers, trades, legal practitioners and mortgage brokers.
If you are an emergency services worker looking to potentially buy or sell property in the future, please get in touch with Emergency Services Property Advisors today to discuss how we can turn your real estate dreams into reality, or call Luke directly on 0414 757 705.
